It feels like we are finally at the moment of decision in the Euro Crisis. Italy and Spain have to inject money into their banks beginning now. The urgency is here because they have to borrow to do it. But Italy and Spain have limited or no ability to borrow anymore. Spain's bonds are being bought by their own banks, who are in turn being fed capital by the European Central Bank. But Spain's banks have now been revealed to be largely insolvent. The charade that Europe is solvent has been outed this month in Madrid.
To regain their solvency, it is being said Italy and Spain require 1.8 trillion Euros of capital. 1.8 trillion Euros of whose money? Germany doesn't have that much money but it could borrow that much. Some say Germany must or should bailout bankrupt Europe. It is in Germany's interest to prop up the Euro despite the cost they argue. The consequence of a collapse in the Euro will devastate Germany's economy as well as bankrupt Spain and Italy. Some say it will even lead to war. Certainly, Europe's leaders want to save the Euro but can they?
Politically Will They? Can They?
The electorate in AA rated Europe, Germany, Finland, the Netherlands and Austria don't have a good feeling about taking on the liabilities of bankrupt Europe. At last weekend's heavily watched Euro Cup football match between Greece and Germany, German viewers witnessed Greek fans chanting, "We won't pay you back!". Greece has repeatedly made promises in exchange for bailouts since 2010 that they have broken. It is likely Germans, the Dutch, Austrians and Finns don't believe they ever will be paid back by either Greece, Spain or Italy or that the those borrowers will change their ways and it makes them angry.
It seems doubtful angry voters in AA Europe will vote yes to assume the now staggering debts of junk debt Europe. Yes Germany and the rest want to fix the Euro crisis, but in terms of their own domestic politics, it doesn't seem realistic. Politically Europe cannot finance a fix to the crisis.
Legally Will They? Can They?
For Germany at least, bailing out junk Europe without receiving billions in collateral would be unconstitutional. The 1949 constitution was designed to prevent a repeat of the monetary mistakes that set the stage for the Nazi period. The famous collapse of Germany's currency in 1923 where hyper inflation increased costs to incredible prices such that a loaf of bread came to cost 100 billion Marks set the stage for political extremists to seize power. Germany's constitution prohibits policies that would damage the currency. Borrowing 1.8 trillion Euros to bailout two foreign countries is not only repugnant in Germany but unconstitutional.
The Euro crisis fix is moving towards a scenario where Germany shall guarantee the debts of junk Europe if it can rely on a credible European government to control the budgets of these countries. This loss of sovereignty is actually two way unfortunately. In exchange for backing junk Europe, all parties have to surrender sovereignty to the new European government. No good deed shall go unpunished it is sometimes said and here for Germany this is definitely the case. But is surrender of fiscal sovereignty to a now dominated European government constitutional in Germany or anywhere for that matter?
And desperate though they are now, is it legal in Italy to surrender sovereignty to a German controlled Europe for a bailout? Italian law very well may bend to suit circumstances, but law based on thousands of years of tradition and culture, Italian common law which is their real guiding force if you will, forbids it. Italy was unified in 1871, yet Sicily today still is an outlier from Italian consensus, law and the Italian economy. Agreements countries make with Europe today in exchange for bailouts, mean little to nothing down the road when the agreements become inconvenient.
Legally, Germany's constitution blocks Europe's bailout. But if junk bond Europe sells their sovereignty for bailouts, are those going to be enforceable contracts down the road? Realistically no. Legally, whether it is because of Germany's constitution or the weakness of law in Southern Europe, the Euro crisis bailout cannot happen.
Practically Should They? Can They?
Until now, Europeans thought the Euro was a wonder. It achieved the political goal of breaching the borders ensuring peace and seemingly unleashing new productivity and prosperity. Over the past five years or so the financial malaise that has drifted over Europe has lead to big stagnation in the Mediterranean countries. 25% unemployment in Spain is evidence of an economy that is uncompetitive and the Euro has something to do with it.
The Euro is an expensive currency for the Spanish economy to do business in. Spanish manufactured and agricultural goods can't compete with Asian goods on price versus quality. They are too expensive. Spanish goods can't compete with German goods on the higher end. German goods are better and since both have the same currency and similar cost structure, Spanish goods can't compete with German productivity and quality. Spain is being squeezed in the middle and under the current Euro zone arrangement has no way out going forward.
Conversely, the Euro is a less expensive currency for Germany to do business in. If there still was a Deutsche Mark, it would be more expensive than the Euro. The Euro helps Germany conquer markets in Europe's and the world. Unemployment in Germany is half to a quarter what it is in Latin Europe. While Germany thrives under the current Euro status quo, the erosion of the Italian and Spanish economic base is ongoing and intractable.
Finally, this crisis is too big to bail. It is already obvious when you think of it, but when France, whose unemployment is now at a 12 year high, gets closer to their default it will be obvious. 1.8 trillion Euros to bailout Spain and Italy is more than is possible already. But when you add in the rest, the impossibility of it all is overwhelming.
