RUTHFULLY YOURS

The stock-market turmoil is fresh evidence that the central bank must return to market-based monetary policy.

The Federal Reservehas been a crucial bulwark of America’s market economy. Yet with interest rates near zero since the 2008 financial crisis and the Fed now controlling huge swaths of the financial industry, a central-banking approach I call “post-monetarism” has settled in. It’s built on the absurd view that zero rates promote growth and that regulators can replace markets—an immodest dogma that has hammered growth.

In the past, the Fed set boundaries on the banking system mainly by adding and subtracting bank reserves. Banks made new loans if they had enough reserves on deposit at the Fed and thought the loan would be profitable. In the 1960s the eventual Nobel laureate and father of monetarism, Milton Friedman, linked steady growth in money and market-based pricing to faster economic growth.

Under post-monetarism, the Fed has created a massive excess of bank reserves, nearly $3 trillion, to fund its bondholdings. It counteracts the transmission into the economy using huge interest payments to banks and sweeping regulatory controls that have turned the Fed into a superpowerful fourth branch of government. That’s diametrically opposed to Friedman’s deeply American insight that a central bank, if it has to exist, should be modest, and that monetary policy should be predictable and simple enough that businesses concentrate on profits and employees rather than central bankers’ economic forecasts and speeches.

Financial markets have become giddy—but not the old-fashioned way, by sharing in the nation’s rising prosperity. This time, median incomes fell as financial markets rose. The Fed has imposed near-zero interest rates on small savers, channeling trillions of dollars in low-cost credit to Fed-selected beneficiaries, especially governments and large-scale corporate borrowers. The result is helpful for the rich but has been toxic to small businesses and median incomes because underpriced credit goes to well-established bond issuers—not known for job creation—at the expense of savers and small business loans.

The Fed has in effect become the king of banks, able to violate the liquidity, leverage, capitalization and regulatory standards imposed on private banks. America’s financial industry faces a morass of litigation, huge fees and arbitrary capital requirements when they step out of line, while the Fed has piled up a record maturity mismatch—risky short-term debt to fund long-term assets. The Fed’s debt has reached 78 times its equity capital.

The Fed is the kingmaker for the mortgage industry, where it has become one of the world’s biggest mortgage holders, building up the government-sponsored enterprises Fannie Mae and Freddie Mac at the expense of the private mortgage industry.

The process of bringing skilled immigrants to the U.S. via H-1B visas and putting them on the path to eventual citizenship has been a political football for at least a decade. It has long been bad news for those immigrants trapped in this callous process. Now the U.S. economy is beginning to suffer, too.

Every year, tens of thousands of disappointed tech workers and other professionals give up while waiting for a resident visa or green card, and go home—having learned enough to start companies that compete with their former U.S. employers. The recent historic success of China’s Alibaba IPO is a reminder that a new breed of companies is being founded, and important innovation taking place, in other parts of the world. More than a quarter of all patents filed today in the U.S. bear the name of at least one foreign national residing here.

The U.S. no longer has a monopoly on great startups. In the past, the best and brightest people would come to the U.S., but now they are staying home. In Silicon Valley, according to a 2012 survey by Duke and Stanford Universities and the University of California at Berkeley, the percentage of new companies started by foreign-born entrepreneurs has begun to slide for the first time—down to 43.9% during 2006-12, from 52.4% during 1995-2005.

The brain drain from this dysfunctional skilled-immigrant policy has begun. Some of the most thoughtful alarms have been raised by Vivek Wadhwa, the author of “The Immigrant Exodus: Why America Is Losing the Global Race to Capture Entrepreneurial Talent” (Wharton, 2012).

Mr. Wadhwa, who teaches at Duke and Stanford, is particularly worried about the so-called STEM disciplines—science, technology, engineering and mathematics. “Companies like Alibaba and Tencent are a warning signal that it is almost too late,” he tells me. “Either we get back to picking off the best and brightest STEM talent in the world, or someone else will.”

Would the Metropolitan Opera offer a work called ‘The Death of Martin Luther King Jr.’ with racist views in support of the assassination?

