Archive for the ‘economics’ Category

The EuroMess

I’m not sure how to describe the Great Euro Mess, but I have to agree with Micheal Portillo’s comment that it will be a long time in sorting out. That said, I’ve finally watched The Great Euro Crash with Robert Peston and Michael Portillo’s Great Euro Crisis. Both of these have been uploaded to Youtube and are available on the “non-official” sources for BBC material (that is non-iPlayer downloads) if you are interested or outside the UK.

I won;t say too much about Robert Peston’s piece other than it was a well done overview of how the whole mess happened. There isn’t as much analysis as much as history. The main point that one should take from Robert’s piece is that the European Union was to bring peace and prospertity through the economic union of Europe. Which takes us to the Euroskeptic Michael Portillo looking into the topic.

I have to admit that having a Euroskeptic deal with the topic of the Euromess is truly intriguing. I was told that it was well done by others who keener on the EU than Michael. Although, I wanted to say take a look in the mirror when Michael makes his statement about not knowing what a European is (or looks like). Michael, You and I are EuroBrits (as is the Queen with her German background) if ever there were ones.

That said, I have to admit that seeing a non-US “conservative” is always a breath of fresh air. Unlike US conservatives who want to shout down the opposition, Michael was very open minded—especially when no one was willing to take him up on his Euro-Drachma/Euro-Mark challenge. Unfortunately, the single currency is the future for Europe, which having lived in Europe makes me say “Thank god!”

My best story was that I was at an antique market in Brussels’ Place du Grand Sablon and trying to figure how how much 32,000 Francs was in “Real Money”. The vendor thought I didn’t understand his trente deux mille and repeated it in English. I was tempted to reply, I knew how much it was in Francs, but how much is that in Real Money such as Pounds or US Dollars?  I can add in the joke about the woman who hires an armoured car with security guards to bring in a load of notes which after being labouriously counted for most of the day turns out to be worth 62p.  The main point is that a good, solid single currency is good for European trade.  Which the Euro was for a while until other causes set in.

Michael sees the problem as being totally related to just the single currency, which Roberts programme pretty much had debunked.  Although Michael’s points about the EU are somewhat valid.  Unfortunately, Austerity is not totally due to the Euromess since non-Euro countries (and non-European countries) are also tightening their belts.  Michael’s comment about the Greeks selling government assets seems to pale when one realises that the US is also trying to privatise government functions, which is more a political decision than an economic one.  In fact, I find it odd that a Tory would be against the single currency given its benefits for trade, while this lefty is defending it–as do most people whatever their political stripes.

Of course, reasonable people can disagree and somewhat see the other person’s point of view.  I have to bring the United States back into this discussion since Michael remains very civil throughout his programme. which US politics is not.  Michael and other Euroskeptics worry about the problems of Union in the United States of Europe, which given the two civil wars and lack of civility in US politics is a point which needs to be taken seriously whether you agree with it or not.  Of course, one needs to see the benefit of a union to realise that there are some sacrifices which need to be made.  Europe with its history of war realises that Union is necessary for peace and that union requires some compromise.

Now, why didn’t he say this in his programme?

Robbing Peter to pay Paul

One of my neighbours is a German (husband) and Greek (wife) couple, family arguments about finance have been over the topic of the Euro and Greek debt for the past couple of years rather than the usual financial arguments!

Anyway, there may be some peace in the household today with the announcement that this has been addressed. Although, it’s amusing how its been addressed, which is why I’ve titled this “Robbing Peter to Pay Paul”. One of the question I asked on my first quiz on MikeB’s blog was:

How much national debt is too much?

Which was a trick question, but entirely relevant to this solution. I would toss in the concept of “too Big To fail” as well, but the question ultimately is “who is too big to fail: the Governments or Banks?” Governments are adding more money to the pot, and banks have been told to increase their reserves in this solution to the Euro crisis.

And anyone who was dim enough to have lent money to these countries is getting a fraction of their investment.

The thing is that both government and the private sector are having to take a hit in this “solution”. “Solution” since it offers more questions than answers. Not to mention the failure of a few countries will effect the world economy. Which gets back to my too big to fail comment.

Who is too big to fail: Governments or the private sector?

I’ve wanted to post Michael Peston’s BBC Documentary Britain’s Banks: Too Big to Save? Although another good documentary is Inside Job. Ireland and Iceland were both brought to their knees by the excesses of their banking industries, yet the public ended up bailing them out.