Practically, the benefits of Euro membership were very up front for much of Europe. In the Euro, Latin Europe could borrow cheaply and they did massively. The borrowing created a false and temporary prosperity. Now the debts and loss of competitiveness weigh mercilessly on these countries. Pratically speaking, the Euro crisis is unlikely to be resolved with bailouts or to go on as it is constituted now. It just isn't practical.
Tuesday, June 26, 2012
Wednesday, April 18, 2012
You Can't Believe Europe's Crisis is Under Control
The fictions that Europe is handling its crisis or that the US recovery itself is on a solid self sustaining course are both illusions any voter or investor should avoid believing. The media reports have zeroed in on the next fix, not the litany of failed fixes and have created a climate of complacency. Heavy borrowing to support the European or US economy five, six years in a row isn't normal or sustainable. For the US, this is year five of huge deficits.
Southern Europe's woes are front and center today. Uncompetitive in the world markets, they have lost or are losing the ability to borrow anymore. Two years ago Greek debt crisis began when Greece's ability to borrow to continue financing itself hit a wall. "The Era of Summits" of Europe's leaders began (see below)
Two years later, Europe's endless grand bargains, pledges, subsidies and creative new ways to covertly or indirectly pay more bills with borrowed money and no economic problems have actually been solved. They said it was unthinkable that Greece would default but they did and will default again, Spain the 4th largest economy is unable to borrow without central bank intervention and Italy is also being supported. It is now accepted that Portugal will also default. The politicians' promises, exhortations and efforts of the last two years continue in the end to prove to be false.
Still the borrowing continues and who is buying these debts that fewer and fewer believe are good investments? The Europeans have learned from the US Federal Reserve the new way to finance a government that can't get enough money in the capital markets. It works and here is how. Few people know that the US Federal Reserve Bank has now bought more Treasury Bonds than China. This innovation has an imaginary aspect to it. The US government can borrow so much for at such low rates because one of its departments buys the excess inventory.
Europe in turn has been buying Greek, Portuguese and Spanish bonds to make it look like the market for these bonds is better than it is. The mechanisms are indirect. The lastest the LTRO, consists of banks buying the bonds of Spain and Italy with a promise from the European Central Bank (ECB). The ECB doesn't own the bonds, but they guarantee the bonds. The reason the ECB doesn't own the bonds outright is it doesn't have the legal authority to own them. Instead, they get around it by guaranteeing them. The legal means may not be quite intact but the political will is there in endless quantity.
The media isn't reporting it this way, but US, UK and European government bond markets are all in fact operating under heavy intervention and not like normal markets at all. How can you trust a market that is being manipulated? The reality is we all do. We have to because it is what it is until it isn't. For now, the central banks can buy the bonds and everyone believes that is going to work out ok even if there is no evidence yet that it will.
Europe still refuses to accept its failures and the need for the Euro to restructure. History will someday show, probably after 40 or 50 summits, the folly of such an unwieldy and ineffective form of governance or a monetary union with such poor internal cohesion. The consequences of the extension of unsustainable debt during this period will be for history to write. We can only imagine right now.
It was irresistible not to pass on Zerohedge's summary of summits.
And due to popular demand, here is a summary of European summits and their "achievements" in the past year, courtesy of Reuters. (From Tyler Durden at Zerohedge.com)
Feb. 4, 2011 - Summit of EU heads of state and government.
- Germany and France tried to win backing for a pact to strengthen the euro zone economy, but many other EU states were angered by what they saw as a fait accompli and the measures contained in it.
March 4 - Fourteen EU leaders, hosted by Finland, met to prepare a comprehensive response to the euro zone debt crisis.
- Finland said the common will was there for European leaders to agree a pact that would call on member states to enact national legislation on debt.
March 12
- Euro zone leaders agreed the capacity of the region's bailout fund, the European Financial Stability Facility, should be raised to 440 billion euros ($600 billion) from 250 billion, but left it up to finance ministers to work out how.
March 15 - Meeting of EU finance ministers in Brussels.
- Euro zone officials said they were likely to agree details on how to bolster the EFSF soon and that the reformed facility should be operational by the summer.
March 24, 25 - Full summit of EU leaders in Brussels.
- They confirmed that the EFSF would have a higher effective lending capacity by June.
April 8, 9 - Informal meeting of European finance ministers in Hungary.
- EU finance ministers urged Portugal to commit to reforms. Portugal on April 6 became the third euro zone country after Greece and Ireland to ask for EU and IMF aid.
May 16 - Euro zone finance ministers meet in Brussels.
- Ministers approved a 78 billion euro bailout for Portugal but insisted that Lisbon ask private bondholders to maintain their exposure to its debt.
May 17 - European Union finance ministers meet in Brussels.
- Europe's top financial officials acknowledged for the first time that Greece may have to restructure its debts.
June 23, 24 - Summit of EU leaders in Brussels.
