Same-Sex Marriage and the Philippines

President Obama recently declared his support for same-sex marriage. This will undoubtably affect the results of the US elections – but exactly how, is anyone’s guess. The same-sex marriage issue has changed a lot in the US since 2004, when George Bush succesfully painted John Kerry as pro-same-sex marriage, and won the election.

One effect of Obama’s declaration has hit the Romney campaign. Bill White, a prominent gay supporter of Romney, withdrew his support and demanded to get his contribution back. He said that Romeny had “chosen to be in the wrong side of history”. He is now supporting Obama.

Prime Minister Cameron of the UK declared that his support of same-sex marriage is not despite his being a conservative, but because he is a conservative. Cameron makes an important point. Same-sex marriage is in reality a conservative demand. In an era when many people have divorces, and others decide to forego getting married in the first place; gays want to get married – and commit themselves to abide by societal conventions in the process.

Philippine Case
While same-sex marriage is not yet an immediate concern for the Philippines, it raises points which are already relevant. Among these would be the question of what to do with gays who do form lasting relationships. Even from a purely legal point of view, it would be a lot more convenient if gay couples could get into something like a ‘registered partnership’ if only for matters like inheritance, medical decisions etc.

At the same time, there should be some changes in the legal status of some heterosexual relationships. Under the principle that “consenting adults who love each other should be allowed to marry”, the country would need to pass a Divorce Law. And, together with this, there would need to be a law that allows unmarried couples who live together to formalize their relationship.

The issue of same-sex marriage also affects the public discourse about gays. Previously, gay rights meant that it is wrong to beat up gays, or to refuse to hire them. Gay rights includes their right to lead a ‘normal’ life, including marriage.

The case of Manny Pacquiao’s comments against same-sex marriage illustrates this point. He was quickly painted as being anti-gay, when all he said was that he was against same-sex marriage. Why? Because now, gay rights  includes the recognition of same-sex couples, and giving them equivalent rights to heterosexual couples. Pacquiao upheld the old version of gay rights.

There could also be an effect on the nature of same-sex relationships themselves. Today, a lot of same-sex couples in the Philippines mimic heterosexual relationships in the sense that one takes on a ‘male’ role, while the other a ‘female’ role. The development of ideas about same-sex marriage will challenge this ‘quasi-hetero’ arrangement. Same-sex partners would then increasingly adopt ‘unisex’ roles.

The whole idea that gays make up a ‘third sex’ should also fade as a result of the discourse on same-sex marriage. With the ‘third sex’ idea, some men claim that they are not gay because they take on the male role in a gay relationship, which is perfectly logical in a ‘third sex’ framework. But with same-sex marriage, the relationship is simply between two men, or two women.

US Elections 101, for Filipinos

The US election process is well under way, with the Republican primaries becoming a fierce battle between four candidates. It is sometimes difficult to follow and understand the process, especially if you are a Filipino thousands of kilometers away. But the US elections could be easily explained to Filipinos.

Candidates
It all boils down to putting Filipino faces on the main candidates.
Mitt Romney‘s equivalent will be Manny Villar. Like Romney, Villar is quite rich, and they both used their own money to finance their campaigns. Both claimed that since they were businessmen, they knew how to run the economy.

Rick Santorum. His Filipino equivalent would be Brother Eddie Villaneuva. They are both conservative Catholics, for whom a conservative stand social issues is important.

Newt Gingrich. His Filipino equivalent is Jose De Venecia. Both have been speakers of the House of Representatives, and are experts in the art of making political deals.

Ron Paul. His Filipino equivalent would be Raul Roco. Both men attract a loyal but relatively small following on the basis of rather sensible policy proposals. Unfortunately, they do not appeal to the broader masses, since their message is more intellectual than emotional.

Barack Obama. He is the only one so far who is sure of really running in the November elections. His Filipino equivalent would be Noynoy Aquino. They have both run based on the emotional appeal for better government: Obama with “Yes we can.”, and Noynoy with “Kung walang korupt, walang mahirap.” People are ready to forgive their policy mishaps because they like them as persons.

Differences
The big difference between US and Philippine elections is mostly in terms of scale (the US is a much bigger country) and the state of technology.

Elections in the US are held every 2 years, and Philippine elections every 3 years. The presidential elections in the US is every 4 years, and every 6 years for the Philippines. In the US, a sitting president could run for a second 4-year term; in the Philippines, the president gets only one full 6-year term.

