Rome wasn't built in a day and the Eurozone will not collapse in a day. But, the Eurozone will collapse. It's just a matter of time.
Consider the stronger countries in the Eurozone -- Germany and France. Both economies are now contracting. Meanwhile their debt levels, acknowledged and unacknowledged, have exploded to new levels. Both countries are now in the situation that faced Greece four years ago. So, how is their future going to be any different that what is now taking place in Cyprus, Greece, Spain and Italy?
The ECB ministers are a group of political hacks who know little or nothing about economics (something they share with the Obama advising team). Their idea of improving the economic plight of the Eurozone is to increase the level of debt, continue to implicitly guarantee profligate spending and bureaucratic regulations, and plunge the Eurozone into the economic dark ages.
GDP is falling, debt is rising, unemployment is rising, and recriminations are flying. The Eurozone is coming apart at the seams. Civil society has broken down in Greece and is in the process of breaking down in parts of Spain and Italy. Cyprus is entering a dark period. Nothing good lies ahead for the Eurozone.
So, what happens next?
Deposits will begin to seep out of the Eurozone -- most notably from Spanish and Italian banks -- but from other Eurozone countries as well. After all, the ECB bureaucracy has changed the rules. Deposits are now legitimate targets for the bureaucrats. It wasn't the ECB that decided not to confiscate insured depositors in Cyprus, it was the Cypriot parliament who refused to ratify the ECB and IMF policy of confiscating insured depositors. The confiscation of government insured deposits is now a legitimate policy weapon in the Eurozone, overturning a long past history of FDIC-like guarantees in the Eurozone. Nothing is sacred to the bureaucrats.
The genie cannot be put back in the bottle. The European banking sector cannot recover from this bureaucratic policy blunder. Deposits in the Eurozone can never be considered secure, even in circumstances where the bank that houses them is secure. The government can confiscate deposits wherever they may be. This is now a legitimate Eurozone policy weapon. It is also an IMF (read USA) policy tool as well. Even US FDIC-guaranteed deposits may be fair game to the bureaucrats when US debt woes become a front page crisis. An eventuality that must come in time.
Saturday, March 30, 2013
Saturday, March 23, 2013
Little Cyprus
So how big is Cyprus? 800,000 people with a GDP of about 18 billion Euros -- less than 10 percent of the size and wealth of the State of Virginia. So, how can Cyprus rock the Eurozone?
Easy. Let politics substitute for economics and anything can happen.
The grand Euro scheme of bailing out country after country is rapidly running up against reality. The sacrifices that the bailers require are politically unacceptable to the bailees.
Austerity traded for more debt -- this is the bailout scheme devised by politicians. This scheme is an effort to change reality and it won't work.
The reality is that Cyprus banking is history. Who, in his right mind, would willingly leave their money in a Cypriot bank after the events of the past week? It doesn't really matter what solution is imposed, the Cypriot financial community will not recover.
Meanwhile, institutions with deposits in Italian and Spanish banks now face a new reality, hitherto not contemplated. The European Central Bank and the IMF have this week endorsed a new policy tool for dealing with debtor nations -- confiscation of bank deposits. Who would have thought? But now the thinking begins. Should I or shouldn't I move my cash deposits from Italian and Spanish banks for the safer confines of London or New York or Geneva or Singapore? No doubt such thoughts are now extant in the minds of all institutional investors across the globe.
When economics no longer guides economies and the politicians take over, this is the outcome -- collapsing GDP, rising debt levels, and growing political anarchy. We are just at the early stages of the coming demise of Europe.
Easy. Let politics substitute for economics and anything can happen.
The grand Euro scheme of bailing out country after country is rapidly running up against reality. The sacrifices that the bailers require are politically unacceptable to the bailees.
Austerity traded for more debt -- this is the bailout scheme devised by politicians. This scheme is an effort to change reality and it won't work.
The reality is that Cyprus banking is history. Who, in his right mind, would willingly leave their money in a Cypriot bank after the events of the past week? It doesn't really matter what solution is imposed, the Cypriot financial community will not recover.
Meanwhile, institutions with deposits in Italian and Spanish banks now face a new reality, hitherto not contemplated. The European Central Bank and the IMF have this week endorsed a new policy tool for dealing with debtor nations -- confiscation of bank deposits. Who would have thought? But now the thinking begins. Should I or shouldn't I move my cash deposits from Italian and Spanish banks for the safer confines of London or New York or Geneva or Singapore? No doubt such thoughts are now extant in the minds of all institutional investors across the globe.
When economics no longer guides economies and the politicians take over, this is the outcome -- collapsing GDP, rising debt levels, and growing political anarchy. We are just at the early stages of the coming demise of Europe.