- Euro zone leaders endorsed the treaty setting up the European Stability Mechanism (ESM) - a permanent mechanism for resolving sovereign debt crises - from mid-2013.
July 3 - Extraordinary meeting of euro zone finance ministers in Brussels.
- Ministers approved the next 12 billion euro instalment of Greece's bailout, but signalled that the nation must expect significant losses of sovereignty and jobs.
July 21 - Meeting of euro zone heads of state and government in Brussels.
- Euro zone leaders agreed on giving the rescue fund broader powers to prevent contagion from the debt crisis.
Sept. 6 - Finance ministers of the Netherlands, Finland and Germany meet in Berlin.
- The Dutch finance minister said talks with Finland and Germany had not resolved a row over a bilateral deal between Finland and Greece, granting the Nordic country collateral for contributing to a new Greek bailout package.
Sept. 16, 17 - Informal meeting of ministers and central bank governors in Wroclaw, Poland.
- EU finance ministers broke no new ground in dealing with the euro zone debt crisis. U.S. Treasury Secretary Timothy Geithner made an appearance and urged Germany to provide more fiscal stimulus for the euro zone.
Oct. 3 - Meeting of euro zone finance ministers, central bankers and EU commissioners in Luxembourg.
- European finance ministers agreed to safeguard their banks as doubts grew about whether a planned second bailout package for Greece would go ahead.
- Hours earlier, French-Belgian municipal lender Dexia became the first European bank to have to be bailed out due to the euro zone's sovereign debt crisis.
Oct. 23 - Meeting of EU leaders.
- Leaders near agreement on bank recapitalisation -- how to leverage their rescue fund to try to stop bond market contagion.
Oct. 26-27 - Euro zone leaders strike a deal with private banks and insurers for them to accept a 50 percent loss on their Greek government bonds as part of a plan to lower Greece's debt burden. The agreement is reached after more than eight hours of hard-nosed negotiations.
- Leaders also agree to scale up the EFSF to about 1 trillion euros and to recapitalise European banks to an estimated 106 billion euros ($147 billion).
Nov. 29 - Euro zone ministers meeting in Brussels.
- Ministers agree on detailed plans to leverage the EFSF but do not say by how much because of rapidly worsening market conditions, prompting them to look to the IMF.
Dec. 5 - Sarkozy and Merkel meet in France.
- They float proposal for a euro zone "fiscal compact" to enforce budget discipline across the 17-nation bloc.
They say they want any necessary treaty changes for their plans to be enacted to be agreed in March and ratified after France wraps up presidential and legislative elections in June.
Dec. 8 - The ECB announced unprecedented action to support Europe's cash-starved banks with three-year liquidity tenders and easier collateral rules and cut interest rates back to a record low 1.0 percent.
- However ECB President Mario Draghi discouraged expectations that the bank would massively step up buying of government bonds if European Union leaders agree on moves towards closer fiscal union at a crucial Brussels summit.
Dec. 8/9 - Crisis summit of EU heads of state and government in Brussels. Sarkozy and Merkel laid out their plan to impose mandatory penalties on euro states that exceed deficit targets, to restore market trust and arrest the region's debt crisis.
- Twenty-three of the 27 leaders agreed to pursue tighter integration with stricter budget rules for the single currency area, but Britain said it could not accept proposed amendments to the EU treaty after failing to secure concessions for itself.
Jan. 30, 2012 - Summit of EU heads of state and government in Brussels. Twenty-five out of 27 EU states agreed to a German-inspired pact for stricter budget discipline - only Britain and the Czech Republic refused the fiscal compact, to be signed in March.
Feb. 6 - Euro zone finance ministers will meet in Brussels to try to agree a second financing package for Greece.
Southern Europe's woes are front and center today. Uncompetitive in the world markets, they have lost or are losing the ability to borrow anymore. Two years ago Greek debt crisis began when Greece's ability to borrow to continue financing itself hit a wall. "The Era of Summits" of Europe's leaders began (see below)
Two years later, Europe's endless grand bargains, pledges, subsidies and creative new ways to covertly or indirectly pay more bills with borrowed money and no economic problems have actually been solved. They said it was unthinkable that Greece would default but they did and will default again, Spain the 4th largest economy is unable to borrow without central bank intervention and Italy is also being supported. It is now accepted that Portugal will also default. The politicians' promises, exhortations and efforts of the last two years continue in the end to prove to be false.
Still the borrowing continues and who is buying these debts that fewer and fewer believe are good investments? The Europeans have learned from the US Federal Reserve the new way to finance a government that can't get enough money in the capital markets. It works and here is how. Few people know that the US Federal Reserve Bank has now bought more Treasury Bonds than China. This innovation has an imaginary aspect to it. The US government can borrow so much for at such low rates because one of its departments buys the excess inventory.