In the US, when there is more than one person vying to be his/her party’s candidate for president, then they would have primaries to determine which one would run. In the Philippines, candidates have a wide choice as to which party they could run for. Usually, there are more than two parties that field presidential candidates.

Going back to the Republican race: just imagine Manny Villar competing against Brother Eddie Villaneuva, Jose De Venecia and Raul Roco. Who do you think will win? I will put my money on Villar winning that slugging match, with Bro Eddie as second (with the support of the Catholic Church hierarchy). And viola! – this is similar to what is happening in the uS – with Romney leading, followed by Santorum.

It isn’t too difficult to understand, after all.

Israel will Attack Iran Soon

The trend is unstoppable. Israel will attack Iran’s nuclear facilities in a few months. PM Netanyahu and President Obama have finished their ‘talks’ about the Iran issue; but their real positions regarding Iran have not changed.

Hysteria in Israel
Domestically, the Israeli press is whipping up the hype against Iran as an ‘existential threat’ against Israel.  A sober person could say that even if Iran did have a nuclear weapon, it would not be a threat to Israel. An Iranian nuclear weapon launched against Israel, killing thousands, will not only kill lots of Palestinians, it will make Iran an international pariah for a very long time. Despite this, most Israelis believe the threat from Iran is real.

Israeli Foreign Minister Lieberman recently brushed aside Western (especially US) misgivings about their plan to attack Iran. He is probably right in thinking that, for show, the US must publicly disapprove of ‘the plan’, but that it will support Israel in the event of war.

A war with Iran will probably have a limited effect on Israel itself. They do not share a border. Iran’s proxy Hezbollah will be too preoccupied with Syria to attack Israel. For Israelis, war would mean that the US will do most of the fighting, and absorb most of the damage.

Iran Leaders Want War
Iran is probably NOT developing a nuclear bomb. But the threat of a US attack is keeping it from conclusively closing that option. It knows that the US will attack it if it doesn’t have a nuclear bomb. The lesson of Iraq and North Korea is clear: Iraq didn’t have a bomb, it was attacked; North Korea has a bomb, it was not attacked.

So, Iran is now developing a capacity that will allow it to shift to producing a bomb at short notice. Since its access to bomb technology is limited, it may decide to make a bomb anyway by using lower technology and more uranium.

Iran is suffering economically. Soon, international sanctions will bite and cause massive protests against the government. The regime sees war as a possible uniting factor for its people, especially if the war is ‘imposed’ on Iran.

Ironically, economic sanctions make it more attractive militarily to have a war soon. Iran’s military is still quite strong; later, economic problems will sap its strength. Iran reckons that the US will enter the war on Israel’s side, but does not have the resources, nor the political will, to launch an all-out attack. The Iranian government thinks that a war held soon will have a minimal cost.

Iran will continue provoking Israel and the international community. It will make all kinds of destabilizing announcements, war exercises, etc. It will continue hardening potential targets of attack. It will hit Israel targets – mostly outside Israel.

Iran is preparing for war.

Obama Needs a War
The US has informed the Israelis that an attack on Iran now would be ‘ill advised’. This is diplomatic-speak which translates as: “Don’t attack now. Perhaps in the summer.” At the same time, the US says that sanctions need time to work. They are right – sanctions WILL work to stop the nuclear program, but much too slowly for the US.

The US has a big economic problem. It needs the world to concentrate on something other than the problems of the US economy. In 2011, the US hyped up the Euro crisis, exploiting it to the full, even stampeding Americans away from Euro holdings. But the Euro crisis has been solved in 2012. If the US did nothing, the dollar is poised to devalue, and interest rates will soon go up.

So now, the US plans to focus the world on Iran. The US knows that Iran will not do anything to block the Strait of Hormuz – Iran will be harming its own interests if it did so. In a sense, a war with Iran will be a limited one, with some attacks on nuclear installations and the Iranian military. So, the US really thinks that a war with Iran is one which it can afford to wage.

If a war with Iran is timed well, it may have the added advantage of increasing Obama’s chances of reelection.But only is the war is ‘forced’ on the US; a US first-strike will not be received favorably in the US.

Miscalculation
Another reason why a war is inevitable is that the party most likely to start it (Israel) stands to lose the least from this war. The other two parties (Iran and the US) will be the ones really at war. The ‘benefits’ of a war is disproportionately in favor of Israel.