The Metropolitan Opera in New York will open its new season Monday by presenting John Adams ’s opera “The Death of Klinghoffer. ” The organization’s decision to mount the production has already spurred protests, with more to come.

A too-brief summary: In 1985 Leon Klinghoffer, a 69-year-old disabled man, and his wife, Marilyn, were passengers on an Italian cruise ship, the Achille Lauro. The ship was hijacked by Palestinian terrorists, who shot Klinghoffer in the head and threw him overboard in his wheelchair.

John Adams is a serious artist, recognized as a leading creator of modern operas. “The Death of Klinghoffer,” first produced in 1991, contains a running debate between the killers—who voice a number of undisguisedly anti-Sematic slurs in the course of justifying their conduct—and their victim. Protesters are demanding that the opera be canceled; defenders couch their position, as has the New York Times , in terms of artistic freedom or—as one letter-writer to the Times put it—of helping us “understand the anger, frustration and grievances of other people.”

So, in Joan Rivers ’s much repeated phrase, can we talk? Some things are easy. Mr. Adams’s opera is protected by the First Amendment and so is the Metropolitan Opera in its decision to offer it. It would be a gross and obvious constitutional violation if government sought to bar the opera from being publicly produced or imposed any punishment for doing so.

Beyond that, canceling any public artistic performance because it expresses unpopular or even outrageous views is dangerous. I represented the Brooklyn Museum when then-New York City Mayor Rudolph Giuliani in 1999 sought to shut it down because he viewed some of its art—I use his language now—as “sick,” “disgusting” and sacrilegious. I argued then, successfully, that the mayor’s conduct violated the First Amendment.

But the controversy over the Adams opera cannot be dealt with by simple reference to the First Amendment or artistic freedom. Those who direct the Metropolitan Opera made a choice when they decided to offer Mr. Adams’s opera, and it is altogether fitting that they be publicly judged by that choice.

On Wednesday the World Health Organization warned of the threat of a global plague, which can cause “vomiting, marked hypocalcemia, metabolic acidosis, convulsions and, in rare cases, even death.” Ebola? No, the WHO culprit is the overconsumption of energy drinks.

The Ebola catastrophe in West Africa has now claimed more than 4,500 lives and the disease continues to spread geometrically, while an outbreak in a major European or North American city would lead to more severe economic dislocation. But the tragedy is also ruthlessly exposing the decay of the once-eminent public institutions that were established to contain such transnational contagions—organizations both international and domestic.

The United Nations-run WHO has long been a growing irrelevance, as director-general Margaret Chan spent the week not in Monrovia but Moscow, pontificating at a WHO conference aimed at raising global tobacco taxes. More disquieting are the failures of the Centers for Disease Control and Prevention and the rest of the American public health establishment, which is supposed to be run by the government’s finest.

Yet on Wednesday it emerged that a second person has been infected with Ebola on U.S. soil, another nurse who treated the Liberian national who died of the virus in Texas. The night before she came down with fever and tested positive, she returned on a flight to Dallas-Forth Worth from a weekend in Cleveland along with 132 other passengers and crew.

CDC director Thomas Frieden said that health-care workers were not under active Ebola observation like the Dallas civilians who may have been exposed, but were instead “self monitoring” for symptoms. They were not supposed to travel on public transportation or commercial flights. Nor could he explain the new cases of transmission except as an unspecified “breach of protocol,” perhaps when they removed hazmat suits.

Ebola, ISIS, Ukraine, a stock-market wipeout—there’s nowhere to hide.

History will mark down 2014 as the year predicted 49 years ago by Martha and the Vandellas. In 1965 the group recorded a Motown classic, “Nowhere to Run, Nowhere to Hide.” We’re there, at the brink.

Liberia, ISIS, Ukraine, Hong Kong, a hospital fighting Ebola infections in Dallas, the year’s stock-market gains obliterated, and I almost forgot—just last week Secretary of State John Kerry warned that climate change could end life as we know it.

Then this week the clouds parted and the year’s best news arrived: Led by Europe’s sinking economies, global economic growth is falling, taking stocks and bonds with it, and the world’s central bankers say they have run out of ideas on doing anything about it.

How this is good news requires explanation.

