Tag: economics

The European Crisis Just Went from Bad … to Better

Just as we see the Arab Spring turning  brown in the Moslem Autumn, brace yourself because we’re about to experience a cold, hard European Winter.  In the last couple of weeks, our friends, the Euro spenders, have finally woken up to their financial debacle, and nobody’s made the coffee.  Austerity is the watchword, and there’s about to be enough tough love around to make everybody south of the Alps think they’re in rehab – and, to a certain extent, they will be.  There’ll be the usual demonstrations and condemnations, but march and chant all you want, people: the party’s over.  Let the hangover begin!  That’s the bad news.

The good news is for the first time since the EU bailiffs threatened to put a lien on the Acropolis there is actually some light at the end of the tunnel.

A couple of weeks ago, the Greek Tragedy took a definite turn for the better when Papendreou, the Prime Minister, decided to step down and collect his pension — before it disappeared entirely.   Remember, this is the guy who was going to hold a referendum to see if his fellow citizens, rioting in Athens, would vote yes to a couple more brutal kicks in the financial groin.  Not the sharpest skewer in the souvlaki, he was replaced by Lucas Papademos, who — believe it or not — is actually an economist.  Fancy that!  Hiring an economist to deal with a financial meltdown!  Who says the Greeks haven’t done dick since Pericles?

Around about the same time, over in Rome, class clown Silvio Berlusconi was given his walking papers, complete with dancing in the streets.  Apparently, somebody took time away from eyeballing Ruby Rubacuori and took a gander at the books.  As of this morning, Italy is a little over two trillion dollars short of a down payment on a cappuccino.  In other words, they’re up to their Armanis in debt, and this time, bread and circuses aren’t going to save them.  “Bunga, Bunga” retired gracefully, rather than be thrown to the lions, and he was replaced by Mario Monti.  Once again — wonder upon wonders — the guy’s an economist!  He better be a good one.

The third domino to fall happened in Spain on Sunday, November 20th, when Spanish voters returned the right-of-centre Partido Popular to power after a seven year absence.  As you recall (or maybe you don’t) the Spanish electorate tossed the PP out of power in 2004 when the Jihadists made it clear which way they wanted the vote to go — with a couple of commuter train bombings in Madrid.  For the last seven years, Jose Luis Zapatero and The Spanish Socialist Workers’ Party have been running the show with (to be fair) mixed results.  Unfortunately for the socialists, the only results the Spanish are hearing these days are 20% unemployment and a national debt big enough to choke an Andalusian stallion.  Zapatero saw the escritura on the wall and retired from politics.  Mariano Rajoy is in charge now, with a majority in the Cortes Generales and a mandate to clean up the mess.

Suddenly, all of Europe has turned a conservative blue.  (Just a note to my American friends.  The traditional political designations around the world have always been conservative blue and liberal red — just as they used to be in the United States.  It’s only the recent media manipulation of the colour wheel on election night maps that has changed the colours to Red states Republican, Blue states Democrat.  Coincidence? I think not, but that’s fodder for another blog.)

Anyway, as of last Monday morning, every government west of the Volga (with the exception of Slovakia – don’t ask) is either centre-right or out and out right of centre – in a word, fiscally conservative.  Granted, in European politics, right wing doesn’t mean much until you get to the nutsy fringe, but at least these folks understand that if you have two Euros, you don’t spend twelve.  Obviously, the European crisis is so massive even the most conservative government is going to have to tax and spend more than they want, just to keep the wheels rolling.  However, by understanding the simple accounting principle that the books have to balance eventually they may be able to stop the deficit haemorrhage.  More importantly, during the heated discussions between north and south that are about to ensue, with any luck at all, nobody will be throwing their political monkey wrench into the economic machinery.   It helps that, even though these Euro zone leaders aren’t necessarily all on the same page, at least they’re all finally reading from the same book.

Like it or not, if these new governments do it right, it’s going to be a hard, cold European winter. Unfortunately, there isn’t any second choice.  It would be a fatal mistake to think there is.

The Sky is Falling: Let’s Eat the Rich!

According to NASA and the Federal Reserve, the sky actually is falling.  Apparently, UARS, a weather satellite that ran of gas in 2005, has slipped its leash and is about to come home — at about a million miles an hour.   NASA is pulling a Napolitano, though.  (“We don’t know where.  We don’t know when.  But something terrible is going to happen.”) They haven’t told anybody when this five tonne ET is going to come sailing in – or more importantly, where.  Actually, they don’t know.  It is kind of important, though; especially since NASA says around 500 kilos of it is going to make it to the crash site.  I, for one, would kinda like to know when to duck.  The betting boys in Vegas aren’t talking, but according to NASA itself, there’s only a 1 in 3,200 chance of me getting brained by extraterrestrial debris, so that’s somewhat reassuring.

