Germany has agreed to a new Eurozone bailout for Greece amounting to a $ 157 guarantee for Greek debt. Gradually, Germany and France are underwriting the sick Greek economy. While most observers are concerned about "contagion" spreading to Spain and Portugal, the real "contagion" is that Germany and France are en route to becoming a future Greece. The strategy of throwing good money after bad will ultimately bring the financial status of German and French sovereign debt under scrutiny.
Nothing in the bailout package alters the fact that Greek sovereign debt is growing daily and will continue to swell to ever higher numbers. There will be more hand wringing and bailouts down the road until the road comes to an end and Germany and France become the focus.
The only plus tick in the package announced today is that bondholders take an estimated twenty percent haircut on their principal. That is good news. But, it is not enough.
The cold facts are: 1) the Eurozone is not growing economically and will not grow economically over the next few years; 2) sovereign debt in every Eurozone country is growing and in most countries is exploding. Nothing changes these two facts and these two facts spell future disaster.
Absent reform of entitlements, government spending and restrictive regulatory and tax policies, there is no real hope of economic growth in the Eurozone (or in the United States which is currently in copycat mode).
Jumat, 22 Juli 2011
Senin, 18 Juli 2011
European Bank Stress Tests -- More Government Obfuscation
So where are the tough regulators that were supposed to come with all the bailouts? European politicians are now blaming the messengers that are telling them that their banking systems are done for. The so-called "stress tests" on European banks were absurd. They assumed, for example, that no European country will ever default! Well, if no European country will ever default, then what's the problem?
Politicians are all for regulation -- unless you need it. Then, the politicians no longer want regulation. Witness the attack by European politicians on the rating agencies. Now that the rating agencies are doing their job, the politicians are angry. Go figure.
If there were no regulatory bodies at all and no European Central Bank (ECB), then, by now, markets would have reigned in the excesses of the PIIGS countries by denying them new funding. Eliminating new funding is, in the end, the only solution to Europe's woes. The market could have done that easily, but governments prefer to live in denial. A similar "denial" policy prevails in the US, but, fortunately, there is no one around to bail out the US, so when the markets finally say "no mas," that will be that.
The outcome of all of this is perfectly predictable. The only issue to be decided is the date when all of this comes crashing down.
Politicians are all for regulation -- unless you need it. Then, the politicians no longer want regulation. Witness the attack by European politicians on the rating agencies. Now that the rating agencies are doing their job, the politicians are angry. Go figure.
If there were no regulatory bodies at all and no European Central Bank (ECB), then, by now, markets would have reigned in the excesses of the PIIGS countries by denying them new funding. Eliminating new funding is, in the end, the only solution to Europe's woes. The market could have done that easily, but governments prefer to live in denial. A similar "denial" policy prevails in the US, but, fortunately, there is no one around to bail out the US, so when the markets finally say "no mas," that will be that.
The outcome of all of this is perfectly predictable. The only issue to be decided is the date when all of this comes crashing down.
Sabtu, 16 Juli 2011
Why Are We Protecting Banks and Wealthy Bondholders?
Who owns Greek debt and Italian Debt and Portuguese debt and so forth? Banks own a lot of it and somehow that is why we are supposed to support a bailout. Why?
If banks made bad decisions and ended up putting their money up to fund folks that can't pay them back, why should taxpayers pony up? That's all that's going on in the Eurozone. Let these countries work out their debt problems with their creditors like private citizens must do. Why are banks priveleged in this deal?
What's more, if every time German and French banks make stupid decisions, their governments intervene to prevent them from taking their punishment, then why shouldn't they simply keep making stupid decisions? Why not? Taxpayers will step up to the plate and take the bad decisions off their hands.
The usual hue and cry by the bailout proponents is that a financial and economic debacle will occur if we let those who made bad decisions suffer the consequences of their own bad decisions. Really?
