Greece is a small country with an estimated 11.3 million in population. It's total GDP was about $ 320 billion in 2010. So, why all the hubub. Why can't Greece default on its nearly $ 400 billion national debt? It is not going to be able to pay it and it's debt is growing currently at nearly $ 50 billion annually. With these numbers, why are France and Germany so intent on stepping in and turning a molehill into a mountain.
Politicians are obsessed with fixing things and so long as disaster is unlikely on their watch, they proceed. Obama doesn't have to worry. The US is not likely to go bankrupt within the next four years. Within the next ten years, that's a different story. But, he won't be there then, so what does he care?
Sarcozy and Merkel are obsessed with the same mindset. They don't want disaster on their watch. So, kick the can down the road and set the stage for a far bigger disaster on the next guy's watch. Such statesmanship!
Democracy is a tough game (for the electorate). It is easy to promise and hard to deliver. But you can get elected on a promise and by the time folks find out that you didn't deliver, you've bought your own island somewhere and what do you care. That is the kind of cynicism that permeates the folks who think government can solve all problems. They are not there when disaster strikes.
So, the European Union pushes the car closer to the cliff's edge, thinking it is doing something worthwhile. Only the car is now a bus and has many more passengers and the size of the bus and the number of passengers are growing every day. It is obvious that the bus is headed over the cliff. The only thing we don't know is how big the bus will be when it goes over and how many passengers are going to go with it.
Monday, June 20, 2011
The Plight of Papandreou
Why is Papandreou, Greece's prime minister, struggling to convince the Greek public to cut spending and raise taxes? At the moment, Greece is spending 25 percent more than their tax revenues, which means their national debt is continuing it's upward spiral. There has been no progress since the last year's bailout. No, indeed. Things have gotten much, much worse for Greece's finances, not better.
The problem for George Papandreou is the political rhetoric of the past half century. Politicians like Papandreou and his economist (sic) father Andreas Papandreou have, for several generations, preached to the Greek population that they could have it all -- free health care, free education, free everything, plus early retirement with a fat pension. Everything is free in the wonderful Papandreou state. Nothing need be paid for. That's what Papandreou and his father have been telling Greeks for the past fifty years.
Guess what? They lied. Providing all manner of free and inexpensive stuff to folks doesn't work unless there is someone out there who is willing to fund all of this. The fact is, in the long run, there is no one willing to fund the Greeks in the style to which the Papandreous wished them to become accustomed. The Papandreous were frauds and now the Greeks and other Europeans are angry, confused and rioting. Who wouldn't be angry and confused?
Papandreou deserves his current fate. He helped to create the problem and cheerlead the fraud that led to the current problems in Europe. Why Obama is choosing to follow this path is a great mystery.
The problem for George Papandreou is the political rhetoric of the past half century. Politicians like Papandreou and his economist (sic) father Andreas Papandreou have, for several generations, preached to the Greek population that they could have it all -- free health care, free education, free everything, plus early retirement with a fat pension. Everything is free in the wonderful Papandreou state. Nothing need be paid for. That's what Papandreou and his father have been telling Greeks for the past fifty years.
Guess what? They lied. Providing all manner of free and inexpensive stuff to folks doesn't work unless there is someone out there who is willing to fund all of this. The fact is, in the long run, there is no one willing to fund the Greeks in the style to which the Papandreous wished them to become accustomed. The Papandreous were frauds and now the Greeks and other Europeans are angry, confused and rioting. Who wouldn't be angry and confused?
Papandreou deserves his current fate. He helped to create the problem and cheerlead the fraud that led to the current problems in Europe. Why Obama is choosing to follow this path is a great mystery.
Sunday, June 19, 2011
Betwixt and Between
What accounts for the fact that Obama is in trouble with both the left and the right and the middle appears to be defecting as well? Isn't anyone happy with Obama?
The problem for Obama, as well as for Europe, is simply a case of affordability. We've run out of chips, as has Europe. Who is to fund all the largesse that the left dreams about? The answer -- no one.
Unfortunately, much of the citizenry of the western world now believes that things like old age pensions, health care, education, jobs, etc. are rights to be guaranteed by the government. But, who pays?
Taxing the rich and selling bonds only takes you so far. 100 percent tax rates aren't likely to raise much revenue. Bondholders like to get their money back. They won't get it back if they loan it to western nations. Bond holders are learning this now at a rate that alarms western politicians. Western politicians are already beginning to blame bond holders for their greed in demanding that they get repaid. What terrible people? Wanting to get their money repaid?