Europe in turn has been buying Greek, Portuguese and Spanish bonds to make it look like the market for these bonds is better than it is. The mechanisms are indirect. The lastest the LTRO, consists of banks buying the bonds of Spain and Italy with a promise from the European Central Bank (ECB). The ECB doesn't own the bonds, but they guarantee the bonds. The reason the ECB doesn't own the bonds outright is it doesn't have the legal authority to own them. Instead, they get around it by guaranteeing them. The legal means may not be quite intact but the political will is there in endless quantity.
The media isn't reporting it this way, but US, UK and European government bond markets are all in fact operating under heavy intervention and not like normal markets at all. How can you trust a market that is being manipulated? The reality is we all do. We have to because it is what it is until it isn't. For now, the central banks can buy the bonds and everyone believes that is going to work out ok even if there is no evidence yet that it will.
Europe still refuses to accept its failures and the need for the Euro to restructure. History will someday show, probably after 40 or 50 summits, the folly of such an unwieldy and ineffective form of governance or a monetary union with such poor internal cohesion. The consequences of the extension of unsustainable debt during this period will be for history to write. We can only imagine right now.
It was irresistible not to pass on Zerohedge's summary of summits.
And due to popular demand, here is a summary of European summits and their "achievements" in the past year, courtesy of Reuters. (From Tyler Durden at Zerohedge.com)
Feb. 4, 2011 - Summit of EU heads of state and government.
- Germany and France tried to win backing for a pact to strengthen the euro zone economy, but many other EU states were angered by what they saw as a fait accompli and the measures contained in it.
March 4 - Fourteen EU leaders, hosted by Finland, met to prepare a comprehensive response to the euro zone debt crisis.
- Finland said the common will was there for European leaders to agree a pact that would call on member states to enact national legislation on debt.
March 12
- Euro zone leaders agreed the capacity of the region's bailout fund, the European Financial Stability Facility, should be raised to 440 billion euros ($600 billion) from 250 billion, but left it up to finance ministers to work out how.
March 15 - Meeting of EU finance ministers in Brussels.
- Euro zone officials said they were likely to agree details on how to bolster the EFSF soon and that the reformed facility should be operational by the summer.
March 24, 25 - Full summit of EU leaders in Brussels.
- They confirmed that the EFSF would have a higher effective lending capacity by June.
April 8, 9 - Informal meeting of European finance ministers in Hungary.
- EU finance ministers urged Portugal to commit to reforms. Portugal on April 6 became the third euro zone country after Greece and Ireland to ask for EU and IMF aid.
May 16 - Euro zone finance ministers meet in Brussels.
- Ministers approved a 78 billion euro bailout for Portugal but insisted that Lisbon ask private bondholders to maintain their exposure to its debt.
May 17 - European Union finance ministers meet in Brussels.
- Europe's top financial officials acknowledged for the first time that Greece may have to restructure its debts.
June 23, 24 - Summit of EU leaders in Brussels.
- Euro zone leaders endorsed the treaty setting up the European Stability Mechanism (ESM) - a permanent mechanism for resolving sovereign debt crises - from mid-2013.
July 3 - Extraordinary meeting of euro zone finance ministers in Brussels.
- Ministers approved the next 12 billion euro instalment of Greece's bailout, but signalled that the nation must expect significant losses of sovereignty and jobs.
July 21 - Meeting of euro zone heads of state and government in Brussels.
- Euro zone leaders agreed on giving the rescue fund broader powers to prevent contagion from the debt crisis.
Sept. 6 - Finance ministers of the Netherlands, Finland and Germany meet in Berlin.
- The Dutch finance minister said talks with Finland and Germany had not resolved a row over a bilateral deal between Finland and Greece, granting the Nordic country collateral for contributing to a new Greek bailout package.
Sept. 16, 17 - Informal meeting of ministers and central bank governors in Wroclaw, Poland.
- EU finance ministers broke no new ground in dealing with the euro zone debt crisis. U.S. Treasury Secretary Timothy Geithner made an appearance and urged Germany to provide more fiscal stimulus for the euro zone.
Oct. 3 - Meeting of euro zone finance ministers, central bankers and EU commissioners in Luxembourg.
- European finance ministers agreed to safeguard their banks as doubts grew about whether a planned second bailout package for Greece would go ahead.
- Hours earlier, French-Belgian municipal lender Dexia became the first European bank to have to be bailed out due to the euro zone's sovereign debt crisis.
Oct. 23 - Meeting of EU leaders.
- Leaders near agreement on bank recapitalisation -- how to leverage their rescue fund to try to stop bond market contagion.
Oct. 26-27 - Euro zone leaders strike a deal with private banks and insurers for them to accept a 50 percent loss on their Greek government bonds as part of a plan to lower Greece's debt burden. The agreement is reached after more than eight hours of hard-nosed negotiations.
- Leaders also agree to scale up the EFSF to about 1 trillion euros and to recapitalise European banks to an estimated 106 billion euros ($147 billion).
Nov. 29 - Euro zone ministers meeting in Brussels.
- Ministers agree on detailed plans to leverage the EFSF but do not say by how much because of rapidly worsening market conditions, prompting them to look to the IMF.