Tuesday, March 5, 2013
Schwartz's Quandary
Today's NYTimes features an interesting article by Nelson D. Schwartz headlined "Recovery in US is Lifting Profits, But Not Adding Jobs." Surprise, Surprise!
The main tool for solving unemployment by the White House is to figure ways to make employees more expensive. Businesses aren't dumb. If you make a factor of production much more expensive, businesses will use less of it. Machines aren't more expensive; outsourcing is not more expensive, but hiring American workers is much, much more expensive thanks to Obamacare and numerous "worker protection" rules, laws and regulations.
So, what to do? Obama now suggests raising the minimum wage from $ 7.25 to $ 9.00 -- almost a 25 percent hike in the minimum wage. That is in keeping with the philosophy of making employees more expensive.
The war on workers and the war on the middle class by this White House continues unabated. Schwartz is puzzled by the "golden age for corporate profits" unaccompanied by meaningful increase in the demand for workers. But why is there any surprise. This is the predictable result of White House economic policy.
The main tool for solving unemployment by the White House is to figure ways to make employees more expensive. Businesses aren't dumb. If you make a factor of production much more expensive, businesses will use less of it. Machines aren't more expensive; outsourcing is not more expensive, but hiring American workers is much, much more expensive thanks to Obamacare and numerous "worker protection" rules, laws and regulations.
So, what to do? Obama now suggests raising the minimum wage from $ 7.25 to $ 9.00 -- almost a 25 percent hike in the minimum wage. That is in keeping with the philosophy of making employees more expensive.
The war on workers and the war on the middle class by this White House continues unabated. Schwartz is puzzled by the "golden age for corporate profits" unaccompanied by meaningful increase in the demand for workers. But why is there any surprise. This is the predictable result of White House economic policy.
Sunday, March 3, 2013
Three Cheers for Christina Romer
It has been somewhat of a puzzle that Obama's economists haven't rebelled at his Administration's assault on the US economy. Economics is, after all, economics. Finally!
In today's NYTimes, Christina Romer, former head of Obama's Council of Economic Advisors, questions the necessity of the minimum wage. She not only wonders openly about increasing the minimum wage, but questions the very idea of minimum wage legislation.
Romer is right that the minimum wage is not the way to go. While she doesn't go far enough to oppose the minimum wage outright, it is hard to see her op-ed piece as anything but a plea for sanity and clear opposition to Obama's recent call for a minimum wage increse.
In today's NYTimes, Christina Romer, former head of Obama's Council of Economic Advisors, questions the necessity of the minimum wage. She not only wonders openly about increasing the minimum wage, but questions the very idea of minimum wage legislation.
Romer is right that the minimum wage is not the way to go. While she doesn't go far enough to oppose the minimum wage outright, it is hard to see her op-ed piece as anything but a plea for sanity and clear opposition to Obama's recent call for a minimum wage increse.
Thursday, February 28, 2013
Down a little; Up a little
4th Quarter GDP was revised up today from a dismal -0.1 percent to a dismal +0.1 percent, confirming the stagnation character of the American economy. All the fine rhetoric from the White House and its chorus of apologists cannot hide the fact that US economy is stuck in the mud.
This should come as no surprise of course. Why should anyone expand their business or take on new employees in this environment? Heaven forbid that anyone should make a profit or try to get rich. That's the new sin.
So, what is left is stagnation. An economy that rewards people for not working and punishes those who wish to employ capital is an economy that is going nowhere.
Obama has managed to accomplish what few thought possible. He has shut down the mighty American economic engine.
This should come as no surprise of course. Why should anyone expand their business or take on new employees in this environment? Heaven forbid that anyone should make a profit or try to get rich. That's the new sin.
So, what is left is stagnation. An economy that rewards people for not working and punishes those who wish to employ capital is an economy that is going nowhere.
Obama has managed to accomplish what few thought possible. He has shut down the mighty American economic engine.
Friday, February 22, 2013
The "Delay" Tax
Everyone knows, except Obama, that the entitlements are $70 trillion in the hole from an actuarial point of view. This means that, in finite time, they will run out of money.
So that, it is very, very clear that future generations will get nothing at all from social security and medicare regardless of the amount that they pay in. Unless something is done.
This we know (except for Obama, of course, who seems to know nothing).
All of this means that sooner or later, social security and medicare will be fixed. Running out of money is a fix. That does solve the problem.
A simple solution is to move out the age of eligibility for medicare (and index it). Do the same for social security. Means test both programs. Raise medicaid eligibility requirements. Doing these things would mean that social security and medicare will never run out of money.