The annual meetings of the International Monetary Fund concluded in Washington last weekend. This gathering of the world’s finance ministers, central bankers and international financial organizations sets the tone for the direction of the world’s economic prospects.

As the meetings ended Sunday, a WSJ.com headline summarized the consensus: “Governments, central bankers have fewer tools left to revive economies after years of sluggish growth.” European officials are now talking about a “lost decade.” The IMF calls the economic policies in the years after the 2008 financial crisis a succession of “serial disappointments.”

Let’s begin with the first and most significant policy disappointment. The central economic event of the past six years, both as policy and symbol, was the Obama administration’s $834 billion stimulus bill in 2009, the American Recovery and Reinvestment Act. Its explicit purpose was to revive the U.S. economy. How was nearly $1 trillion of additional federal spending supposed to do that?

When Israeli Prime Minister Benjamin Netanyahu spoke at the United Nations on September 29, he had a number of concerns on his mind, but one stood out above the rest. He feared that President Obama was downgrading the struggle against the Iranian nuclear program. “To defeat [the Islamic State] and leave Iran as a threshold nuclear power,” Netanyahu said in the most quotable line of his speech, “is to win the battle and lose the war.”

Netanyahu had good reason to sound the alarm. An examination of Obama’s recent moves in the Middle East reveals that he has exploited the U.S.-led military campaign against the Islamic State (IS) in order to increase cooperation with Iran in matters of regional security. Of course, administration officials dismiss any suggestion that they are “coordinating” with the Iranians militarily. In their next breath, however, they grudgingly concede otherwise—acknowledging, for example, that we provided advance notice to Tehran of the anti-IS coalition’s bombing plans in Syria. They also acknowledge opening “a quiet backchannel” to Tehran in order to “de-conflict” Iranian and American operations in Iraq.

Indeed, “de-conflict” is the favored euphemism of the moment. “No, we’re not going to coordinate,” Secretary of State Kerry said in reference to Iran’s client Bashar Assad and the military campaign against IS. “We will certainly want to de-conflict, . . . but we’re not going to coordinate.”

Too clever by half, this distinction is hardly lost on America’s traditional allies in the region, all of whom regard the Iranian alliance system, which includes Syria and Hizballah, as their primary enemy. Middle East media are replete with stories of backroom deals between Washington and Tehran. Given the enormous gap between what the Americans are claiming in public about Iran and what they are seen to be doing in private, even the false reports carry an air of plausibility.

No less a personage than Ali Khamenei, Iran’s supreme leader, recently joked about the hypocrisy. Emerging from a hospital stay for surgery, he said he’d amused himself during his convalescence by keeping track of the lies of American officials who, while disclaiming any appeals for Iranian assistance, were privately begging for help. Even John Kerry, he delighted in adding, had approached the Iranian foreign minister with cap in hand—the very same Kerry who had piously announced “in front of the whole world, ‘We will not request help from Iran.’”

Ex-presidents seldom take an interest in Jewish affairs, with two notable exceptions: one who has repeatedly clashed with the Jewish community–Jimmy Carter–and one who turned out to be an unlikely ally of the Jews–Herbert Hoover, who passed away fifty years ago this week.

Most ex-presidents have gone quietly into the sunset, and some have taken issue with the few who have chosen to speak out on current affairs. George W. Bush, for example, last week had some strong words for fellow ex-president Jimmy Carter, following Carter’s public criticism of President Obama’s Mideast policies. “To have a former president bloviating and second-guessing is, I don’t think, good for the presidency or the country,” Mr. Bush said.

Much of Carter’s post-presidential activity has revolved around Israel. He has repeatedly taken controversial stands, such as comparing Israeli policies to apartheid, urging the U.S. to withhold aid from Israel to force it to change its positions, and praising Hamas as “a legitimate political actor.”

Douglas Brinkley’s 1998 book The Unfinished Presidency: Jimmy Carter’s Journey Beyond the White House, furnished some embarrassing details about Carter’s relationship with Yasir Arafat. According to Brinkley, Carter “developed a fondness for Arafat” based on his belief “that they were both ordained to be peacemakers by God.” The former president went so far as to personally draft a speech for Arafat that he hoped would “help him to overcome the deficit understanding” for him in the West.

