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Does Obama Have His Eye on the Right Economic Crisis?

The top ten economic worries to choose from -- and unemployment's only mid-pack.

In the United States this week, the focus of speeches and political debates will be jobs. It's not surprising. With almost 30 million Americans out of work, under-employed or so frustrated that they've stopped looking for a job, it's the issue that is widely considered to be the game-changer as far as next year's presidential election is concerned.

But as urgent as the jobs crisis is, it is only one of a stunning array of economic crises and potential flashpoints competing for the attention of top politicians and making investors extremely uneasy. You see, the main contagion problem confronting the global economy is not that one of these economic troubles will erupt in one place and spread to other countries -- but rather that there will be a domino effect among these crises, even as each spreads geographically.

Here are the top 10 in terms of their apparent relative urgency and potential global impact at this moment:

10. The U.S. Deficit

This is an issue that has virtually no urgency. That doesn't mean it is not important. It is. But right now, it is at the back of the line and if the U.S. punted on it (as we will) for the next 18 months, it would not be the end of the world -- provided it looks like we really have plans to address the problem and we are aggressively using the moment to produce deficit-reducing growth as best we can.

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9. Brazilian Inflation and Real Estate Bubble

Brazil is overheated. Its currency is overvalued. Money is pouring in while its industrial base is being hollowed out. There are real estate bubbles in Sao Paulo and Rio de Janeiro and other cities, tied to the biofuels boom. And if it looks like the government is losing control of this issue it could spook investors -- and if that that produced a market spike it could have a contagion effect in the region and among emerging markets.

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8. Threat of Middle East Unrest to World Energy Supplies/Inflation

A bigger worry is that upheaval in Syria or elsewhere in the Arab world threatens to spread and oil markets get worried. Or worse, that tensions between Israel, the West and Iran start to spike. Or between Israel and its neighbors over Palestinian statehood. Or due to.... You get the idea. This region is a tinderbox and all sparks risk a spread to energy supplies and costs worldwide. This could trigger unrest elsewhere if it fuels commodity inflation or threatens stability in...

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7. Threat of Chinese Unrest, Bubbles, or Inflation to Chinese Economy

China, where high oil prices have already produced one big truckers' strike this year. Of course, anything that threatens China's growth -- including inflation or the bursting of its own bubbles -- threatens the world. Germany, notably, is dependent on exports to China and since the EU is dependent on Germany, well, you do the math. Right now, most semi-positive outlooks on the world economy are counting on steady, high Chinese growth. If it doesn't happen, if China cools, all bets are off in the EU, the United States, Japan, and global growth as a whole. First sign of that and markets will be spooked.

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6. The U.S. Housing Crisis

Take an aging country with no savings that is depending on the value in their homes to see them through their retirements. Then crush the value of their homes. You would think that would be a priority issue for the U.S. government, especially if that crisis triggered the last banking crisis and the worst recession in three-quarters of a century. But you would be wrong. The crisis goes on, prices remain depressed and consequently Americans consume less. And lots more Americans own houses than are out of work if you're looking for political and consumer confidence impacts. But, still.

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5. The U.S. Jobs Crisis (And Long Term Structural Issues)

The jobs crisis is more urgent for several reasons. First, if the politicians think their futures depend on it then they will focus their efforts on it. That could be good if it were productive, not so good if it weren't (it won't be) and worse if it distracts from other more urgent issues (it will.) The bigger issue than high unemployment rates however, is the sense that they are symptomatic of deeper structural flaws in the U.S. economy. No net new jobs in a decade suggests the United States may be in a Japan-style slump and that the world's market of last resort may not be what it used to be. And that will keep U.S. markets edgy for the foreseeable future. (By the way, America's current performance is misleading. It's actually artificially enhanced: the rest of the world is pouring money into the United States because Japan and Europe are in such deep water. Imagine if there were actually a decent safe haven for that money.)

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4. Global Banking Crisis, Part II (Son of Lehman Brothers)

While this one is tied up in the Eurozone crises (see further down the list) it deserves to stand on its own because most of the big problems with global finance that were revealed in the last crash haven't been fixed. Most haven't even been addressed. There are more too-big-to-fail banks. The stress tests performed on those banks (especially in Europe) have largely been shams. There are more derivatives with more hidden counterparties. The big paychecks and incentives to bend the rules are back. The regulatory regimes aren't much stronger. And a shock from almost anywhere risks taking down a big player and triggering a real bloodletting.

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3. Eurozone Crisis, Part I (Greece and Smaller Economies)

This is the least of the Eurozone's three crises. That doesn't mean Greece is out of the woods. (Look at the huge spreads between say, Greek and German debt for proof of that. Short-term money is through the roof. The market does not believe in the bailouts.) And another round of crisis here -- which could come as the Finns or even the German parliament say, er, no more, not without collateral or something to that effect -- would take skittish markets and send them running to the exits of Europe. Banks could fail. The Eurozone leaders would lose their last shreds of credibility. Other countries could see sell-offs of debt.