This is all silly. It is merely a question of numbers. There is no way to make this work. You could resort to compulsion (i.e. dictatorship) to level the economic status of your populace. Some form of government such as the kind that the infamous Soviet Union imposed on its people. That kind of political outcome produced poverty and stability, but at least there were no rich folks. Or were there?
If all you want is to eliminate rich people, that is relatively easy to do. If you want your average citizen to prosper, then that is an entirely different proposition. Giving people opportunity, minimizing the reach of government, and providing a rule of law are the best prescriptive tools to economic prosperity for any nation. Unfortunately, the US and the West have been busy for several decades dismantling the very things that created prosperity in the West in the first place.
Asia is not so foolish. So far, their leaders have not promised the impossible. They have problems, no doubt, but they have created nothing like the absurd expectations of the average citizen in Greece. The US and the West are in the middle stages of removing themselves from world leadership, both political and economic.
Obama now realizes, I would suppose, that his policies don't really work. I doubt that he would say this out loud. But, really? 9.1 percent unemployment at this point in the recovery. 1.8 percent economic growth? These numbers are unprecedented for an economic recovery. Failure is only a word, but it aptly describes the economic reality of Obama policies.
So, what can Obama do? Not much. He has tried his full panoply of liberal schemes and they have simply made things far, far worse. Even the most leftist citizen still would like a job. That's the hard cold fact that the Obama folks don't seem to get.
Meanwhile, Obama continues to lecture the rest of the world about how to run their affairs. Fortunately, no one listens. Obama has badly damaged the American economy and its future. He is now essentially an irrelevant force, other than presiding over the wreckage that his policies have created.
Perhaps, playing golf is the only thing left for this president.
The problem for Obama, as well as for Europe, is simply a case of affordability. We've run out of chips, as has Europe. Who is to fund all the largesse that the left dreams about? The answer -- no one.
Unfortunately, much of the citizenry of the western world now believes that things like old age pensions, health care, education, jobs, etc. are rights to be guaranteed by the government. But, who pays?
Taxing the rich and selling bonds only takes you so far. 100 percent tax rates aren't likely to raise much revenue. Bondholders like to get their money back. They won't get it back if they loan it to western nations. Bond holders are learning this now at a rate that alarms western politicians. Western politicians are already beginning to blame bond holders for their greed in demanding that they get repaid. What terrible people? Wanting to get their money repaid?
This is all silly. It is merely a question of numbers. There is no way to make this work. You could resort to compulsion (i.e. dictatorship) to level the economic status of your populace. Some form of government such as the kind that the infamous Soviet Union imposed on its people. That kind of political outcome produced poverty and stability, but at least there were no rich folks. Or were there?
If all you want is to eliminate rich people, that is relatively easy to do. If you want your average citizen to prosper, then that is an entirely different proposition. Giving people opportunity, minimizing the reach of government, and providing a rule of law are the best prescriptive tools to economic prosperity for any nation. Unfortunately, the US and the West have been busy for several decades dismantling the very things that created prosperity in the West in the first place.
Asia is not so foolish. So far, their leaders have not promised the impossible. They have problems, no doubt, but they have created nothing like the absurd expectations of the average citizen in Greece. The US and the West are in the middle stages of removing themselves from world leadership, both political and economic.
Obama now realizes, I would suppose, that his policies don't really work. I doubt that he would say this out loud. But, really? 9.1 percent unemployment at this point in the recovery. 1.8 percent economic growth? These numbers are unprecedented for an economic recovery. Failure is only a word, but it aptly describes the economic reality of Obama policies.
So, what can Obama do? Not much. He has tried his full panoply of liberal schemes and they have simply made things far, far worse. Even the most leftist citizen still would like a job. That's the hard cold fact that the Obama folks don't seem to get.
Meanwhile, Obama continues to lecture the rest of the world about how to run their affairs. Fortunately, no one listens. Obama has badly damaged the American economy and its future. He is now essentially an irrelevant force, other than presiding over the wreckage that his policies have created.
Perhaps, playing golf is the only thing left for this president.
Saturday, June 18, 2011
Boeing and Obama
The Obama NLRB has intervened in Boeing's business decision to locate a plant in South Carolina. Why? South Carolina is a "right-to-work" state, meaning that South Carolina law doesn't force unwilling employees to join a union that they don't want to join. Freedom is a crime, according to the NLRB. Thus, an ordinary business decision is now a subject of litigation.