Both the Iranian and US governments see a war as advantageous; but only if they are ‘forced’ into it. They will not do anything to prevent Israel from starting one.

At the same time, both Iran and the US may be underestimating the cost of a war. The Iranians want to unite their country, and maybe even ease sanctions. They would think that a war now will probably lessen chances of a more terrible and damaging war later. They may be wrong. Domestic opposition may still grow, even with a war. Economic sanctions will still bite, pushing people to overthrow the government. Or, the US may extend help to armed opponents of the regime.

The US may also have miscalculated. Even if the Strait of Hormuz doesn’t get blocked, a war will increase world oil prices, maybe even to $200/barrel. High oil prices will severely hurt the US, maybe even triggering a very deep recession.

Americans Inflating Euro Crisis

Americans are aggravating the Euro crisis for their own ends. While there is indeed a problem with the Greek economy, America has made sure that it has developed into a full-fledged Euro crisis.

Euro Crisis?
If the news stories are to be believed, it seems as if the Euro is about to fall apart, and countries will have to revert to their own currencies. This is a myth. In the first place, Greece (and Ireland & Portugal) are small fish compared to the Euro area as a whole, and their problems could not bring the whole currency down. But the main reason why the Euro won’t fail is the strength of the German-France commitment to the Euro. This is something that no American can really understand.

Germany and France see the Euro as the embodiment of their European project, and this means they are committed to it fully. Germany felt the same way about German reunification, and it poured trillions of Euros (then DMs) to make East Germany catch up with West Germany. People were willing to even pay an extra tax just to finance this. The European project is seen by Germans as the thing that ensures the peace and stability of Europe, literally. If the Euro falls, the EU will break up, and a depression and even civil wars may ensue. Germany and France had fought 3 wars with each other, in rapid succession, before the European Community was formed. No sacrifice is too big to prevent this from happening yet another time. There is absolutely no way that the Germans and French will allow the Euro to fail.

Ignorance
America has been doing its best to inflate the Euro crisis. This is due to ignorance, self-interest, and in some cases even malice. Americans are ignorant in that they don’t understand how the EU works. The EU works slowly; but is capable of making huge changes if necessary. EU decision making is a very public affair, with many negotiating positions discussed in the various parliaments and the media. In the end, though, Europe is very pragmatic, and it is actually easier to decide among the 17 members of the Euro-zone, or the 27 EU countries, than it is in the US with its two feuding parties.

In  a sense, the Germans are using the ‘crisis’ for their own ends. The crisis is convenient to force the Greeks to give concessions. But this is part of the public way in which the EU decides on policies. The Germans, and everybody else in the EU, have been using tactics like this since the beginning.

Many Americans, who depend on their 401k funds for their pensions, do not understand the EU dynamics. And they are driven to panic by US  ‘analysts’ and even political leaders who have done their best to inflate the problems with the Euro.

Self Interest
The US government is consciously undermining the Euro in order to stabilize the US Dollar. Because, in the face of the dollar’s instability, to have a stable Euro that could function as a safe haven and even alternative reserve currency would cause a flight away from the dollar. Thus, US government officials are constantly reminding the public (mainly the panicky holders of 401k accounts) that the Euro is in crisis. Obama would say something like: “European countries are as able to repay their debts as America is” – which on face value may pass as some kind of support for the Euro, but which is calculated to remind Americans that investing in the Euro is risky.

Geithner’s supposedly unfortunate comments during the recent EuroFin meeting in Poland (16 & 17 September) is passed as a gaff, but it was perfectly consistent with their policy of overly emphasizing the Euro’s problems. The Euro crisis is just what Washington ordered – as far as they’re concerned, the Eurozone’s crisis should extend at least till after Obama is reelected.

Malice?
There are also those in America who are actively sabotaging the Euro for financial gain. Hedge-fund managers buy CDSs (Credit Default Swaps, financial instruments that ‘insures’ against sovereign default) on bonds from countries such as Spain, Italy or France or sell their bank stocks short. Then they spread rumors that that country’s banks are overexposed to Greek debt.  As a result, the price of the CDS skyrockets and bank stocks fall, and the hedge funds cash in.

