The battle over China's role as an investor in U.S. government bonds is taking ever more bizarre turns. According to the New York Times, China's Prime Minister, Wen Jiabao, warned the United States about running large deficits and inflation, saying that protecting the value of the dollar is a matter of "national credibility" for the United States.

The NYT then quotes Mr. Wen as saying: "any fluctuation in the value of the U.S. currency is a big concern for us. ... I hope the United States will take concrete steps to reassure investors. It is not only in the interests of the investors, but also the United States itself."

Mr. Wen is apparently badly mistaken about the assets he is buying. Not only is there a serious risk that the value of the dollar denominated assets (like government bonds) that he is buying will fall, it is an absolute certainty. Anyone with any understanding of the U.S. economy can assure Mr. Wen that he will lose money on his investment in the U.S. economy; the dollar will fall in value. If he is concerned about this prospect, then he absolutely should take China's money elsewhere, and let the dollar fall against the yuan now.

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What is Barack Obama trying to do, and why? David Brooks has his answer, and I have mine. Brooks' Friday column was prompted by theories of Obama that have taken hold on the right and left -- the latter viewing him as an over-cautious empty vessel of a politician who doesn't stand for anything.

My own theory is pretty straightforward. The animating drive of this presidency is to summon, as Powdermilk Biscuits promise, "the strength to get up and do what needs to be done." I look at the agenda of priorities, and they look like the urgent problems that demand solutions, sooner rather than later. The aim is to respond to this historical moment for reasons of responsibility, not destiny or posterity. The rallying call is to do something because of the consequences of not doing something. Let's keep ourselves from, years from now, looking back and regretting things we allowed to get worse. And really, is that so wrong?

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This speech was delivered at Columbia University, on March 11th, 2010.

The New York Times reports today that the Secretary of State really let Netanyahu have it in a 43 minute conversation yesterday. She told him, among other things, that Israel's latest actions and insults constituted a "deeply negative signal" that put the "bilateral relationship at risk." Netanyahu, obviously an emotional wreck over this debacle, swore up and down that he was shocked, shocked that the settlement expansion was being announced. Nobody told him. But, he also made clear, he's not backing down.

This followed the "condemnation" of Israeli behavior by Vice President Biden and White House press secretary Robert Gibbs. Both Biden and Clinton emphasized that they were speaking for the President.

For an old pro-Israel type like me, this is tough. I am delighted beyond words that America is finally standing up to Israel's appalling behavior toward the Palestinians and, even more, that we are finally telling the Israelis that kicking their creditor and only significant ally in the teeth is intolerable. I mean $3.5 billion a year in aid which only increases as we cut every domestic program.

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Are we finally in a recovery? Who's "we," kemosabe? Big global companies, Wall Street, and high-income Americans who hold their savings in financial instruments are clearly doing better. As to the rest of us - small businesses along Main Streets, and middle and lower-income Americans - forget it.

Business cheerleaders naturally want to emphasize the positive. They assume the economy runs on optimism and that if average consumers think the economy is getting better, they'll empty their wallets more readily and - presto! - the economy will get better. The cheerleaders fail to understand that regardless of how people feel, they won't spend if they don't have the money.

The US economy grew at a 5.9 percent annual rate in the fourth quarter of 2009. That sounds good until you realize GDP figures are badly distorted by structural changes in the economy. For example, part of the increase is due to rising health care costs. When WellPoint ratchets up premiums, that enlarges the GDP. But you'd have to be out of your mind to consider this evidence of a recovery.

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Ever since Barack Obama's election in 2008 there has been an ongoing discussion of where the political center is in America. Conservatives and Republican leaders have made the contention that this is a Center-Right country and that the Reagan Revolution of the 1980's permanently shifted the political center of gravity to the right. I think this is a misreading of the current mood and strangely enough, conservative pundit David Brooks helps make my argument this morning in describing the politics of our President.

The fact is, Obama is as he always has been, a center-left pragmatic reformer. Every time he tries to articulate a grand philosophy -- from his book "The Audacity of Hope" to his joint-session health care speech last September -- he always describes a moderately activist government restrained by a sense of trade-offs...

He has tried to find this balance in a town without an organized center -- in a town in which liberals chair the main committees and small-government conservatives lead the opposition. He has tried to do it in a context maximally inhospitable to his aims.