No doubt, other countries would be happy to provide a site for the plant that the NLRB doesn't want to see located in South Carolina. In effect, the NLRB is pushing American companies to outsource major sections of their business, unless they are willing to unionize their work force. So much for freedom.
You begin to wonder if this is part of a grander plan. Force the US economy to its knees by foolishness like the Boeing decision and push American jobs to foreign countries and foreign workers. Meanwhile, do everything possible to restrict free trade in products -- e.g. the Obama Administration's refusal to push the Columbia trade agreement to the finish line. Maybe this Administration really doesn't want the US economy to recover.
I have always thought the Obama economic policies resulted simply from stupidity, but the Boeing decision is so damaging to job creation (other businesses are watching) and such a government grab for power and influence over business, that it makes you wonder what the real end game is for the Obama Administration?
No doubt, other countries would be happy to provide a site for the plant that the NLRB doesn't want to see located in South Carolina. In effect, the NLRB is pushing American companies to outsource major sections of their business, unless they are willing to unionize their work force. So much for freedom.
You begin to wonder if this is part of a grander plan. Force the US economy to its knees by foolishness like the Boeing decision and push American jobs to foreign countries and foreign workers. Meanwhile, do everything possible to restrict free trade in products -- e.g. the Obama Administration's refusal to push the Columbia trade agreement to the finish line. Maybe this Administration really doesn't want the US economy to recover.
I have always thought the Obama economic policies resulted simply from stupidity, but the Boeing decision is so damaging to job creation (other businesses are watching) and such a government grab for power and influence over business, that it makes you wonder what the real end game is for the Obama Administration?
Friday, June 17, 2011
Why Not Cut Your Exposure?
The markets are rife with concerns that European banks and American banks will lose a lot of money if Greece defaults. So, why don't the banks simply sell their Greek sovereign debt holdings and avoid any further exposure? After all, post-2008, the banking systems in the US and Europe have been subject to new regulations and are marking their portfolios to market. Right? Wrong!
As usual, regulation doesn't work. If European and American banks sell their Greek debt assets, they will take huge losses precisely because they are not marking these assets to market as everyone assumes. The regulators are letting these banks carry all of this bad debt at par and their balance sheets incorrectly show assets at highly inflated values. So much for financial reform!
It's the same old story. Everyone assumes that bank regulation works. The fact is that it doesn't work. Just when you need heads up banking regulation, what you get is a wink and a nod and political interference. That is what is going on right now.
What would have been a minor problem -- a Greek default two years ago -- is being elevated into a major problem that will ultimately undermine the financial stability of Europe and the US.
Financial regulation doesn't work. Regulators are not the answer. Dodd-Frank legislation is a sham and is simply a hindrance to a serious economic recovery. Let the markets work. Let those who buy bad debt take their losses without involving taxpayers in the process.
We are in serious danger of replaying the fall of 2008 by more foolish government policy regarding the debt markets.
As usual, regulation doesn't work. If European and American banks sell their Greek debt assets, they will take huge losses precisely because they are not marking these assets to market as everyone assumes. The regulators are letting these banks carry all of this bad debt at par and their balance sheets incorrectly show assets at highly inflated values. So much for financial reform!
It's the same old story. Everyone assumes that bank regulation works. The fact is that it doesn't work. Just when you need heads up banking regulation, what you get is a wink and a nod and political interference. That is what is going on right now.
What would have been a minor problem -- a Greek default two years ago -- is being elevated into a major problem that will ultimately undermine the financial stability of Europe and the US.
Financial regulation doesn't work. Regulators are not the answer. Dodd-Frank legislation is a sham and is simply a hindrance to a serious economic recovery. Let the markets work. Let those who buy bad debt take their losses without involving taxpayers in the process.
We are in serious danger of replaying the fall of 2008 by more foolish government policy regarding the debt markets.
Thursday, June 16, 2011
Is This News?
There is a growing realization by world financial markets that Greece is not going to make it without some kind of default (partial or complete). Is this really a surprise? Is Obama serious that US taxpayers should step in and finance profligate Greek spending behavior? How absurd is the Obama economics going to get?
The Greeks expect the rest of Europe (and now, according to Obama, the US) to fund their extravagant lifestyle. Why? What greater good is served by bailing out folks who have a corrupt political and economic system and no work ethic? Does that do some over-arching good somewhere?
There seems to be no end to the irrationality of Obama economic policy. Let the Greeks default. Is it really a surprise that they are on the brink of default? Ordinary Greeks are not interested in paying their own bills. Look at the riots in the streets. That tells you what the typical Greek citizen thinks. They are mad that the rest of Europe is not willing to fund them indefinitely.