It is convenient for the bailout crowd to argue "what ifs." The reality is that all bailouts do is postpone disaster and guarantee that disaster will result in a much larger financial and economic conflagration at some later date.
Take the current US national debt issue. If we default now on $ 14 trillion, we will be far better off than if we default in ten years when the national debt may be pushing $30 trillion and millions more Americans will be dependent (through the entitlements) on benefits that are going to be savagely reduced. Now the problem will be a serious one, In ten years, the problem will be catastrophic and could easily usher in major political changes that none of us would be happy to see.
The idea that the entitlements in the US can be preserved is essentially the argument of the street-demonstrators in Greece that their lifestyle (retirements at age 52) can be preserved. This is simply a matter of numbers. It can't and won't happen, no matter how the current political battles unfold.
Worse, the western economies have no economic growth in their future. This means growing stagnation and limited opportunities for the young, the disadvantaged and the unemployed. Buffett, Gates and Soros will do fine. They have theirs and they will not give it up. But, for the rest of the country, especially those in the bottom half of the economic pile, their future is pretty dim. No economic growth and a world of massive economic regulation restricts any real opportunities for folks who need it the most.
Is destroying the economic future of the western world a reasonable price to pay to protect rich bondholders and banks?
If banks made bad decisions and ended up putting their money up to fund folks that can't pay them back, why should taxpayers pony up? That's all that's going on in the Eurozone. Let these countries work out their debt problems with their creditors like private citizens must do. Why are banks priveleged in this deal?
What's more, if every time German and French banks make stupid decisions, their governments intervene to prevent them from taking their punishment, then why shouldn't they simply keep making stupid decisions? Why not? Taxpayers will step up to the plate and take the bad decisions off their hands.
The usual hue and cry by the bailout proponents is that a financial and economic debacle will occur if we let those who made bad decisions suffer the consequences of their own bad decisions. Really?
It is convenient for the bailout crowd to argue "what ifs." The reality is that all bailouts do is postpone disaster and guarantee that disaster will result in a much larger financial and economic conflagration at some later date.
Take the current US national debt issue. If we default now on $ 14 trillion, we will be far better off than if we default in ten years when the national debt may be pushing $30 trillion and millions more Americans will be dependent (through the entitlements) on benefits that are going to be savagely reduced. Now the problem will be a serious one, In ten years, the problem will be catastrophic and could easily usher in major political changes that none of us would be happy to see.
The idea that the entitlements in the US can be preserved is essentially the argument of the street-demonstrators in Greece that their lifestyle (retirements at age 52) can be preserved. This is simply a matter of numbers. It can't and won't happen, no matter how the current political battles unfold.
Worse, the western economies have no economic growth in their future. This means growing stagnation and limited opportunities for the young, the disadvantaged and the unemployed. Buffett, Gates and Soros will do fine. They have theirs and they will not give it up. But, for the rest of the country, especially those in the bottom half of the economic pile, their future is pretty dim. No economic growth and a world of massive economic regulation restricts any real opportunities for folks who need it the most.
Is destroying the economic future of the western world a reasonable price to pay to protect rich bondholders and banks?
Jumat, 15 Juli 2011
Is He Dumb or Devious?
Obama's press conference today was masterful -- Mr. Niceguy, pleading for reason. If you do what he wants, you virtually guarantee a generation or two of economic stagnation and a potential total collapse of the US economy within a dozen years. But, listening to him, you would think that all all is well, except for the intransigence of a few (Republican) politicians intent on helping the super rich.
Surely he knows better. Getting millionaires and billionaires to pay more taxes isn't even one of the options, given the tax code. Raising tax rates simply guarantees economic stagnation, as potential employers shift assets around to avoid the taxman. So much for job creation.
Obama seems to want to usher in a permanent decline in US economic growth. Europe..here we come. Is he watching the Eurozone? They have already adopted the Obama plan.
Maybe, just maybe, economic stagnation is the real goal of this Administration.