Hedge funds have been rightly blamed by European governments for undermining the Euro. Some EU governments have prohibited short selling of bank stocks. The EU and specific countries are investigating the speculation in CDSs. But hedge funds are nimble, and are very difficult to pin down. Hedge funds love doing their dirty techniques against the Euro because they can get away with it. The American public is nervous enough that even small rumors are picked up and could have big effects. Another reason is that hedge funds fear EU investigators much less than US monetary authorities. If they attacked the dollar similarly, they would face far harsher punishment than if the EU catches them.

What Now?
There is now a real Euro crisis, thanks to the Americans. This crisis has depressed the value of the Euro and stock prices. Even though the Euro will not fall, EU governments now have to scramble to control the immediate problems.

While the France-German commitment to the Euro is absolute, this does not mean that they will bankroll Greece forever. They just might opt to have an ‘orderly default’ of Greece, or even kick Greece out of the Euro-zone. After all, Greece didn’t properly qualify to enter the Euro-zone; it had doctored its economic figures to qualify.

But Americans are now being bitten back for their anti-Euro efforts.  Their stock markets (and thus the pensions of millions of Americans) have declined dramatically. International investors and even Central Banks are buying gold at an alarming rate, pushing the gold price ever higher. And the relatively cheap Euro means that the US trade deficit with Europe will only continue to grow. American trashing of the Euro is proving to be only a temporary solution to the US Dollar’s problems. It has led to the US losing precious time that it could have used to decisively address its own problems.

Is US Dollar About to Fall?

The US Congress will have to raise the Debt Ceiling from the present $14.3 trillion by August 2, or else the country would face technical default. But the Republicans are demanding budget cuts be done first; and Democrats are demanding that measures should include increased taxes for corporations and the rich. Both sides are standing their ground, and there is a real danger that the country will indeed default by August 2.

Most probably, a deal will be made at the last minute, and the US can go on merrily increasing its national debt for a few more years. But the question remains: can the US dollar’s credibility withstand such a strain? Will the US dollar fall while Congress debates over raising the Debt Ceiling?

I think that sooner or later, within the next 5 years or so, the US dollar is going to “fall”.  The national debt limit is only part of the problem; the main problem is that the US has a triple deficit – of the budget, trade balance, and payments. And that it has accumulated a huge amount of “unbacked liabilities” in the world – to the staggering amount of $75 trillion.

All proposals on the table will help to reduce the budget deficit, but it will even not be enough to get a balanced budget.  Since there will continue to be a deficit in the coming years, the national debt will continue to grow. And then, there is the trade deficit which also grows from year to year. Thus, all plans now being considered will not improve the US’ capacity to repay its debt.

The world is getting impatient with the dollar, and it seems that US politicians are taking their time at solving it, not realizing that the problem is really urgent.

Signs of Trouble
The problems in the Middle East are all in the news. But the biggest problem with it lies not in Libya or even Yemen – but in the fact that the US dollar has not strengthened in the face of all these problems. Almost always before, when there is political turmoil somewhere, the US dollar gains in value, as money exits that country and goes to the safety of the US dollar. Now, the whole Middle East is ablaze, and the dollar, instead of strengthening, has weakened considerably.

Another sign of impending trouble is that the US, even with “QE2” (the program of the Fed for creating $ 600 B by buying government treasuries) and the extremely low Fed interest rate, faces rising commercial interest rates. QE2 was instituted in the first place to REDUCE interest rates. What will happen after June, when the QE2 program is over? Will interest rates rise substantially, resulting in a rise in unemployment? Will there be a double dip recession? If the Fed makes a “QE3” program instead, will this be enough to hold interest rates down? or will foreign fund managers dump US treasuries instead?

A third sign of trouble is the news that PIMCO, the world’s biggest holder of bonds, has entirely stepped out of US Treasuries. Even worse, PIMCO has resorted to selling US Treasuries short – which means that it even has negative ownership of Treasuries. This shows that US Treasuries are no longer attractive to the wiser international investors. I doubt that many hedge funds keep Treasuries in their portfolios either.

A fourth sign is that when Osama bin Laden was killed, he had with him 500 Euros. He had Euros, not US Dollars, which means that he considered Euros more useful in case he had to escape capture in Pakistan – Euros seem to be more useful in bribes etc. in Pakistan. This shows that even in the underworld, the US dollar is not considered a good currency anymore.