So, a simple fix, can make things work. If we do it now. Delay means that when you do act, the actions must be much, more draconian. By postponing action, even for only a single year, the size of the cuts and the postponement of eligibility must be far greater than what would be necessary if we acted today.
This is the Obama "delay" tax. The longer you postpone dealing with the problem, the worse is the plight of future seniors. Either Obama doesn't know this (which is probable, because he isn't very focused on real issues) or he knows it and simply doesn't care.
So that, it is very, very clear that future generations will get nothing at all from social security and medicare regardless of the amount that they pay in. Unless something is done.
This we know (except for Obama, of course, who seems to know nothing).
All of this means that sooner or later, social security and medicare will be fixed. Running out of money is a fix. That does solve the problem.
A simple solution is to move out the age of eligibility for medicare (and index it). Do the same for social security. Means test both programs. Raise medicaid eligibility requirements. Doing these things would mean that social security and medicare will never run out of money.
So, a simple fix, can make things work. If we do it now. Delay means that when you do act, the actions must be much, more draconian. By postponing action, even for only a single year, the size of the cuts and the postponement of eligibility must be far greater than what would be necessary if we acted today.
This is the Obama "delay" tax. The longer you postpone dealing with the problem, the worse is the plight of future seniors. Either Obama doesn't know this (which is probable, because he isn't very focused on real issues) or he knows it and simply doesn't care.
Monday, February 18, 2013
Joe Stiglitz and Inequality
Joe Stiglitz has penned an interesting article on the growing inequality of measured income in the United States. The facts that he uses, of course, are subject to the usual limitations. If you ignore everything the government does and all employee benefits, then you get one answer. If you include government spending and employee benefits you get an entirely different answer. But, lay that aside for the moment, because, I think, Stiglitz is on to something. There is growing inequality of opportunity in America, but not for the reasons Stiglitz is implying.
It is no wonder that wealthy liberals are at the forefront of the call for reduced inequality. They know that their policies will solidify their exalted status in society. They are not at risk.
The simplest example can be read in today's editorial in the NY Times in support of raising the national minimum wage from $ 7.25 per hour to $ 9.00 per hour. That kind of policy won't hurt the liberal elite, protected with incomes far, far above these numbers. This kind of policy -- outlawing jobs for folks with limited skills -- only hurts those who might have trouble affording a copy of the NY Times, not those writing their editorials.
Minimum wage laws are one of the many reasons that inequality is growing in the United States. Entitlement programs, welfare programs and the takeover of public schools by teacher unions are other reasons for the growing inequality. I doubt that many of the editorial writers for the NY Times send their own children to public schools or need access to welfare programs of entitlement programs, so, by all means, make them available to others.
Providing government largesse for those less fortunate inevitably increases the number of those less fortunate. Outlawing jobs for those with limited skills is cruel and makes things far worse. Stiglitz is right. Inequality is growing. But the reason is that government is growing. Growing government puts lower income citizens in the penalty box and makes it difficult for them to ever escape. That is what causes growing inequality.
It is interesting that Stiglitz thinks America was much more a land of opportunity one hundred years ago. That was a time that predated minimum wage laws, teachers unions, social security, medicare, medicaid and welfare programs. That was a time when a real land of opportunity existed because government played a much more limited role.
It is no wonder that wealthy liberals are at the forefront of the call for reduced inequality. They know that their policies will solidify their exalted status in society. They are not at risk.
The simplest example can be read in today's editorial in the NY Times in support of raising the national minimum wage from $ 7.25 per hour to $ 9.00 per hour. That kind of policy won't hurt the liberal elite, protected with incomes far, far above these numbers. This kind of policy -- outlawing jobs for folks with limited skills -- only hurts those who might have trouble affording a copy of the NY Times, not those writing their editorials.
Minimum wage laws are one of the many reasons that inequality is growing in the United States. Entitlement programs, welfare programs and the takeover of public schools by teacher unions are other reasons for the growing inequality. I doubt that many of the editorial writers for the NY Times send their own children to public schools or need access to welfare programs of entitlement programs, so, by all means, make them available to others.
Providing government largesse for those less fortunate inevitably increases the number of those less fortunate. Outlawing jobs for those with limited skills is cruel and makes things far worse. Stiglitz is right. Inequality is growing. But the reason is that government is growing. Growing government puts lower income citizens in the penalty box and makes it difficult for them to ever escape. That is what causes growing inequality.
It is interesting that Stiglitz thinks America was much more a land of opportunity one hundred years ago. That was a time that predated minimum wage laws, teachers unions, social security, medicare, medicaid and welfare programs. That was a time when a real land of opportunity existed because government played a much more limited role.
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