Gambling Against the Dollar

By DAVID LEONHARDT
Published: November 1, 2006

A couple of years ago, Robert E. Rubin — éminence grise at Citigroup and the Democratic Party’s economic wise man — decided that the United States dollar was headed for a fall.
Nearly everyone who spends time thinking about the American economy believes that the value of the dollar has to fall at some point.

The United States has been borrowing enormous sums of money from other countries, largely so that American consumers can turn around and buy the computers, clothing and other goods those countries make. Like all borrowing booms, this one will eventually subside. When it does — and foreign investors stop buying so many dollars to lend back to us — the dollar will drop.

With this chain of events in mind, a former colleague of Mr. Rubin’s at Goldman Sachs had been whispering in his ear that anybody who didn’t have 20 or 30 percent of his holdings tied to other currencies was “out of his mind.”

Yet as Mr. Rubin told me last week, his finances at the time were “totally dollar-based.” (As are yours, in all likelihood.) So he decided to bet against the dollar by buying options on other currencies. It turned out to be a very bad bet.

This is a column about why Mr. Rubin’s logic made perfect sense — why it still does, in fact — yet why most people who have made similar bets in recent years have taken a bath. Warren E. Buffett cost Berkshire Hathaway almost $1 billion last year shorting the dollar. On the opposite end of the investing spectrum, I put a small amount of my retirement savings last year into a T. Rowe Price mutual fund that is linked more directly to foreign currencies than most foreign-stock funds are. It has delivered a return of negative 7 percent.

But it really is worth trying to understand what’s going on. In the end, the value of the dollar will go a long way toward determining how well Americans live: which food we can afford to eat, which cars we can buy, which foreign policy we can pursue. As Mr. Rubin says: “It is vitally important. It has the potential to affect all of us.”

The simplest way to explain the problem is to say that the United States has been living beyond its means. Both the federal government and American families have been spending more money than they take in, leaving both in debt. To close the gap between our resources and our spending habits, we have borrowed from abroad. It’s the only option.

The net amount of money leaving the United States — that is, the amount of money we need to borrow back to support our lifestyle — has soared to $800 billion a year. “It’s just stunning,” said Kenneth S. Rogoff, former chief economist of the International Monetary Fund. “It’s unprecedented.”

The big question now is how will the situation reverse itself. It could happen gradually, with other countries slowly reducing their purchase of dollars. This wouldn’t be horrible, as Americans discovered when the dollar dropped in the 1980s. But most of us would be worse off for the simple reason that foreign loans would no longer be letting us live beyond our means.

The other possibility is that an unexpected event — a spike in oil prices, say — could cause foreign investors to cut their dollar purchases sharply, bringing all sorts of economic havoc. Edwin M. Truman, an economist who spent a quarter-century at the Federal Reserve, compares the situation to a merry-go-round that is moving too fast for its underlying mechanics. It gradually loses speed, leaving its riders disappointed but unscathed, or it stops suddenly and throws some of them off their horses.

Whatever the outcome, a decline in the dollar will probably be part of it. That’s why Mr. Rubin made his bet. But the dollar didn’t cooperate. While no longer at the highs it reached in 2002, it has stayed strong. Mr. Rubin ended up losing more than $1 million (which, certainly, he can afford) before getting out of the currency market.

Throughout his career — as an arbitrage trader at Goldman, as the Treasury secretary who led the 1995 bailout of Mexico — he has argued that decisions should not be judged solely on the outcome. Somebody could do a perfectly good job of weighing the relevant risks, make a call that maximizes the chances of success and still not succeed, because the world is a messy, unpredictable place.

Mr. Rubin and the other dollar bears look a little like the skeptics of the real estate boom back in 2005. For years, those skeptics warned that things had gotten out of hand and that reality would soon reassert itself. And for years, they were wrong. The longer they were wrong, the more out of touch they sound.

How is that housing boom going, anyway?

Email: leonhardt@nytimes.com

IHT – Asia Pacific by N.R. Kleinfield published September 12, 2006
CHENNAI, India There are many ways to understand diabetes in this choking city of automakers and software companies, where the disease seems as commonplace as saris.

One way is through the story of P. Ganam, 50, a proper woman reduced to fake gold.

Her husband, K. Palayam, had diabetes do its corrosive job on him: Ulcers bore into both feet and cost him a leg. To pay for his care in a country where health insurance is rare, P. Ganam sold all her cherished jewelry. Gold, as she saw it, swapped for life.

She was asked about the necklaces and bracelets she was now wearing.

They were, as it happened, worthless impostors.

“Diabetes,” she said, “has the gold.”