Dec. 5 - Sarkozy and Merkel meet in France.
- They float proposal for a euro zone "fiscal compact" to enforce budget discipline across the 17-nation bloc.
They say they want any necessary treaty changes for their plans to be enacted to be agreed in March and ratified after France wraps up presidential and legislative elections in June.
Dec. 8 - The ECB announced unprecedented action to support Europe's cash-starved banks with three-year liquidity tenders and easier collateral rules and cut interest rates back to a record low 1.0 percent.
- However ECB President Mario Draghi discouraged expectations that the bank would massively step up buying of government bonds if European Union leaders agree on moves towards closer fiscal union at a crucial Brussels summit.
Dec. 8/9 - Crisis summit of EU heads of state and government in Brussels. Sarkozy and Merkel laid out their plan to impose mandatory penalties on euro states that exceed deficit targets, to restore market trust and arrest the region's debt crisis.
- Twenty-three of the 27 leaders agreed to pursue tighter integration with stricter budget rules for the single currency area, but Britain said it could not accept proposed amendments to the EU treaty after failing to secure concessions for itself.
Jan. 30, 2012 - Summit of EU heads of state and government in Brussels. Twenty-five out of 27 EU states agreed to a German-inspired pact for stricter budget discipline - only Britain and the Czech Republic refused the fiscal compact, to be signed in March.
Feb. 6 - Euro zone finance ministers will meet in Brussels to try to agree a second financing package for Greece.
Tuesday, March 13, 2012
Secret Solution to US Deficits Hiding in Plain Sight
Congress isn't expected to take action on it. Only candidate Ron Paul thinks it is the number one issue. Washington is in general content to postpone the issue until after the next election. But the $5 trillion dollar increase in US government debt over four years, one year from now puts us only a whisper from the same relative level of national debt as bankrupt Greece. Central to the issue is the growing cost of providing healthcare. The US is the most inefficient country in healthcare spending vs. outcomes in the world as the two graphs below show.
US Healthcare Spending is $1 Trillion Too High
Health care costs are now about 18% of our total economy. The reasons for overspending come down to payment processing, higher drug costs than any country, costs associated with paying for and avoiding lawsuits, allowing costs like end of life care to balloon out of control and a complicated system of essential services that have no overall cost/outcome standards.
If President Obama does lose in November, it may be because of that moment where his administration pushed as hard as they could to reform healthcare without designing in credible cost controls. The impact of this problem is not only a much larger deficit but also in the workplace where health insurance costs make it just that much harder to hire workers.
If Obama had pushed a plan that lowered the cost of health care, arguably the deficits in the US would be half or less what they are both due to cost cuts and increased hiring and increased tax revenues. If the US spent the same as Germany per person on healthcare, we would save $1trillion dollars a year, our deficit would not be a life or death issue and economic growth would be on sounder footing.
US Healthcare Spending is $1 Trillion Too High
Health care costs are now about 18% of our total economy. The reasons for overspending come down to payment processing, higher drug costs than any country, costs associated with paying for and avoiding lawsuits, allowing costs like end of life care to balloon out of control and a complicated system of essential services that have no overall cost/outcome standards.
If President Obama does lose in November, it may be because of that moment where his administration pushed as hard as they could to reform healthcare without designing in credible cost controls. The impact of this problem is not only a much larger deficit but also in the workplace where health insurance costs make it just that much harder to hire workers.
If Obama had pushed a plan that lowered the cost of health care, arguably the deficits in the US would be half or less what they are both due to cost cuts and increased hiring and increased tax revenues. If the US spent the same as Germany per person on healthcare, we would save $1trillion dollars a year, our deficit would not be a life or death issue and economic growth would be on sounder footing.
Wednesday, January 25, 2012
Post Partisan Syndrome is Catching - State of the Union
Weariness with politicians spinning the truth into their viewpoint, a lingering sense of malaise arising when polarizing political figures talk over each other on TV shows and a feeling of apathy or dread when considering who to vote for. These are all symptoms of PPS, Post Partisan Syndrome, a condition that is reaching epidemic levels judging by the 83% disapproval rating of Congress in recent polls.
Last night, the President made a break out move towards becoming a true leader. The State of the Union address called out the big issues of the day. The economic pressure and joblessness of the middle class and young people, the lopsided trade regime with China, the poor outcomes of our educational system, the escalating cost of college, the loss of competitiveness, building an energy infrastructure that is ours and clean.
He also called Congress on to the carpet for their partisanship, their obstructionism and favoritism. Did we really hear Obama even question the sacred cow of our political class, the role of money in the system and how it is undermining democracy and effective governance?
It wasn't all middle of the road. He wasn't didn't sound ready to cut spending or entitlements generally, but the President was aiming towards the middle and he was close. I think with three years experience behind him, he has learned the President can choose to lead the way he thinks it is done best and that is for benefit of the nation as a whole, not the moneyed groups that helped him get there.