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2. Eurozone Crisis, Part II (Need for Structural Reforms)

Of course, the problem with the Greece crisis (as the EU learned from the Iceland and Ireland crises) is that containing it isn't the same as curing it. The EU needs fiscal union. It is not getting there soon. If it doesn't and if the European Central Bank continues to circumvent its rules by buying debt via the back door and if ... well, the point is that bigger than the problem with Greece is the fact that the EU still isn't biting the bullet when it comes to establishing and imposing fiscal discipline or creating a real culture of shared responsibility for one another across intra-European borders. Should markets think that the next victim is not a country but the Eurozone or the euro itself, sell-offs and instability and long-term recession seem likely.

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1. Eurozone Crisis, Part III (Italy, Spain, and Beyond)

The EU stepped in to help Italy. Almost every day since markets have pounded Italian debt. These two countries are huge (Italy is the world's third largest issuer of sovereign debt) and their problems are very different (Spain, for example, has a big real estate problem) and one-size-fits-all solutions won't work. (The one-size-fits-one solutions don't seem to work either.) Right now the biggest problem facing the world is that they start to tremble. If that triggered a new round panic selling in Euro markets that could quickly bring down banks and usher in the Black Tuesday (or Friday or Monday or Wednesday or Thursday) of 2011.

Could we put Japan on this list? Yes, but markets have discounted for its problems already. Could we add a possible collapse of gold prices? Absolutely; that's going to happen someday and it isn't going to be pretty. But when, who knows. Gold's price is a sign of the level of fear in the markets and it seems unlikely that will go away any time soon. Could we include worldwide inflation creeping up? Yes, definitely. In fact, in my view, it's a certainty. Developed countries with big deficits and few stimulative tools in their toolbox have few alternatives. But it probably won't hurt much if it stays moderately low. Still, we've got to watch for it. Could there be a problem someplace else? Well, the troubles of the Swiss franc this week indicate there certainly could. And will be.

So don't obsess about the specifics of the above categories. Don't worry through the order of the list too much. You don't have time. The world economy is in a mess. It's time to be hollowing out your mattress and tucking a few krugerands into your undies. I'm not saying you should panic. Rather, I think you should be prepared. Because the only things we know for certain is that we don't know where the next problem will come from but that wherever that may be, it is more than likely that our political leaders aren't up to anticipating it or managing it effectively.

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The List

The 9/11 Anniversary Reader: Liberals vs. Neocons Edition

Reading the coverage so you don't have to -- from left to right.

For all the talk of how 9/11 brought Americans together, it's hard to think of a more politically divisive event. Conflicts over the meaning of the attacks and the U.S. response remain just as intense today as they were a decade ago, if not more. Here's how liberal, conservative, and libertarian magazines are covering the 10th anniversary.

From the left:

THE NATION

In the lead editorial for their 9/11-themed issue, the Nation's editors lament America's missed opportunity to take advantage of the national solidarity that followed the attacks:

Lost, too, was the chance for a politics built around the kind of social solidarity embodied by those first responders and expressed by the society so moved by their sacrifice. Instead, thanks largely to the administration of George W. Bush, we got a politics of fear that helped launch a long "war on terror," which in turn gave us a lost decade of American life.

Following on the editorial, the pieces in the issue mainly focus on critiquing U.S. overreach in the years following the attacks. Jonathan Schell writes that during the years of George W. Bush's administration, "the foreign policy as well as the domestic politics of the United States were revolving like a pinwheel around Al Qaeda and the global threat it allegedly posed." David K. Shipler calls attention to the loss of civil liberties in the United States over the last decade. David Cole worries that justice has still not been done for victims of torture in the war on terror. Ariel Dorfman remembers another 9/11, the 1973 coup against Chile's left-wing government.

An interesting counterpoint to the Nation's coverage is Christopher Hitchens's latest column in Slate. On Sept. 11, 2001, Hitchens was a columnist at the Nation. But over the next few years, disillusioned by what he perceived as the left's inability to challenge radical Islam, Hitchens broke with the Nation and its fellow-travelers more generally. His new piece, which argues that the defining aspect of the attacks was their evil nature and that "attempts to introduce 'complexity' into the picture strike me as half-baked obfuscations or distractions" shows how deep that divide remains.

THE AMERICAN PROSPECT

The editors of the Prospect, which has emerged as something of a house journal for D.C.'s liberal policy wonks, also argues that post-9/11 America suffers from self-inflicted wounds:

Ten years after the attacks on the twin towers and the Pentagon, the United States is in bad shape, but our problems have little to do with what al-Qaeda did to us. America's troubles stem from what the country has done to itself-or rather, from what our political leaders have done with the nation's power and resources.

David K. Shipler turns up again with a piece on civil liberties, Kim Lane Scheppele looks at 9/11's impact on international law, Beenish Ahmed reflects on what the last 10 years have meant for Muslim Americans, and historian Rick Perlstein turns in yet another piece about squandered solidarity.

Soon-to-be-departing staff writer Adam Serwer manages to find a rare original angle, looking at how the post-9/11 security state contributed to Washington, D.C.'s growing economic inequality.