And now, Ganam, the scaffolding of her hard-won middle-class existence already undone, has diabetes too.

In its hushed but unrelenting manner, Type 2 diabetes is engulfing India, swallowing up the legs and jewels of those comfortable enough to put on weight in a country better known for famine.

Here, juxtaposed alongside the stick- thin poverty, the malaria and the AIDS, the number of diabetics now totals around 35 million, and counting.

The future looks only more ominous as India hurtles into the present, modernizing and urbanizing at blinding speed. Even more of its 1.1 billion people seem destined to become heavier and more vulnerable to Type 2 diabetes, a disease of high blood sugar brought on by obesity, inactivity and genes, often culminating in blindness, amputations and heart failure.

In 20 years, projections are that there may be a staggering 75 million Indian diabetics.

“Diabetes unfortunately is the price you pay for progress,” said Dr. A. Ramachandran, the managing director of the M.V. Hospital for Diabetes in Madras.

For decades, Type 2 diabetes has been the “rich man’s burden,” a problem for industrialized countries to solve. But as the sugar disease, as it is often called, has penetrated the United States and other developed nations, it has also trespassed deep into the far more populous developing world.

In Italy or Germany or Japan, diabetes is on the rise. In Bahrain and Cambodia and Mexico – where industrialization and Western food habits have taken hold – it is rising even faster. For the world has now reached the point, according to the United Nations, where more people are overweight than undernourished.

Diabetes does not convey the ghastly despair of AIDS or other killers. But more people worldwide now die from chronic diseases like diabetes than from communicable diseases. And the World Health Organization expects that of the more than 350 million diabetics projected in 2025, three-fourths will inhabit the third world.

“I’m concerned for virtually every country where there’s modernization going on, because of the diabetes that follows,” said Dr. Paul Zimmet, the director of the International Diabetes Institute in Melbourne, Australia. “I’m fearful of the resources ever being available to address it.”

India and China are already home to more diabetics than any other country. Prevalence among adults in India is estimated about 6 percent, two-thirds of that in the United States, but the illness is traveling faster, particularly in the country’s large cities.

Throughout the world, Type 2 diabetes, once predominantly a disease of the old, has been striking younger people.

But because Indians have such a pronounced genetic vulnerability to the disease, they tend to contract it 10 years earlier than people in developed countries. It is because India is so youthful – half the population is under 25 – that the future of diabetes here is so chilling.

In this boiling city of 5 million perched on the Bay of Bengal, amid the bleating horns of the auto-rickshaws and the shriveled mendicants peddling combs on the dust-beaten streets, diabetes can be found everywhere.

The conventional way to see India is to inspect the want – the want for food, the want for money, the want for life. The 300 million who struggle below the poverty line. The debt-crippled farmers who kill themselves. The millions of children with too little to eat.

But there is another way to see it: Through its newfound excesses and expanding middle and upper classes. In a changing India, it seems to go this way: Make good money and get cars, get houses, get servants, get meals out, get diabetes.

In perverse fashion, obesity and diabetes stand almost as joint totems of success.

Last year, for instance, the MW fast- food and ice cream restaurant in this city proclaimed a special promotion: “Overweight? Congratulations.”

The limited-time deal afforded diners savings equal to 50 percent of their weight in kilograms. The heaviest arrival lugged in 135 kilograms, or 297 pounds, and ate lustily at 67.5 percent off.

Too much food has pernicious implications for a people with a genetic susceptibility to diabetes, possibly the byproduct of ancestral genes developed to hoard fat during cycles of feast and famine. This vulnerability was first spotted decades ago when immigrant Indians settled in Western countries and in their retrofitted lifestyles got diabetes at levels dwarfing those in India.

Now westernization has come to India and is bringing the disease home.

Though 70 percent of the population remains rural, Indians are steadily forsaking paddy fields for a city lifestyle that entails less movement, more fattening foods and higher stress – a toxic brew for diabetes.

In Madras, about 16 percent of adults are thought to have the disease, one of India’s highest concentrations, more than the soaring levels in New York, and triple the rate two decades ago. Three local hospitals, quaintly known as the sugar hospitals, are devoted to the illness.

The traditional Indian diet can itself be generous with calories.

But urban residents switch from ragi and fresh vegetables to fried fast food and processed goods. The pungent aromas of quick-food emporiums waft everywhere here: Sowbakiya Fast Food, Nic-Nac Fast Food and Pizza Hut. Coke and Pepsi are pervasive, but rarely their diet versions.

The country boasts a ravenous sweet tooth, hence the ubiquitous sweet shops, where customers eagerly lap up laddu and badam pista rolls. Sweets are obligatory at social occasions – birthdays, office parties, mourning observances for the dead – and during any visit to someone’s home, a signal of how welcome the visitors are and that God is present.