Roots of Crisis
The present crisis has its roots way back in the Bretton Woods agreement, made after the Second World War, to have the US dollar as the world’s reserve currency. Until 1971 the dollar’s value was pegged to the US supply of gold, keeping the US currency in “control”. In 1971 President Nixon let loose the gold peg, making the dollar itself as the only thing in reserve.

The US dollar as reserve currency meant that countries were willing to run a trade and exchange imbalance with the US, since this would mean that they would accumulate US dollars in their reserves. This meant that the US tended to have a structural trade and payments deficit with the rest of the world. This  effectively overvalued the dollar, making its imports cheaper than they otherwise should be. And this contributed to the very high standard of living in the US.

Over the decades, the US steadily accumulated a big debt burden. It is now at $14 trillion, or more than 90% of the US’ annual GDP. Among developed countries, it is only Greece and Japan which have higher debt/GDP ratios. Greece has had its debt crisis, and is now forced to undergo a strict program to get rid of its deficit. As for Japan, most of its debt is to Japanese citizens – and thus the impact of the debt is less than if it was held by foreigners.

The US debt is only part of the “US dollar overhang” in the world economic system; because the bigger part (approximately $60 trillion)  is simply the dollar reserves that countries have accumulated, due to the US trade deficit.  The national debt, in the form of US Treasury Bills, is the smaller part of the problem; but it is the more worrisome part of it, since the US has to pay interest on this.

Stumbling into Dollar Fall
The danger is always present that a country would decide to dump their US treasuries, leading to a chain reaction that sees other countries dumping treasuries, a spectacular rise in interest rates, and the dumping of US dollars from national reserves, and the fall of the dollar. This has not happened so far, since no country will do that consciously and devalue their own reserves. But we cannot depend on this not happening in the future. In fact, I think that the chance of this happening is getting bigger with time.

As more and more dollars are sent abroad, in the form of  US Treasury bills or simply “cash”, the danger that they will no longer be accepted by other countries increases. Already, many countries are calling for an overhaul of the international currency system. Countries have to continuously weigh the advantages of holding dollars against the cost due to the continued watering down of the dollar’s value.

Even if no country would willingly cause the dollar to fall by dumping it, a series of smaller events could push things so that even  minor players could accidentally cause such a fall.  The recent intervention against the Japanese Yen had the inadvertent effect of increasing Central Banks’ reserves of dollars. Central Banks all over the world had to subsequently find ways of restoring their dollar reserves to normal levels. The BRICS agreement to use their own currencies when trading with each other means that less dollars need to be kept as reserves. Eurozone countries intervention to support weaker Euro countries’ finances is another measure that strengthens the euro against a potential fall of the dollar. All these make the dollar weaker. A disruption of the scale of the 2007 sub-prime crisis happening now would surely topple the dollar.

Perhaps it won’t even be a single country or investor which would precipitate the dollar’s fall. It could be simply an accumulation of small steps that would push it over the edge. The US high unemployment rate has “forced” the Fed to keep the Fed Funds rate low, but this at the same time increases consumption and imports, and to further trade deficits.

The US dollar is undergoing something like a game of international “musical chairs”. US-based investors buy securities in other countries, effectively moving dollars abroad; Central Banks sell dollars to prevent their currencies from appreciating; the continuing US budget deficit means that the government has to issue more Treasuries;  foreigners buying US equities or Treasuries effectively returns dollars to the US;  too much incoming dollars could cause inflation, and increase unemployment. The cycle continues, and dollars are passed back and forth from the US and abroad.  A growing number of Central Banks are wary of keeping too much dollars, and this cycle would eventually break down at some point.

Tipping Points
There are a number of occasions or events which could push the dollar over the edge. The Debt Ceiling of the US has been reached, and by August 2 the US Congress has to agree to raise the limit. Not to do so will surely bring about a loss of trust in the dollar, and its subsequent fall.

And then will come the budget discussions later in the year. This is another occasion when confidence in the dollar may be critically damaged.  This will be followed by the Presidential election campaign and possibly a new administration.

At any time, Congress may pass a law imposing a tax on Chinese imports. This will cause Chinese countermeasures, including a stop to buying US Treasuries. And this will be enough to precipitate a chain reaction that will cause the fall of the US dollar.

The US dollar will fall within the next 5 years. While it will cause a deep crisis, it won’t be that bad, in the long run. I wrote a blog post about how it will be Two Years After the Dollar Fall