So let me take two issues to elucidate why I think the majority wants a "moderately activist government"--a center-left coalition.

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My apologies for my disappearing post on Dan Senor. Everyone hated it so I went in to fix it and hit "unpublish" and it was gone. I figured I would get right back to it but I went out drinking with my friends in Dupont Circle instead and didn't get home til 1 AM.

Here is everything anyone needs to know about Dan.

He was my intern on Capitol Hill in 1990 after I succeeded George Stephanopoulos as Congressman Edward Feighan's chief-of-staff. (Feighan's a great guy but his chief-of-staff trajectory was all downhill after George) Senor was a liberal Jewish kid from Cleveland. Smart, funny and a great magician.

But then his older sister married a rightwing Republican senate aide. And younger brother instantly idolized him (kind of a boring Washington version of the relationships between Jake Gyllenhaal, Maggie Gyllenhaal and Peter Sarsgaard except without all the "a's").

This is relevant, the Gyllnhaals being Jewish and all!

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The announcement by Israeli Interior Minister that Israel is building 1600 more housing units in East Jerusalem made during VP Biden's visit was probably not an accident--hard to imagine otherwise. But, not simply because Eli Yishai, the Minister, wanted to embarrass the VP; also because he honestly has little interest in listening to any elected official--from his own Prime Minister to our nation's VP. That's because, as a leader of Shas, the ultra-Orthodox party, he answers to a higher power. And, the building is for his constituents: ultra-Orthodox Jews who, ironically are not Zionists and don't consider Israel a true state until the Messiah himself (it will be a him, in their mind; not a her for sure) lands on the holy ground himself.)

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We are told that President Obama has taken a leap of political faith in trying to bridge a final peace settlement between Palestinians and Israelis. The United States' new weapon is "proximity talks": if either side fails to meet American expectations, the US will squarely and publicly lay blame. If this was a sitcom it would be the opportune time to crack up laughing; regretfully this is not the case. Real people - whole generations - of Palestinians are on the verge of being locked into another decade of protracted and violent military occupation. Many Israelis' lives and hopes are at stake as well.

It has been reported in Ha'aretz that President Obama submitted a letter of commitment to the Palestinian side to get these indirect "proximity talks" off the ground. The letter notes, "Our core remains a viable, independent and sovereign Palestinian State with contiguous territory that ends the occupation that began in 1967." This is not the first time a US administration has used its creativity in creating new terminology to deal with the conflict instead of relying on the time-tested body of international law that provides the keys to real progress. In the past, in place of "independent state" the US has attached such adjectives to the word "state" as "contiguous," "viable," "economically viable," "territorial continuity," and the like. In his use of words, President Obama has just picked up where the failures of past administrations left off.

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In his survey of financial innovations over the last four decades Brookings economist Robert Litan bravely comes to the defense of credit default swaps (CDS), the instrument that gained so much notoriety with the collapse of AIG. Litan notes the obvious - that CDS must be better regulated and traded on clearinghouses or exchanges - but argues that properly regulated CDS contracts make important contributions to the economy.

For the moment, let's assume proper regulation (I'm an economist, I can do that) and ask whether CDS contracts really provide a net benefit to society. Litan's case is fairly straightforward. CDS contracts allow banks or other financial institutions to hedge the risk that they incur on their loans. This can free up reserves and allow them to make more loans. It can also provide the same sort of protection for businesses who worry that a supplier or other customer may default on their obligations.

Litan also notes that CDS contracts may provide useful information. Since CDS markets move more quickly than bond markets they can more quickly transmit information about potential problems in the finances of companies or countries, as market actors rush to buy CDS contracts against companies or countries that are in trouble.

At the most basic level, Litan's claim is obviously true. CDS contracts do allow for a transfer of risk. But is this necessarily good?

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First, this video of Jewish settlers commemorating, with song, the slaughter of 29 Palestinians by an Israeli settler while at prayer. The murderer's grave is a shrine for far right-settlers. (h/t Andrew Sullivan)

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The Netanyahu government has enjoyed treating our President as a patsy.

But today a new era may have begun.

Vice President Joe Biden is in Israel to kick-start negotiations. His program began with a love-fest ceremony with President Peres and Prime Minister Netanyahu. The most touching (I'm being sarcastic) moment came when Biden praised Netanyahu as a peacemaker.