Surely he knows better. Getting millionaires and billionaires to pay more taxes isn't even one of the options, given the tax code. Raising tax rates simply guarantees economic stagnation, as potential employers shift assets around to avoid the taxman. So much for job creation.
Obama seems to want to usher in a permanent decline in US economic growth. Europe..here we come. Is he watching the Eurozone? They have already adopted the Obama plan.
Maybe, just maybe, economic stagnation is the real goal of this Administration.
Selasa, 12 Juli 2011
The US Will Default Sooner or Later -- Why Not Now?
There is little question that the US is headed for an ultimate default on its sovereign debt. This is almost guaranteed to take place within less than 20 years. So why not simply do it now while the debt is relatively small. Defaulting on 14.5 Trillion is a whole lot better than defaulting on $ 40 trillion, which is probably where we will be in fifteen to twenty years.
Yes, it will be painful. Yes, it will be disruptive. But why create three times the problem for our children and our grandchildren. Why not deal with it now?
Simply default and then make the necessary adjustments. The markets will force a rationality on government that the politicians are not likely to ever be able to do.
A default now is a whole lot better solution than a much, much bigger default in fifteen years.
Yes, it will be painful. Yes, it will be disruptive. But why create three times the problem for our children and our grandchildren. Why not deal with it now?
Simply default and then make the necessary adjustments. The markets will force a rationality on government that the politicians are not likely to ever be able to do.
A default now is a whole lot better solution than a much, much bigger default in fifteen years.
Blinder Has Blinders On
Alan Blinder has an op-ed in the Wall Street Journal that reveals in stark terms the irrelevance of modern macroeconomics. Blinder is a Princeton economics professor and former Vice Chairman of the Federal Reserve. He is often trotted out by the Democratic Party to defend big spending by Congress or inflationary monetary policy by the Federal Reserve. He's back on the podium this morning asking:
"What might a real job-creation program look like?"
Dig this answer:
"Creating jobs costs money -- whether it's via tax cuts or more spending." Could have fooled me. Would it really be possible to spend more than Blinder and his allies have done in the past three years.
Blinder, like most other Democrats, believes that the cost of labor is irrelevant in the decision to hire. So long as you believe cost doesn't figure into the hiring decision, you will never be able to understand our current unemployment problems.
"What might a real job-creation program look like?"
Dig this answer:
"Creating jobs costs money -- whether it's via tax cuts or more spending." Could have fooled me. Would it really be possible to spend more than Blinder and his allies have done in the past three years.
Blinder, like most other Democrats, believes that the cost of labor is irrelevant in the decision to hire. So long as you believe cost doesn't figure into the hiring decision, you will never be able to understand our current unemployment problems.
Senin, 11 Juli 2011
Uncertainty--Really?
Uncertainty has been the big buzzword. No one wants to hire anyone because of uncertainty, according to Obama and the media. Really? I think the problem is the opposite.
It seems fairly certain that the environment for business is pretty terrible. The White House hates business and businessmen. The regulators have declared war on American business. Taxes have already gone up dramatically and the plan is to increase taxes even more. Litigation costs and employer mandates are an everyday reality. The minimum wage is up over 20 percent in just the last five years. So, what is uncertain?
If you want a good business environment, move your business to Asia or parts of Eastern Europe.
The problem that the US has is one of certainty, not uncertainty. Obama is a certain, calamitous, reality for American business and for American workers.
It seems fairly certain that the environment for business is pretty terrible. The White House hates business and businessmen. The regulators have declared war on American business. Taxes have already gone up dramatically and the plan is to increase taxes even more. Litigation costs and employer mandates are an everyday reality. The minimum wage is up over 20 percent in just the last five years. So, what is uncertain?
If you want a good business environment, move your business to Asia or parts of Eastern Europe.
The problem that the US has is one of certainty, not uncertainty. Obama is a certain, calamitous, reality for American business and for American workers.
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