In his usual affable way, Obama has thrown down his gauntlet at the actual problems we face, not just a party platform. Reagan had that ability to keep things pleasant and true. If Obama keeps going this way, he will become a real President and no longer be the tool of Pelosi and company. Having crossed the threshold, President Obama is no longer in denial. No he made out like he is confronting PPS head on. For the first time in quite a long while I had a glimmer of hope that America's leadership will set us in the right direction again. Hope so.
Last night, the President made a break out move towards becoming a true leader. The State of the Union address called out the big issues of the day. The economic pressure and joblessness of the middle class and young people, the lopsided trade regime with China, the poor outcomes of our educational system, the escalating cost of college, the loss of competitiveness, building an energy infrastructure that is ours and clean.
He also called Congress on to the carpet for their partisanship, their obstructionism and favoritism. Did we really hear Obama even question the sacred cow of our political class, the role of money in the system and how it is undermining democracy and effective governance?
It wasn't all middle of the road. He wasn't didn't sound ready to cut spending or entitlements generally, but the President was aiming towards the middle and he was close. I think with three years experience behind him, he has learned the President can choose to lead the way he thinks it is done best and that is for benefit of the nation as a whole, not the moneyed groups that helped him get there.
In his usual affable way, Obama has thrown down his gauntlet at the actual problems we face, not just a party platform. Reagan had that ability to keep things pleasant and true. If Obama keeps going this way, he will become a real President and no longer be the tool of Pelosi and company. Having crossed the threshold, President Obama is no longer in denial. No he made out like he is confronting PPS head on. For the first time in quite a long while I had a glimmer of hope that America's leadership will set us in the right direction again. Hope so.
Tuesday, January 17, 2012
The Economy Wants to Turn Up - Global Debt Crisis May Have the Veto
There is a lot of evidence that business is improving. Employment trends are improving, exports improved, retail sales improved and none of that was predicted four or five months ago. To some extent, this is what America does.
There are millions of young people who want to get on with their lives and establish a household. Car sales have been running millions of cars a year behind the trends of the previous decades and the demand for new more fuel efficient cars is huge. Entrepreneurs by the millions in this country strive every day to build a business, improve a product or find a new and better way to do things. No wonder the economy seems like it wants to grow.
The line up of threats to this scenario are daunting, however. Over the next couple of months, Europe will have to come to grips again with a crisis it may not be able resolve. Greece may fully default in March, while other indebted countries in Europe may have trouble financing their bonds. If Europe unravels, the spillover here will be substantial. There is also a risk of conflict with Iran and a spike in oil prices.
Meanwhile, the US is still forecast to have a Federal deficit of over $1 trillion in 2012. Another year or two of that and we may be in debt crisis too.
The business cycle wants growth and increased investment. The debt cycle wants productivity, reduced government spending and austerity. Which trend will prevail?
Wednesday, December 21, 2011
Obama Can be Elected Again If He Champions the Middle Class, Like Ron Paul Does...
The only problem for Obama and Romney: Ron Paul already is that champion.
It is the middle class that casts the votes but it is the special interests that finance the increasingly expensive election process. Who has more influence, the voters or the narrow agenda driven special interests who finance elections?
In 1970, the average congressional campaign cost about $52,000. In 2010, it was more than 25 times that, $1.3 million. The approval rating of congress is at an all time low just as they are getting ready to spend more money than ever. Is this just going to go on this way or is something about to change?
Ron Paul is now ahead in the polls in Iowa. Ignored by the media and having little money, Paul is about to rewrite the story of the 2012 presidential election. What is that story?
I think it has everything to do with a rebellion against the pay for access politics that has been looting the middle class for years now. Whether it is commercial or ideological, well financed interest groups come first when policy is being made and result of this is evident in the deeply entrenched problems facing America today. Paul's antagonism against the Federal Reserve is also relevant to the crisis we are in now. It was the Fed's policy of backing the financial leverage that created the capital to finance both the internet and housing bubbles which define the historic mistakes made over past 13 years.
At the core of our deficits are out of control basic costs. K-12 education costs a lot more in the US than any other developed country except for Switzerland. Top ranked in spending on education, America is bottom to middle ranked in achievement, American students rank 24th in literacy and below average in math and science. We have a very unproductive education system and a highly politicized one that has been taken over by special interests and is a product of our political system.
Our health care system is also a product of the politicians. It cost about twice as much per person to run as other developed countries and has below average health outcomes. Ballooning health care costs are at the center of our national, state and local budget crises and a big reason that unemployment is so high because employers, small businesses mostly, can't afford it.
Military spending, infrastructure and administration are not run on a shoe string. It costs much much more in America to get things done because interest groups bend every policy to their benefit.
So here we are. Just maybe the guy who is going to be elected in 2012 will be the guy who the middle class believes will put us right. Enabling the middle class means lowering the cost of government and health care. It means expecting a better educated student at a lower cost. It means an America that can be the best once again. It will also mean the end of outsourcing, a rollback in executive compensation at publicly held corporations and a more energy efficient America.