So, where is the news in this? When will Europe (and Obama) wake up to the realities of economic life?
The Greeks expect the rest of Europe (and now, according to Obama, the US) to fund their extravagant lifestyle. Why? What greater good is served by bailing out folks who have a corrupt political and economic system and no work ethic? Does that do some over-arching good somewhere?
There seems to be no end to the irrationality of Obama economic policy. Let the Greeks default. Is it really a surprise that they are on the brink of default? Ordinary Greeks are not interested in paying their own bills. Look at the riots in the streets. That tells you what the typical Greek citizen thinks. They are mad that the rest of Europe is not willing to fund them indefinitely.
So, where is the news in this? When will Europe (and Obama) wake up to the realities of economic life?
Saturday, June 11, 2011
Double Dip -- A Real Possibility
Could the economy be headed for a second recession? Two months ago, the possibility of a second leg down seemed unlikely. Now, I'm not so sure. Amity Schlaes "The Forgotten Man" chronicles the double and triple dips of the 1930s Great Depression in the US. There are startling parallels between the depression era and our current malaise. And some storms clouds of the modern era were not present in those bygone days.
The main parallels are: 1) massive government intervention in the economy; 2) a mountain of new regulations on private sector economic activity and fear of new and unknown regulations yet to be announced; 3) fear of major new tax increases on wealth holders (I.e. "tax the rich"). These concerns prevented any sustained economic recovery in the twelve year span from 1929 until 1941, at which time many of these burdens were eased to allow for a major wartime production effort.
History may be about to repeat itself.
The problems in housing, where government action has been pernicious, suggest the long awaited bottom in the housing market is going to continue to be awaited. Jamie Dimon of J P Morgan spoke eloquently this week, in his exchange with Fed Chairman Bernanke, of the inhibiting influence of Dodd-Frank and other Obama-driven legislation that takes a sledgehammer to the commercial and mortgage lending capabilities of the country. Obama and his Congressional and labor union allies seem to want to push US tax rates to unprecedented levels. Meanwhile successful businesses are reviled and ordinary business mistakes are viewed as criminal activities by the White House.
So, why should businesses expand and hire employees given this backdrop?
Adding to all of this is the collapse of the Great European Experiment. Europe decided decades ago that their citizens could have it all-- light work loads, lavish health and old age benefits, employment without fear of termination! What a brave new world this was! Europe was all the rage. This worked as long as bondholders would provide the funding for this silly and foolish experiment. Guess what? The party is over. Europe is now front page news every day as European countries scramble to find new benefactors willing to bankroll their life of leisure. So this tragi-comedy is playing out alongside the other headwinds that face the world economy.
Finally, the Chinese economic engine is suddenly sputtering.
While nothing is ever certain about the economy, it now seems at least 50-50 that the US economy is headed for a second recession.
The main parallels are: 1) massive government intervention in the economy; 2) a mountain of new regulations on private sector economic activity and fear of new and unknown regulations yet to be announced; 3) fear of major new tax increases on wealth holders (I.e. "tax the rich"). These concerns prevented any sustained economic recovery in the twelve year span from 1929 until 1941, at which time many of these burdens were eased to allow for a major wartime production effort.
History may be about to repeat itself.
The problems in housing, where government action has been pernicious, suggest the long awaited bottom in the housing market is going to continue to be awaited. Jamie Dimon of J P Morgan spoke eloquently this week, in his exchange with Fed Chairman Bernanke, of the inhibiting influence of Dodd-Frank and other Obama-driven legislation that takes a sledgehammer to the commercial and mortgage lending capabilities of the country. Obama and his Congressional and labor union allies seem to want to push US tax rates to unprecedented levels. Meanwhile successful businesses are reviled and ordinary business mistakes are viewed as criminal activities by the White House.
So, why should businesses expand and hire employees given this backdrop?
Adding to all of this is the collapse of the Great European Experiment. Europe decided decades ago that their citizens could have it all-- light work loads, lavish health and old age benefits, employment without fear of termination! What a brave new world this was! Europe was all the rage. This worked as long as bondholders would provide the funding for this silly and foolish experiment. Guess what? The party is over. Europe is now front page news every day as European countries scramble to find new benefactors willing to bankroll their life of leisure. So this tragi-comedy is playing out alongside the other headwinds that face the world economy.
Finally, the Chinese economic engine is suddenly sputtering.
While nothing is ever certain about the economy, it now seems at least 50-50 that the US economy is headed for a second recession.
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