“When you come to the office after getting a haircut, people say, ‘So where are the sweets?’” said Dr. N. Murugesan, the project director at the M.V. Hospital for Diabetes.

The sovereignty of sweets can pose ticklish choices for a doctor.

Trying to set an example, Dr. V. Mohan, chairman of the Diabetes Specialities Centre, a local hospital, said he had omitted sweets at a business affair he arranged, and nearly incited a riot.

Last year, his daughter was married. Lesson learned, he laid out a spread of regular sweets on one side of the hall and on the other stationed a table laden with sugar-free treats. Everyone left smiling.

In the United States, an inverse correlation persists between income and diabetes. Since fattening food is cheap, the poor become heavier than the rich, and they exercise less and receive inferior health care. In India, the disease tends to directly track income.

“Jokingly in talks, I say you haven’t made it in society until you get a touch of diabetes,” Mohan said. He points out that people who once balanced water jugs and construction material on their heads now carry nothing heavier than a cellphone. At a four-star restaurant, it is not unusual to see a patron yank out his kit and give himself an insulin injection.

The very wealthy have begun to recoil at ballooning waistlines, and there has been a rise in slimming centers and stomach-shrinking operations. In high- end stores, one can find a CD, “Music for Diabetes,” with raga selections chosen to dampen stress.

The rest of urban India, however, sits and eats.

In Madras, workers in the software industry rank among the envied elite. Doctors worry about their habits – tapping keys for exercise, ingesting junk food at the computer. Dr. C.R. Anand Moses, a local diabetologist, sees a steady parade of eager software professionals, devoured by diabetes.

“They work impossible hours sitting still,” he said.

S. Venkatesh, 28, a thick-around-the- middle programmer, knows the diabetes narrative. Much of his work is for Western companies that operate during the Indian night. So he works in the dark, sleeps in the day.

“The software industry is full of pressure, because you are paid well,” he said. “In India, if you work in software, your hours are the office.”

His sole exercise is to sometimes climb the stairs. A year and a half ago, he found out he had diabetes.

Who Should Apologize?
Another view of the Pope-Islam controversy. By Kirsten A. Powers
Web Exclusive: 09.25.06

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The week before last, Pope Benedict cited an ancient text that criticized Islam for being too violent. The Muslim reaction was swift and violent: An Italian nun in Somalia was murdered, four Christian schoolgirls were beheaded in Indonesia, churches were burnt, mosques in Iraq were plastered with posters threatening to kill every Christian in the country, and death threats against the pope were made. Following the pope’s comments, al-Qaeda militants in Iraq vowed war on “worshippers of the cross” and protesters burned a papal effigy. Seems the Pope may have been on to something — but at any rate, he apologized.

Meanwhile, on ABC’s “The View,” Rosie O’Donnell was offering her insight on Islam, arguing that “radical Christianity is just as dangerous as radical Islam.” The audience clapped enthusiastically as Rosie aggressively made her ill-informed and irresponsible case. Christian groups complained. Nobody was beheaded. To date, no mass burnings of A League of Her Own have been reported.

The pope’s comment was ironically borne out by the reaction to it; Rosie O’Donnell’s false analogy was also borne out by the (non-)reaction to it. It seems perhaps the wrong person has apologized.

It’s true that the pope’s views of Islam carry more weight than Rosie’s of Christianity, yet many in the Muslim world have shown that no slight is too small for them to retaliate with violence. Danish cartoons deemed offensive to Islam ignite rioting and burning of embassies. When Christians are mocked or their most cherished symbols desecrated, they put out press releases and engage in boycotts.

NBC just announced that they will be running Madonna’s “Confessions” tour where the Material Girl crucifies herself on a mirrored cross. No worry. Tower Records will not be burnt to the ground for carrying Madonna’s CD, and NBC employees can safely go about their business without fear of death threats from The Catholic League. And the chances of A League of Her Own burnings will still remain remote. Madonna’s publicity machine should have figured out by now that if she really wants to cause a stir, she should insult Islam.

Rosie’s — and apparently “The View” audiences’ — fear of “radical Christians” makes clear they understand neither fundamentalist Christianity nor radical Islam. Whatever criticisms one can make of Pat Robertson and Jerry Falwell — and there are many — fundamentalist Christians are not flying planes into buildings in the name of God, nor are they plotting to blow up ten airplanes over the Atlantic Ocean. Radical Muslims are threatening and slaughtering “infidels” around the world. They murdered Theo Van Gogh and drove a member of the Dutch government into exile for their perceived slights against Islam. In Iraq, they recently kidnapped a Catholic priest and tortured him. They kidnapped and beheaded Wall Street Journal reporter Daniel Pearl. It was reported today that Safia Amajan — a fierce critic of the Taliban’s repression of women — was murdered in the street in Afghanisan. It’s believed she was targeted by Taliban militants because of their opposition to women taking part in politics and education.