It also means middle class entrepreneurs can proper and employ people. Not many people know that the jobs problem we have this year has much to do with outsourcing. It is small and medium sized business who are creating jobs. Big companies have added very few jobs to the economy. They are still shipping jobs overseas.
At the end of the day, America is about a middle class that is succeeding. The rich will take care of themselves so we shouldn't worry about them. Rather than institutionalized poverty, the poor need a growing middle class they can aspire to become a part of. If the middle class is advantaged, the poor can rise up to it and the productive capacity and spirit of the nation will increase.
Really, what is good for America's middle class is what is good for America. Politicians who adopt that slogan will do well in the next election cycle.
One can hope that Obama and or Romney figure out this message, but in the meantime we have Ron Paul, the spoiler, to shake things up and he is going to do just that. Watch the media deny and discredit Paul until the votes in Iowa and then New Hampshire come in. Then the issues in this election will come closer to addressing what is really bugging Americans.
(This article's intent is to point out how the core issue of the election is enabling the middle class, remove structural impediments like unfair trade with China and cost overruns like health and education, and finally using America's productive capacity to turn things around. I agree with Paul that government needs to downsize if the country is to proper in the future. I am not endorsing any candidate, however.)
It is the middle class that casts the votes but it is the special interests that finance the increasingly expensive election process. Who has more influence, the voters or the narrow agenda driven special interests who finance elections?
In 1970, the average congressional campaign cost about $52,000. In 2010, it was more than 25 times that, $1.3 million. The approval rating of congress is at an all time low just as they are getting ready to spend more money than ever. Is this just going to go on this way or is something about to change?
Ron Paul is now ahead in the polls in Iowa. Ignored by the media and having little money, Paul is about to rewrite the story of the 2012 presidential election. What is that story?
I think it has everything to do with a rebellion against the pay for access politics that has been looting the middle class for years now. Whether it is commercial or ideological, well financed interest groups come first when policy is being made and result of this is evident in the deeply entrenched problems facing America today. Paul's antagonism against the Federal Reserve is also relevant to the crisis we are in now. It was the Fed's policy of backing the financial leverage that created the capital to finance both the internet and housing bubbles which define the historic mistakes made over past 13 years.
At the core of our deficits are out of control basic costs. K-12 education costs a lot more in the US than any other developed country except for Switzerland. Top ranked in spending on education, America is bottom to middle ranked in achievement, American students rank 24th in literacy and below average in math and science. We have a very unproductive education system and a highly politicized one that has been taken over by special interests and is a product of our political system.
Our health care system is also a product of the politicians. It cost about twice as much per person to run as other developed countries and has below average health outcomes. Ballooning health care costs are at the center of our national, state and local budget crises and a big reason that unemployment is so high because employers, small businesses mostly, can't afford it.
Military spending, infrastructure and administration are not run on a shoe string. It costs much much more in America to get things done because interest groups bend every policy to their benefit.
So here we are. Just maybe the guy who is going to be elected in 2012 will be the guy who the middle class believes will put us right. Enabling the middle class means lowering the cost of government and health care. It means expecting a better educated student at a lower cost. It means an America that can be the best once again. It will also mean the end of outsourcing, a rollback in executive compensation at publicly held corporations and a more energy efficient America.
It also means middle class entrepreneurs can proper and employ people. Not many people know that the jobs problem we have this year has much to do with outsourcing. It is small and medium sized business who are creating jobs. Big companies have added very few jobs to the economy. They are still shipping jobs overseas.
At the end of the day, America is about a middle class that is succeeding. The rich will take care of themselves so we shouldn't worry about them. Rather than institutionalized poverty, the poor need a growing middle class they can aspire to become a part of. If the middle class is advantaged, the poor can rise up to it and the productive capacity and spirit of the nation will increase.
Really, what is good for America's middle class is what is good for America. Politicians who adopt that slogan will do well in the next election cycle.
One can hope that Obama and or Romney figure out this message, but in the meantime we have Ron Paul, the spoiler, to shake things up and he is going to do just that. Watch the media deny and discredit Paul until the votes in Iowa and then New Hampshire come in. Then the issues in this election will come closer to addressing what is really bugging Americans.
(This article's intent is to point out how the core issue of the election is enabling the middle class, remove structural impediments like unfair trade with China and cost overruns like health and education, and finally using America's productive capacity to turn things around. I agree with Paul that government needs to downsize if the country is to proper in the future. I am not endorsing any candidate, however.)
Saturday, October 15, 2011
Politicians and Vested Interests Block Economic Recovery
Can we fix this broken economy? What needs fixing and what is the prognosis.
In the economic crisis of the 1930's, FDR could put people to work building public infrastructure within just a few months of making the decision. Out of work men were employed at low labor rates building roads, bridges and public spaces. Today, you can't build infrastructure like that. Mandatory high union wages, permitting delays, lawsuits and bloated government stand in the way. Stimulating the economy by financing construction programs have yielded little for the investment. It is the vested interests that pay for political campaigns that are put before the public interest and the economy suffers.