Regulation is needed, but that means that we have another question which is who should regulate the banking/financial industry: the public or private sector? For most of its existence, the Bank of England was a private institution (nationalised in 1946) that worked to regulate the British economy. So, a private body can act as a “reserve” bank.

Of course, there are issues of control and transparency when one discusses whether such a body should be public or privately run.

Anyway, we now have a patch job of a solution to the Euro crisis–how long before another crisis occurs?

Posted 27/10/2011 by lacithedog in Banking, Banks, economics, economy, Euro, Euro Crisis

How to turn recession into depression.

A new IMF report finds that austerity is only the answer if the question is “How can we reduce income, raise long-term unemployment, and make the recession even more painful for everyone?” Of course, that isn’t stopping the Republicans, especially the Tea Party Crowd, from proposing more cuts!

The belief that cutting spending in the face of high unemployment would actually create jobs has been shown to be delusional, if that isn’t apparent from the way the economy has been slowly declining for the past 30 odd years. A record 46.2 million Americans are now below the poverty line, the Census Bureau reported yesterday, and the numbers appear to be growing.

The reduction in incomes from fiscal consolidations is even larger if central banks do not or cannot blunt some of the pain through a monetary policy stimulus. The fall in interest rates associated with monetary stimulus supports investment and consumption, and the concomitant depreciation of the currency boosts net exports. Ireland in 1987 and Finland and Italy in 1992 are examples of countries that undertook fiscal consolidations, but where large depreciations of the currency helped provide a boost to net exports.

Unfortunately, these pain relievers are not easy to come by in today’s environment. In many economies, central banks can provide only a limited monetary stimulus because policy interest rates are already near zero (see “Unconventional Behavior” in this issue of F&D). Moreover, if many countries carry out fiscal austerity at the same time, the reduction in incomes in each country is likely to be greater, since not all countries can reduce the value of their currency and increase net exports at the same time.

Simulations of the IMF’s large-scale models suggest that the reduction in incomes may be more than twice as large as that shown in Chart 2 when central banks cannot cut interest rates and when many countries are carrying out consolidations at the same time. These simulations thus suggest that fiscal consolidation is now likely to be more contractionary (that is, to reduce short-run income more) than was the case in past episodes.

On the other hand, Economic equality equals happiness. So suggests a new study to be published in a forthcoming issue of Psychological Science. In order for Americans to be truly blissed out, it finds, we need to close the gap between our wealthiest and poorest citizens.

The study, lead by Shigehiro Oishi of the University of Virginia, took into account economic and psychological factors when examining data taken from 50,000 individuals between 1972 and 2008. Not surprisingly it was the lower-income participants—those in the bottom 40 percent of the U.S. population—who expressed reduced happiness during periods of greater economic disparity, but their reasons for dissatisfaction were unexpected. Expains Sobczak:

People weren’t unhappy just because their income was lower. Instead, the authors’ analysis revealed that greater inequality was linked to reductions in trust and perceived fairness—and it was drops in those attitudes that made people feel less happy…. Oishi and his colleagues argue that their results may explain why economic growth has not been accompanied by increases in happiness in the United States, unlike in other developed nations. The problem, they suggest, is that gains in national wealth in the U.S. haven’t been distributed equally, and this inequality has caused Americans’ happiness to suffer.

Oishi offers this formula to fix our happiness dilemma: “If the ultimate goal of society is to make its citizens happy, then it is desirable to consider policies that produce more income equality, fairness, and general trust.”

Of course, we can keep going down the road to ruin. The Republicans have shown that they don’t mind trashing the economy by creating fake crises over the deficit and debt ceiling. The problem is that Obama has been caving in to the right and not proposing any real world solutions to this problem. People voted for change with Obama, not more of the same.

Read more:

Posted 14/09/2011 by lacithedog in economics, economy, equality

Who Spent the Social Security Trust Fund Money?

Cross posted from http://penigma.blogspot.com/2011/03/who-spent-social-security-trust-fund.html with permission:

Social Security should have a surplus. Republicans and Tea Partiers, like Rand Paul, tell us the money was spent, and they want to change benefits and the retirement age. They hate what they like to call ‘entitlements’; they never liked them. Like unions, they have been looking for pretexts to get rid of it.