One the other hand, the Federal Reserve isn’t even giving odds on my financial well being anymore.  Their boldest reassurance so far amounts to “significant downside risks.”  Let me translate: we’re screwed.

In the next few years, the odds of any of us not being touched by this world-wide economic debacle are zero.  Our best plan of action is to get our personal financial house in order and hope the stupid wears off our political leaders before it’s too late.  While I’ll grant you the enormity of our collective debt didn’t just show up last Wednesday, it’s the responsibility of those who govern us now to start killing alligators – we can drain the swamp another time.  The problem is the leaders of our time remain blind to the economic realities that face us.  Not only that, but their Win-Win-Everybody-Gets-A-Rainbow political philosophy is seriously getting in the road.   I’m not sure what Fantasy Island Merkel, Papandreou, Obama and the others have checked into, but they better start thinking about coming back to the real world while the planes are still flying.  Sunshine and lollipops aren’t going to do us much good when all the airlines are bankrupt.  I hate to keep harping on it, but the delusionary air circulating in the halls of power has convinced most of the politicos that this economic crisis is the same in kind as every other one we’ve faced since the Arabs turned off the gas in 1973.  Guess again!  It’s not!

To be perfectly blunt; this time we’re broke.  The United States, the UK and Europe haven’t got the price of a Big Mac among them; forget fries and a beverage.  We are so far in debt even the guy at Sham Wow wants cash.  Here are the numbers: the United States, 13.9 trillion dollars; the EU, 13.7 trillion; Britain, 8.9 trillion.  That’s how much we owe!  And everybody knows it.  There isn’t a money person on this planet right now — from Madame Lagarde at the IMF all the way down to Ron the teller at Rubberboot Savings and Loan — who doesn’t understand we are facing a financial Armageddon.  They’ve been yapping about it for a couple of years now.  Yet — and here’s the sharp stick to the eyeball — not one world leader is willing to publically admit it or, more importantly, do something about it.  The best we get out of our fearful leaders is some old same old, borrow, tax and spend stimulus package.  The latest incarnation is “Let’s eat the rich!”

Here’s some arithmetic (It’s not even math.)  According to Forbes, there are 10.5 million millionaires in America.  If Obama taxed (took) each one of them an extra one million dollars (which, by the way, would wipe a lot of them out) he’d get only 10.5 billion dollars.  Likewise, there are 412 billionaires kicking around.  If Obama extra-taxed them a billion dollars each and added that to the original scam, he’d still only have 422.5 billion dollars.  Everything being equal (and if the accumulating compound interest stopped this very second) it would still take America well over 30 years to pay off their current IOUs.   Meanwhile, over in the European forest, Merkel, Sarkozy and Cameron don’t have near as many millionaires to sic their tax men on.  So, it would take them even longer to get out of the poorhouse.  Plus, there’s no guarantee what these financial Einsteins are going to do with the money after they collect it.   It might never see the debt.  It might end up buying muffins at a Justice Department Conference – perhaps with coffee and a nice piece of fruit.  Quite frankly, the track record so far isn’t all that good.

There’s only one way to get out of this money pit we’ve dug for ourselves.  Quit spending so damn much!  We need to stop the dollar haemorrhage immediately.   It’s no secret that government – any government – wastes enough money to keep a small planet going.  It has to stop.  This means deep and drastic cuts to the vast majority of government programs.  There will be weeping and wailing and threats for the next election.  After all, it’s very difficult to convince people they can no longer have the things they think they’re entitled to.  But we have to do it.

Unfortunately, our leaders have been taking the easy way out on this for years, that’s how we got in this mess.  Now, instead of judicious trimming, we’re going to have to cut to the bone just to come out about even, and nobody’s going to like it.  However, for every day we delay, the cuts are just going to get deeper.  There’s no quick fix, folks; I don’t care what the politicos think they can get away with.

Like it or not, the financial sky is falling, and the chances of you getting hit are 100%.  Believe me: it’s better to go outside and get it over with than spend the next ten years being pelted to death by little pieces.

How to Ruin a Debt Crisis: Part III

To put it mildly, America is in the middle of an economic crisis… again.  However, there’s a difference between this one and the crisis of 2007-08 or even 2000.  This time, instead of faceless, nameless corporate executives, Americans have somebody real they can blame — and it just might be Barack Obama.  If this credit downgrade by Standard and Poor’s sticks to the President and the crisis turns political, America is in for a ride right out of Roller Coaster Tycoon, and the rest of the world better buckle up ‘cause they’re coming, too.