You can't export your way out of this mess because trade negotiators have caved to China's strategy of conquering global markets systematically. Whether it is their willingness to exploit their people, ruin their environment or steal patents and designs or subsidize industries to enable them to overwhelm foreign competition. China also won't trade fair. Foreign companies are not allowed free access to Chinese markets. China is dead set to take markets from developed countries. Washington is impotent in the face of such a determined effort to take our hard earned advantages away.
You can't increase employment if large companies in the US continue to replace workers here with workers in Asia. There has been virtually zero increase in hiring by large companies this year. The entire gain in jobs can be attributed to mid and small size companies. Washington will say nothing about this. Big companies are their sponsors.
An economy that pays too much for health care is going to go bankrupt and isn't globally competitive. The US pays twice as much as other developed countries and has worse health statistics. You can't change that when politicians obfuscate the issues in favor of the interests that finance their election campaigns. The trial attorneys, the for profit practitioners, the drug companies that get their highest profit margins in the US and the unions get first consideration in policy making and are among the biggest campaign contributors in America. Health care costs are sapping government budgets and hurting employment. This is probably the most under appreciated economic issue in the country.
The Democratic Party's largest contributors are the Teachers' unions. With the policy makers on the hook to the teachers, is it any wonder we have the most expensive public education system in the world and the one that provides the very worst performance for dollars spent? Employers are complaining, graduates are not well prepared to work and don't have the necessary skills. Despite spending vast sums, drop out rates are outrageous. Outcomes don't matter to policy makers or the unions, but the market place does care and the US is suffering as a result.
The US can't isolate itself from the political problems of the world. So when you consider that foreign military ventures are "Diplomacy by other means", you realize that we are blowing an awful lot of money. We should ask ourselves, can't we be achieving more by improving our spies on the ground, our diplomatic skills and capabilities and cheap soft dollar endeavors economic development projects like health and education assistance abroad. One single F-16 squadron on operations for 2 -3 months will cost more than a whole year of soft diplomacy for an entire developing country. Which is smarter? Which creates the most good will? Which can we afford? Our military entanglements have been mismanaged by the politicians. The goals have been off the mark and the stories peddled to the American public have been disingenuous about the real costs of war.
In the economic crisis of the 1930's, FDR could put people to work building public infrastructure within just a few months of making the decision. Out of work men were employed at low labor rates building roads, bridges and public spaces. Today, you can't build infrastructure like that. Mandatory high union wages, permitting delays, lawsuits and bloated government stand in the way. Stimulating the economy by financing construction programs have yielded little for the investment. It is the vested interests that pay for political campaigns that are put before the public interest and the economy suffers.
You can't export your way out of this mess because trade negotiators have caved to China's strategy of conquering global markets systematically. Whether it is their willingness to exploit their people, ruin their environment or steal patents and designs or subsidize industries to enable them to overwhelm foreign competition. China also won't trade fair. Foreign companies are not allowed free access to Chinese markets. China is dead set to take markets from developed countries. Washington is impotent in the face of such a determined effort to take our hard earned advantages away.
You can't increase employment if large companies in the US continue to replace workers here with workers in Asia. There has been virtually zero increase in hiring by large companies this year. The entire gain in jobs can be attributed to mid and small size companies. Washington will say nothing about this. Big companies are their sponsors.
An economy that pays too much for health care is going to go bankrupt and isn't globally competitive. The US pays twice as much as other developed countries and has worse health statistics. You can't change that when politicians obfuscate the issues in favor of the interests that finance their election campaigns. The trial attorneys, the for profit practitioners, the drug companies that get their highest profit margins in the US and the unions get first consideration in policy making and are among the biggest campaign contributors in America. Health care costs are sapping government budgets and hurting employment. This is probably the most under appreciated economic issue in the country.
The Democratic Party's largest contributors are the Teachers' unions. With the policy makers on the hook to the teachers, is it any wonder we have the most expensive public education system in the world and the one that provides the very worst performance for dollars spent? Employers are complaining, graduates are not well prepared to work and don't have the necessary skills. Despite spending vast sums, drop out rates are outrageous. Outcomes don't matter to policy makers or the unions, but the market place does care and the US is suffering as a result.
The US can't isolate itself from the political problems of the world. So when you consider that foreign military ventures are "Diplomacy by other means", you realize that we are blowing an awful lot of money. We should ask ourselves, can't we be achieving more by improving our spies on the ground, our diplomatic skills and capabilities and cheap soft dollar endeavors economic development projects like health and education assistance abroad. One single F-16 squadron on operations for 2 -3 months will cost more than a whole year of soft diplomacy for an entire developing country. Which is smarter? Which creates the most good will? Which can we afford? Our military entanglements have been mismanaged by the politicians. The goals have been off the mark and the stories peddled to the American public have been disingenuous about the real costs of war.
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