So……….where is the money, and who spent it? Having spent it, why the hell do they think it is acceptable to simply say, so sad, too bad, and for the government not to pay it back?

Lets take a look at when the money started being spent. That would take us back to George H.W. Bush. It continued under the next president, Bill Clinton; but to his credit, Clinton presided over a booming economy, and handed over a surplus to the Shrub, George ‘Dubya’ Bush. And that appears to be where the spending went nuts, blowing the balance of the Social Security money with his wars and most of all, with his ill-conceived tax cuts —- the ones that benefit the wealthy very few, so very, very much more than anyone else.
Let me remind you how much the Democrats had a different taxation program than do the Republicans – and Tea Partiers:

So lets take a look at the money, the missing money, and who paid in that money. Because the people who paid in that money to Social Security have every right to be angry, and to demand that the money be repaid rather than be told they are out of luck.

That would be……..the baby boomers. There are quite a lot of baby boomers, they are no small demographic. They are aging, and as they do, they are a force to be reckoned with at the ballot box.

To reprise the history:

“The baby boomers have contributed more to Social Security than any other generation,” says economist Allen W. Smith. “They have prepaid the cost of their own retirement, in addition to paying the cost of the generation that preceded them.”

Smith points out that the baby boomers have kept their end of the bargain, which was proposed by the Greenspan Commission and enacted into law in 1983. “The higher taxes that were part of the 1983 ‘solution’ to the baby boomer problem have generated the annual Social Security surpluses anticipated so far, and they will continue to do so until 2018,” Smith said.

According to Smith, by 2018, the baby boomers will have paid enough extra taxes to have generated a $3.7 trillion reserve in the trust fund, which would be sufficient to pay full benefits until 2042 when the youngest of the boomers would be 78 years old.

“Despite these promises, President Bush has been raiding the trust fund since he took office,” Smith said, “and he no longer tries to conceal what he has done. In an effort to muster support for his privatization proposal, he has been openly admitting to the raiding of the fund.”

“There may be ‘no trust’ when it comes to Bush’s handling of Social Security money,” Smith argued, “but there most certainly is a trust fund. That fund is empty today because President Bush has used the money to pay for tax cuts, the war in Iraq, and many other programs. So, instead of trying to blame the baby boomers for Social Security’s current problems, Bush should stop spending Social Security money on other programs and repay the money he has already spent.”

As one of those who has been contributing those higher tax contributions into that trust fund, I want that money. I will not accept being told “too bad we spent it, you are S O L” by Republicans and Tea Partiers like Rand Paul. Pay it back, pay it back NOW, and if that means you have to end the damnable Bush Tax Cuts to the wealthy to do that, I don’t care. The wealthy may try to keep you on a short leash, Rand Paul, but that is your problem, and your cronies problem.

Don’t even think about making it my problem. I vote. I write. I am willing along with the baby boomers to go boom on your behind.

Let that spending of the Social Security Trust Fund become part of the George W. Bush failed presidential legacy. Let the Boomers take the lead in condemning him to history; I’m sure we won’t be the last, or the only ones to do so. And Tea Partiers, like Rand Paul? Be on notice, about that missing money? Better start coming up with ways to pay it back, not change the goal posts on us.

EMPLOYMENT SITUATION, 1936 from THE PEOPLE, YES, by CARL SANDBURG

EMPLOYMENT SITUATION, 1936 from THE PEOPLE, YES, by CARL SANDBURG

“Have you seen men handed refusals
Till they began to laugh
At the notion of ever landing a job
again—
Muttering with the laugh,
‘It’s driving me nuts and the family too,’
Mumbling of hoodoos and jinx,
fear of defeat creeping in their vitals—
Have you never seen this?
or do you kid yourself
with the fond soothing syrup of four
words
“Some folks won’t work’??

Have you seen women and kids
step out and hustle for the family
some in night life on the streets
some fighting other women and kids
for the leavings of fruit and vegetable
markets
or searching alleys and garbage dumps
for scraps?
Have you seen them with savings gone
furniture and keepsakes pawned
and the pawn tickets blown away
in cold winds?
by one letdown and another
ending
in what you might call slums—

To be named perhaps in case reports
and tabulated and classified
among those who have crossed over
from the employables into the
unemployables?

Stocks are property, yes.
Bonds are property, yes.
Machines, land, buildings are property, yes.
A job is property,
no, nix, nah nah.
The rights of property are guarded
by ten thousand laws and fortresses.
The right of a man to live by his work—
what is this right?