By contrast, Herbert Hoover, as ex-president, repeatedly took positions favorable to Jewry–even when it was not in his political interest to do so.

Palestinian terrorists proved, yet again, that killing Jews is a good business.

Each time their attempt to destroy the Jewish State of Israel is defeated, they get billions of dollars to rebuild and re-arm. Each time they use their own people as human shields, they receive favorable media, which at the same time condemns Israel.Each time the media condemns Israel for atrocities caused by the Palestinians, the “outraged” so-called “world donor community” throws ever-growing funds at the Palestinians. Last Sunday, as an apparent “bonus” toward accomplishing the Palestinians’ goal to “wipe Israel off the map,” representatives from 50 countries and 20 regional and international organizations pledged $1.4 billion more than the $4 billion the Palestinians asked for.

For twenty years the Palestinian Authority (and beforehand, the PLO) constantly misappropriated tens of billions of dollars in donations from everywhere. Instead of developing the economy, their leaders used the money to enrich themselves, their relatives and friends, increase their terrorist base, purchase arms, pay for attacks on Israel, fund future martyrs and their families, and mount international anti-Israeli lobby campaigns.

Former PA Prime Minister Salam Fayyad admitted in 2008-and not for the first time-that controlling Palestinian finances “is virtually impossible.” Besides, promises by Fatah leaders to stop funds for Hamas are doubtful at best. Despite Fatah-Hamas disagreements, the PA’s Fatah-led government has publicly admitted it was transferring 40 percent of international donations to Hamas.

The world body places the blame almost everywhere but at the criminal culprits themselves

While we are looking for terrorists sneaking across borders, lurking in mosques and holed up in caves, pro-terrorist ideology is spreading across America and around the globe — disseminated in plain sight from the United Nations, in the heart of New York City.

Over the past week, the UN’s top legal committee — a General Assembly body where all 193 states are represented — met to discuss terrorism. The webcasts are broadcast globally in multiple languages. The documents are translated and disseminated on a mammoth website free of charge.

It’s a two-step charade. First, since the UN has no definition of terrorism, state sponsors of terrorism happily denounce “terrorism” at the very same time as they promote it. Second, the terrorist funders and weapons suppliers redirect the world’s attention to the supposed “root causes” of terrorism.

Conveniently, the catalog of root causes of terrorism dreamed up in these circles never includes religiously driven bigotry doled out by anti-Semites and misogynist, homophobic sociopaths — whose need to torture, rape and kill requires no deep explanation.

A quick moral inversion, and the terrorist becomes the victim.

The UN was full of such dangerous canards last week.

Talking to NBC’s “Meet the Press” last Sunday, National Security Advisor Susan Rice said the United States would not reevaluate the strategy to “degrade and destroy” the Islamic State of Iraq and the Levant (ISIS or ISIL).
“Strategy’s very clear,” she went on. “We’ll do what we can from the air. We will support the Iraqi security forces, the Kurds, and ultimately over time, the moderate opposition in Syria to be able to control territory and take the fight to ISIL. We’ll do our part from the air and in many other respects in terms of building up the capacity of the Iraqis and the Syrian opposition, the moderates.”

As for the specific elements of this “strategy,” I’ve dealt with them in some detail a month ago and en general last week. Let us summarize: The Iraqi security forces are in no better shape now than they were last June, when they spectacularly disintegrated in Mosul and Tikrit, and they will not be capable of conducting serious anti-IS operations in the foreseeable future. If a decade of American training, arming and equipping them, at an exorbitant cost to U.S. taxpayers, has not done the trick so far, there is absolutely no reason to believe that they will undergo a spectacular transformation in the years to come – whatever the name of the present or future Iraqi prime minister. The Kurds are on the verge of losing Kobani, and they are embittered over Turkey’s inaction and insufficient U.S. support. Their only goal, reasonably enough, is to hold on to what they control. They will never conduct complex anti-IS operations outside their ethnic areas, even if they were theoretically able to do so. The “Syrian moderates” do not exist. Advanced weapons systems delivered to them so far – notably guided anti-tank missiles – have been passed to the IS in pristine condition. That will not change.