Before we discuss the mayhem that’s about to ensue we need to get a few facts straight.  First of all, there’s nothing wrong with the American government’s credit.  If anybody would take even a brief panic pause, they’d notice that most people who are getting out of the stock market are putting their Yen, Yuan and Euros into US Treasury Bills.  So much for America’s inability to pay its debts!  Secondly, the US economy is in trouble, but it’s not on the verge of collapse.   Of the twenty largest corporations in the world, ten are American — and that doesn’t include Disney, Coca-Cola or McDonald’s.  Visa and Mastercard are American companies, as are Facebook, Google, Microsoft, Intel and Apple.  Your physical laptop may be made in China, but the guts that run it are American.  Also, there are two essential concepts you need to understand.  One: every single American, from birth, knows that, unless it’s your team, nobody cares who didn’t win The World Series.  It’s in their DNA somewhere.  To reiterate, they believe that there are champions and then there are the other guys; you don’t get points for close.  Two: in general, ordinary Americans don’t know anything about the rest of the world, and they don’t care.  It’s not arrogance; it’s a simple fact.  Why don’t they care?  They don’t have to.  This isn’t bashing “stupid” Americans.  Think about it, objectively.  What difference does the rest of the world make to them?  The reality is not much.  Former Speaker of the House, Tip O’Neill, once said, “All politics is local.”  For Americans this is true.  That’s why Barack better shape up, or in 2012, the locals are going to go Jimmy Carter on his ass and he’ll be spending the next four years planning the Obama Library.

Here’s the scenario.  Last November, the Republicans may have taken control of the House, but it’s the Tea Party caucus that owns it.  They proved that during the debt ceiling fiasco.  As it stands now, in 2012, there’s more than an even chance the Senate could go the same way – a Republican majority with Tea Party control.  Now, as of last Friday, Standard and Poor’s threw the White House into the mix.  Obama’s approval rating is at 40%.  That’s not enough to win re election.  If a Republican – any Republican – gets to redecorate 1600 Pennsylvania Avenue next year the Tea Party is going to be running the show.

Tea Party people are fed up with playing nice with the rest of the world.  They see America as getting kicked around by every two-bit country with a vote at the UN, and they’re tired of paying for that privilege.  This credit downgrade is just another example to them.  They look at the billions spent in Iraq and Afghanistan and say, “Hey, wait a minute!  We could have used that money.”  They want to stop wasting lives and dollars on foreign adventures and get their own house in order.  They want to protect their own borders, their own jobs and their own industry — before they start tackling other people’s problems.  They want to feed and educate their own children first.  In short, they’re old-fashioned Isolationists.  But before the anti-American choir starts gearing up for the Hallelujah Chorus, let’s look at what this means.

Admit it or not, America has been doing the heavy lifting — economically and militarily — around this planet since 1945.  American military spending has allowed Europe to spend their money on social programs and Canadians to buy Health Care.  The foreign aid they gave Asia established global industries that turned Pennsylvania, Ohio and all points northwest into the Rust Belt.  They’ve paid for schools and hospitals across South America and Africa.  And it goes on and on.  There is no part of contemporary society that hasn’t benefited from American dollars.  Pax Americana has given our world the time, space and peace to grow scientifically, medically and culturally.  Anti-American gasbags don’t realize the USA is the most benevolent Superpower in history.  They never mention the trillions of dollars worth of free food Americans have sent around the world, or the free medical aid or industrial assistance.  They don’t talk about things like the Center for Disease Control in Atlanta, or the American Red Cross or the IMF or the World Bank or any of the other goodies Americans have been paying for — for two generations.

So what happens if an America First Congress starts turning off the money tap?  Every country west of the Bosphorus is going to have to up their military spending by at least 20%.  Europe doesn’t have that kind of money, but they’re going to have to find it.  Canadian Arctic sovereignty will become an expensive proposition.  South Korea will have to do some serious sucking up to Kim Jung-il.   Japan had better invest in missile defence, and China’s lost province of Taiwan will probably be reunited with the mainland, at long last.  The Middle East is too disastrous to even contemplate, but Iran’s neighbours should consider stocking up on bomb shelters and HazMat suits.  And the military spending isn’t even the half of it.

If America erects protectionist trade barriers and shuts the world’s biggest economy out of the free trade loop, the Great Depression is going to look like a walk in the park.  World trade will collapse, just like it did in 1929 — but the fall will be further because billions more people depend on it.  Modern Asia’s prosperity is built on exports; and without them they’re burnt toast.  The Yuan, China’s much-manipulated currency, won’t be worth the time it takes to print it – never mind Asia’s lesser economies.

Then there are all the other non-threatening by-products of American isolationism.  Frantic calls from places like Haiti, Somalia and Indonesia will still be there, but they’ll be put on hold.  Relief efforts in non-big-media areas will wither and die.  The UN, not a Tea Party favourite, will be looking around for lunch money, and Unicef, Unesco, WHO and all the other alphabet agencies will be having bake sales to pay the bills.

The last time America shut the doors and went about its business, there was a global economic disaster and a world war.  In the 21st century, American voters are not going to complain if their government stops spending money in places like Eritrea; most of them don’t even know where that is.  No pressure, but Americans don’t like a loser either; so, Barack, you’d better come up with some economic answers pretty quick — or the political fallout is going to be heard around the world.