Engineer of Knowledge Said:

Hello Laci. I thought I would pass this on.

Company Towns
By Carl Sandburg

You live in a company house
You go to a company school
You work for this company,
according to the company rules.

You all drink company water
and all use company lights,
The company preacher teaches us
What the company thinks is right.

This poem written decades ago still speaks true today.

Six versus Seventy!

The US media is full of talk about a budget being proposed by The US Sentate’s “Gang of Six”, yet the media tends to neglect that there is a gang of Seventy–The US Congressional Progressive Caucus (CPC). These are the Democrats in the House who have already vowed to oppose any deal which cuts benefits in Social Security, Medicare or Medicaid. Congressman Raúl Grijalva, co-chair of CPC has pointed out that:

“Our Gang of Seventy-plus has the Gang of Six completely outnumbered, and with Republicans not voting for any package, period, because of their opposition to a functional economy. The House Democrats hold the key to whatever plan can pass Congress.”

Grijalva and his allies point to the CPC People’s Budget as an alternative more in sync with what people want and the economy needs—a budget that calls for shared sacrifice. For example, 66 percent of Americans favor raising income tax rates on those making more than $250,000 and 67 percent support raising the wage cap for Social Security taxes. Both of these measures are included in the CPC budget. It’s a budget that also offers sensible cuts to military spending run amok, new tax brackets for millionaires and billionaires, and an investment of $1.45 trillion in job creation, education, clean energy, broadband infrastructure, housing, and R&D. And it does all of this while achieving a lower debt-to-GDP ration in 2020 than the widely praised—praised by the elite, that is— budget proposal from Republican Congressman Paul Ryan.

In contrast, the Gang of Six proposal shafts those who have already borne so much of the burden of the financial crisis and its fallout—lost pensions, lost homes, lost wealth—while the very people who brought the economy to its knees through their recklessness make out like banksters and bandits. In fact, at a time of inequality akin to that of the Gilded Age, the top marginal tax rate would be lowered—lowered!—to 23 to 29 percent, while there would be massive cuts in Social Security, Medicare and Medicaid.

Dean Baker, co-director of the Center for Economic and Policy Research (CEPR), notes that JP Morgan CEO Jamie Dimon and Goldman Sachs CEO Lloyd Blankfein would save approximately $2 million to $3 million on their tax bills. But in twenty years, a 90-year-old living on a Social Security income of $15,000 would lose more than $1,200 a year in benefits.

How’s that a “bargain” for this nation and who exactly finds it “grand”?

All along, the alternatives that reflect the popular idea of shared sacrifice have been marginalized—by the political establishment (and, tragically, the Democratic leadership) and the corporate media. That’s one reason we are where we are in terms of the shape of this budget deal, where a ludicrous moral equivalence is being drawn between an increase in capital gains or carried interest tax and cuts in the very programs that have brought security and dignity to millions of Americans when they need it the most.

This is not about left and right. This is about right and wrong. And that’s something the political and media establishment just don’t seem to get.

See:
Congressional Progressive Caucus : FY2012 Progressive Budget

Sir John Rose, the Chairman of Rolls Royce, on the economy

This is a quotation from Sir John Rose, the Chairman of Rolls Royce, which is something that should be considered in light of the US budget debates.

We must be realistic about the state of the UK economy. A rebalancing is necessary and there will be no quick fix to restoring public finances to some sort of sustainable balance.

To draw an analogy, if the UK was a business, the shareholders would be asking serious questions. The current model appears to be that we can grow our business by growing overhead, by applying better terms and conditions to support functions than to wealth creators, and by paying dividends out of borrowings not all of which are recognised on the balance sheet.

We are also asked to believe that service levels will inevitably suffer if the costs of delivery are reduced. This need not be the case. As any business will confirm, service levels will reflect prioritisation, proper definition of desired outcomes, concentration on reducing waste and investment in productivity.

In the UK, the debate needs to focus on how to make the pie bigger, rather than how it is sliced. We must concentrate on creating an environment where the enablers of wealth creation, which government can influence, are world class. In defining the right policies, there are many examples against which we can assess ourselves, but we must measure honestly and then take the necessary actions to be competitive. Importantly, there must be the will to apply policy consistently and over the long term.

If we get wealth creation right, distribution and consumption will follow. It cannot be done in the reverse order.