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Everybody knows the core issues between Israelis and Palestinians, except for the one that will matter the most and can be acted on immediately, before any comprehensive deal; the one where Israel's concessions will not compromise its security but enhance it. I am speaking of Palestine's economy, specifically, its private sector, the driver of civil society and spine of any future state. Israeli Prime Minister Benjamin Netanyahu talks about "economic peace," but seems to mean little more than giving Palestinian laborers more jobs in Israeli agriculture and construction projects. What Palestinians need, rather, are entrepreneurs, managers, and professionals with the freedom to build a growing node in an urban and global network. The latter have made a remarkable start, but the occupation is thwarting them in ways few outsiders appreciate.

Yes, land claims, especially the division of sovereignty in Jerusalem, compensation for Palestinian refugees, etc., have great symbolic importance to both peoples. Yes, Jewish settlements confound efforts to draw borders and should be frozen; yes, moderates on both sides confront "whole land" fanatics they would rather not fight for the sake of the other side. Still, if we ever get to a deal, the size of each territory will quickly seem trivial.

Israel and Palestine, together, are about the size of greater Los Angeles; the distance from Nablus to Tel Aviv is something like San Bernardino to Santa Monica. The West Bank and Gaza, Palestinians say, is only 22 percent of historic Palestine. But that is about the size of the territory most Israelis live on. In fact, the corridor from Ashdod to north of Tel Aviv--where 40 percent of Israelis live, and at least half of Israel's GDP is generated--is about the size of the Gaza Strip. Can we get real about what "two states" will look like?

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Barack Obama took off the gloves yesterday and gave Republicans and wavering Democrats a sneak preview of the fall election campaign.

Appearing before 1,800 students and other members of the public at Arcadia University, just outside Philadelphia, Mr. Obama cast himself almost as an outsider in Washington, expressing disdain for "the sport of politics" and saying the time for endless debates is over.

"They've warned us we may not win," Mr. Obama said of his doubters and critics. "They've argued now is not the time for reform. It's going to hurt your poll numbers. How is it going to affect Democrats in November? Don't do it now.

"My question to them is: When is the right time? If not now, when? If not us, who?"

President Obama struck a populist tone, setting up thehealth insurance industry as his main target.

"We can't have a system that works better for the insurance companies than it does for the American people," he said.

I've been saying for a while that this election is all about a narrative of "Who is on your side." For all the phony Private Jet Populism of Republicans like Dick Armey (fronting for the Insurance Lobby), Rush Limbaugh and Glenn Beck, it will be clear to all but the most crack-brained teabagger that the Republicans represent the plutocrats and the Democrats are looking out for the people.

To all the smug beltway pundits like Charlie Cook who are predicting the Democrats will lose their Congressional majorities in November, I would say, you didn't factor in one element--Barack Obama on the stump.

Jobs are the chief concerns of most Americans right now. Those with them are scared they might lose them. Those without them want to find one. What we need to do is clear: pass laws that open new industries to job opportunities for millions of Americans - and in a hurry. Predictions that we will not return to full employment for five or more years should drive us to act as we did in the early 1990s, when we faced a similar, although far less, serious economic slump.

When Congress enacted the spectrum auction authority in 1993 and the market-opening Telecommunications Act of 1996, we intended to create new opportunities for high-paid work in the communications industry. As a legislator and a regulator, we partnered to create policies that did that, and we would freely admit that what happened exceeded our wildest dreams.

In the ten years that followed the spectrum auctions that created competition in digital cellular and the regulatory framework that opened Internet access to competition and the telephone network to innovation - 1997 to 2007 - investors, according to McKinsey and Company, poured more than $850 billion in new capital into mobile, data, and expanded cable networks in the United States.

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Any day now, the Obama administration will announce $4.35 billion in extra federal funds for under-performing public schools. That's fine, but relative to the financial squeeze all the nation's public schools now face it's a cruel joke.

The recession has ravaged state and local budgets, most of which aren't allowed to run deficits. That's meant major cuts in public schools and universities, and a giant future deficit in the education of our people.

Across America, schools are laying off thousands of teachers. Classrooms that had contained 20 to 25 students are now crammed with 30 or more. School years have been shortened. Some school districts are moving to four-day school weeks. After-school programs have been cancelled; music and art classes, terminated. Even history is being chucked.

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