In just the last few years, Islamic terrorists have targeted and murdered Westerners in the bombing of the Madrid subway; the bombing of the London underground; and the bombing of an Indonesian night club. They murdered almost 3,000 people on 9-11. They killed 240 U.S. Marines in Lebanon in 1983. In 1993, they bombed the World Trade Center, killing 17 and injuring more than a thousand people. In 2000, they bombed the USS Cole, killing 17 Americans.

In Indonesia, the world’s most populous Muslim nation, there has been ongoing persecution and murder of Christians in an attempt to wipe them out and impose Sharia law. Christians who refused to convert to Islam were killed; those who did convert were separated from their families and forcibly circumcised, without anesthetic. Christian pastors have been beheaded for the crime of being Christian.

Rosie’s beef with Christian opponents of gay marriage would presumably pale should she find herself living in many Islamic countries. Perhaps she missed former Iranian President Mohammed Khatami’s speech at Harvard recently saying that, “Homosexuality is a crime in Islam and crimes are punishable. And the fact that a crime could be punished by execution is debatable.” And he’s considered a reformer. Just being a woman in an Islamic country is enough to get you sent to jail or killed. In Pakistan last week, the parliament was debating whether they should continue to jail women for being raped. In Saudi Arabia, the religious police stopped schoolgirls from leaving a blazing building because they were not wearing correct Islamic dress. Seventeen girls burned alive. Under Islamic law, women who seek a divorce — even from abusive husbands — can still be lawfully murdered by their families in so-called “honor killings.” The U.N. Population Fund estimates that the annual worldwide total of honor killing victims may be as high as 5,000.

Adele Stan argued in these pages that “to throw a rhetorical bomb such as that the pope tossed into the teeming cities of the Muslim world is to commit an act tantamount to violence. It appears to be a taunt designed to provoke a response, and provoke one it did.” It’s a curious world where liberals decline to focus condemnation on a violent reaction perpetrated in the name of a religious ideology (Islam) that jails women for being raped or declares it legal for women to be murdered in the streets by angry male relatives. Even stranger to side against a religious ideology (Catholicism) that has vigorously opposed the Iraq war, torture, the mistreatment of detainees, and the death penalty.

Attempts to falsely equate the Catholic Church and Islam usually lead to a discussion of the Crusades — which, of course, happened in the 11th century. Pope John Paul II renounced them, along with the Inquisition, which ended 200 years ago. The Vatican isn’t out celebrating the Crusades while criticizing Islamic violence. It condemns both. Indeed, according to a Vatican spokesman, the pope believes that that there must be a “clear and radical rejection of the religious motivation for violence.” Thank God someone is willing to say it.

Stan also argued that U.S. military operations in the Middle East are partly to blame for Muslim violence. It’s true the United States has engaged in activity in the Middle East that has stoked Muslim rage. But the idea that Islamic culture would be pristine but for the interference of ugly America is an analysis that ignores how repressive Islamic governments can be even with their own people.

Are U.S. military operations responsible for Islamic governments torturing their own citizens, killing gay citizens; stoning women for adultery; amputating thieves’ hands; murdering schoolgirls who violate Islamic dress or jailing people for “insulting” the government? In 2004, a 16-year-old Iranian girl was hanged in the public square for “crimes against chastity.” Is the United States to blame for that?

The only people responsible for acts of violence against innocent victims are the perpetrators. In this, as in far too many other cases, those perpetrators are Muslims acting in the name of God.

Kirsten A. Powers served as deputy assistant U.S. Trade Representative for public affairs in the Clinton administration and is a New York-based Democratic consultant. In addition, she writes the blog PowersPoint.

Mathematical methods and terrorism: Institute hosts conference this week
Social scientists often overlook the vital role of mathematics in national security and counterterrorism. This week the Institute of World Politics is hosting the Third Conference on Mathematical Methods in Counterterrorism, sponsored by the Rochester Institute of Technology and Stanford University.

Cryptography, game theory and military planning are among the disciplines that demand skilled mathematicians working in close collaboration with professionals in the social sciences. Areas include strategies for detecting terrorist cells, terrorist cell formation and growth, data analysis of terrorist activity, terrorism deterrence strategies, information security, and border penetration and security.

The conference, from September 28-30, is by invitation only but interested parties may make an inquiry about attending to strating@iwp.edu.