From the right:

THE WEEKLY STANDARD

In a somewhat uncharacteristically bipartisan move from the magazine that, more than any other, was identified with the Bush administration's neoconservative foreign policy, the Standard begins its 9/11 issue with a lengthy quotation from President Barack Obama along with Gen. David Petraeus, commemorating the sacrifice of "the 9/11 generation": the Americans who joined the armed forces since the attacks.

The issue's cover story, by Charlotte Allen, looks at how U.S. college campuses are remembering the anniversary:

Instead, the campus commemorations, many of which will be spaced out for days and even weeks this fall, will focus on, well, understanding it all, in the ponderous, ambiguity-laden, complexity-generating way that seems to be the hallmark of college professors faced with grim events about which they would rather not think in terms of morality: "Historical and political representations," whatever those are (Harvard), "How do we determine truth and reality?" (more Harvard), and "Imaging Atrocity: The Function of Pictures in Literary Narratives about 9/11" (St. John's University in New York).

And the topic that seems to demand the most understanding, at least in terms of the obsessive amounts of time and resources that college professors and administrators will be devoting to it, is Islam. There will be so many campus lectures, panel discussions, teach-ins, and photo exhibits devoted to the Muslim faith, Muslim communities in America, and the real or imagined violent acts against Muslims in the wake of 9/11 (there has actually been only one revenge-slaying since that date -- of a man who turned out not to be a Muslim -- and the perpetrator was convicted and executed) that if you had just rocketed in from Venus, you might think that Muslims had been the chief victims, not the sole perpetrators, of the massacre that day -- as well as an estimated 67 alleged terrorism incidents or attempts in the United States during the decade that followed.

Elsewhere in the magazine, Matthew Continetti remembers witnessing the attacks as a student at Columbia University.

In keeping with Allen's critique of efforts to "understand" the attacks or put them into context, the Standard seems to have largely taken a pass on providing a big-picture take of the political decisions of the last 10 years and avoids praise or criticism for Presidents Bush and Obama -- on this topic, anyway.

COMMENTARY

If the Weekly Standard editors were more subdued than normal, their fellow neocons at Commentary came out swinging. Abe Greenwald kicks things off with a full-throated defense of post-9/11 counterterrorism policies, including the Iraq war:

Over the course of the 10 years, American authorities foiled more than two dozen al-Qaeda plots. Those averted tragedies were not foremost on the minds of revelers who gathered to celebrate Bin Laden's demise on May 1 at Ground Zero, Times Square, and in front of the White House. But if a mere few of the plots had materialized, those spaces might not even have been open to public assembly.

Not only have U.S. authorities managed to keep America safe from al-Qaeda for a decade; by the time he was killed, Osama bin Laden was barely a leader. Among the items recovered at his compound in Abbottabad were some recent writings, in which the former icon lamented al-Qaeda's dramatically sinking stock and pondered organizational rebranding as a possible antidote.

His growing insignificance as a global player was not the product of chance. The marginalization of the world's principal jihadist was the result of audacious American policy -- indeed, the most controversial and hotly debated policy undertaken in the wake of 9/11. In the words of Reuel Marc Gerecht writing in the Wall Street Journal, "the war in Iraq was Bin Laden's great moral undoing."

Nothing else in the current issue is explicitly 9/11-related, though Joshua Muravchik's piece on the neoconservative response to the Arab Spring and Max Boot's reflection on Robert Gates's tenure as defense secretary certainly touch on post-9/11 themes.

From the libertarians:

REASON

Libertarian monthly Reason's September issue largely eschews politics to look at 9/11 from the perspective of business and culture. Editor Matt Welch argues that the terrorists' biggest mistake was underestimating the dynamism of American capitalism:

On September 5, 2001, The New York Times described a new Kodak ad campaign emphasizing the great picture quality of high-end film. "Low-end film is a commodity," the president of the company's consumer imaging unit explained to the Times, "so we have to trade people up." The share price for Eastman Kodak, itself a two-time target of antitrust lawsuits, closed a bit more than $45 that day. Thirty-one months later the stock was down below $26, and Kodak was unceremoniously booted out of the Dow Jones Industrial Average after 74 years. At press time, Kodak's share price has not been north of $4 since January 2011, when the company, reeling from the disastrous consequences of trying to trade its unwilling customers up, ditched its onetime signature product, Kodachrome.

The business of America isn't necessarily business. It's change. Constant, creative, destructive, entertaining change. As we look back over the last 10 years since that awful, still-indigestible morning of September 11, 2001, it's tempting to make the counterintuitive claim that we're the same country as ever, gossiping about the sex lives of politicians, enforcing no-fly zones against Middle East dictators, tuning in to The Simpsons. Much of that is true. But on a daily basis we vastly underestimate how dynamic America is, particularly in comparison to the aims of the Islamic medievalists who turned commercial aircraft into flying death machines 10 years ago.

The issue also features two interesting pieces on post-9/11 art. Nick Gillespie argues that U.S. artists and entertainers failed to help Americans make sense of the attacks in the years that followed. Shikha Dalmia has a more optimistic piece, positing that Bollywood films may be a greater threat to the future of Islamic terrorism than U.S. military force.

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