When I visited the House of Lords’ minister, Lord Marland, at the Climate Change Department a couple of years ago, I asked him and the Department’s chief number-cruncher, Professor David Mackay (neither a climate scientist nor an economist, of course) to show me the Department’s calculations detailing just how much “global warming” that might otherwise occur this century would be prevented by the $30 billion per year that the Department was committed to spend between 2011 and 2050 -– $1.2 trillion in all.
There was a horrified silence. The birds stopped singing. The Minister adjusted his tie. The Permanent Secretary looked at his watch. Professor Mackay looked as though he wished the plush sofa into which he was disappearing would swallow him up entirely.
Eventually, in a very small voice, the Professor said, “Er, ah, mphm, that is, oof, arghh, we’ve never done any such calculation.” The biggest tax increase in human history had been based not upon a mature scientific assessment followed by a careful economic appraisal, but solely upon blind faith. I said as much. “Well,” said the Professor, “maybe we’ll get around to doing the calculations next October.” They still haven’t done the calculations -– or, rather, I suspect they have done them but have kept the results very quiet
Officials in southern China appear to have averted environmental calamity by halting the spread of a toxic metal that had threatened to foul drinking water for tens of millions of people, the state media reported Monday. Officials said they had successfully diluted the concentration of cadmium, a poisonous component of batteries, that has been coursing down the Longjiang River…
half the nation’s rivers and lakes are unfit for human contact, and news reports of chemical and oil spills are commonplace here. Although the central government has invested more than $3 billion to improve water quality in recent years, officials estimate that more than 300 million people still do not have access to clean drinking water…
10 percent of the nation’s rice crop contained excessive cadmium levels. In several southern provinces, 60 percent of rice samples were found to exceed the national standard for the heavy metal…“Only when fish started dying did they publicly acknowledge there was a problem,” Mr. Ma said.
In China they have Real Pollution. In the US we have not had serious pollution problems in decades; instead we now have pretend pollution, and Americans are so mal-educated that they don’t even know it. 16 of the 20 dirtiest cities in the world are in China. The country’s water is appalling. And how about the great taste of melamine?
Meanwhile, in the US, we have geniuses like this: “Think about the amount of money that China has spent on infrastructure. Their ports, their train systems, their airports are vastly the superior to us now.” The US has 20,000 airports, while China has fewer than 200 for civilian use. Some infrastructure! Some genius!
NPR reports about a contract among Chinese farmers in 1978:
There was no incentive to work hard — to go out to the fields early, to put in extra effort, Yen Jingchang says. “Work hard, don’t work hard — everyone gets the same,” he says. “So people don’t want to work.” In Xiaogang there was never enough food, and the farmers often had to go to other villages to beg. Their children were going hungry. They were desperate. So, in the winter of 1978, after another terrible harvest, they came up with an idea: Rather than farm as a collective, each family would get to farm its own plot of land. If a family grew a lot of food, that family could keep some of the harvest…
Despite the risks, they decided they had to try this experiment — and to write it down as a formal contract, so everyone would be bound to it. By the light of an oil lamp, Yen Hongchang wrote out the contract. The farmers agreed to divide up the land among the families. Each family agreed to turn over some of what they grew to the government, and to the collective. And, crucially, the farmers agreed that families that grew enough food would get to keep some for themselves. The contract also recognized the risks the farmers were taking. If any of the farmers were sent to prison or executed, it said, the others in the group would care for their children until age 18…
by changing the economic rules — by saying, you get to keep some of what you grow — everything changed. At the end of the season, they had an enormous harvest: more, Yen Hongchang says, than in the previous five years combined. That huge harvest gave them away…
fortunately for Mr. Yen and the other farmers, at this moment in history, there were powerful people in the Communist Party who wanted to change China’s economy. Deng Xiaoping, the Chinese leader who would go on to create China’s modern economy, was just coming to power. So instead of executing the Xiaogang farmers, the Chinese leaders ultimately decided to hold them up as a model. Within a few years, farms all over China adopted the principles in that secret document. People could own what they grew. The government launched other economic reforms, and China’s economy started to grow like crazy. Since 1978, something like 500 million people have risen out of poverty in China.
In 1623 William Bradford figured out the same thing after the Pilgrims spent two years on their communal farms: “they began to think how they might raise as much corn as they could…so assigned to every family a parcel of land, according to the proportion of their number…and ranged all boys and youth under some family. This had very good success, for it made all hands very industrious…The women now went willingly into the field, and took their little ones with them to set corn; which before would allege weakness and inability.”
Since at least the time of Rick Santelli’s Tea Party rant, we have been witnessing some seismic changes in American politics. Independents flipped by 33 points in 2010 after all. But to many of the powers that be, it’s as though that never happened. Flash forward to the extraordinary GOP primary season. Candidate after candidate has surged and they have been characterized in their turn by the punditry and the media as the latest anti-Romney. That characterization misses the point. In our view the Republican primary voters have been sending a clear message that has has not varied all that much, though the vessels for the message have come and gone.
The latest vessel is Newt Gingrich, obviously flawed in many ways. But take a moment to read what he’s saying. It’s less the messenger than the message that has the power. We think that GOP primary voters believe that a minimally acceptable candidate articulating that message clearly and unapologetically is electable by a sizeable majority of voters. After all, in the wake of the ridiculous Keystone decision, even staunch liberals are shaking their heads about the disastrous course the administration has set for the country. We don’t recall a recent analogy to this bubbling up of opinion from the grass roots. (Eugene McCarthy’s strong losing performance in the 1968 New Hampshire primary comes to mind.) If the insiders don’t quite get what is going on, it wouldn’t be the first time.
A few days ago, Mitt Romney was ahead in SC, and it was all about Saul Alinsky versus Gordon Gekko, but it turned out that Newt Gingrich won handily. Here’s some of what he had to say (we could not find a transcript of Gingrich’s victory speech in South Carolina, so we essentially created one below):
So many people who are so concerned about jobs, about medical costs, about the everyday parts of life, and who feel that the elites in Washington and New York have no understanding, no care, no concern, no reliability, and in fact do not represent them at all.
In the last two debates we had…where people reacted so strongly to the news media, I think it was something very fundamental that I wish that the powers that be in the news media would take seriously. The American people feel that they have elites who have been trying for a half century to force us to quit being American and to become some kind of other system, and the reaction…People completely misunderstand what’s going on. It’s not that I am a good debater, it’s that I articulate the deepest held views of the American people…
If Barack Obama can get reelected after this disaster, just think how radical he would be in a second term…there are a number of key issues we have to talk about with the President. I believe this campaign comes down to economics, including jobs, economic growth, balancing the budget, the value of money, comes down to national security, what threatens us and what to do about it, but the centerpiece of this campaign is about American exceptionalism versus the radicalism of Saul Alinsky…
What we are going to argue is that American exceptionalism, the Declaration of Independence, the American Constitution, the American Federalist Papers, the Founding Fathers of America are the source from which we draw our understanding of America. He draws his from the Saul Alinsky, the radical left-wingers, and people who don’t like the classical America…
One of the keys issues, and I’m prepared to take this straight to the President and frankly, straight to the elite media…is the growing anti-religious bigotry of the elites…The second big theme that every South Carolinian understands is jobs, economic growth…I want to go into every neighborhood of every ethnic background in the country and say to the people very simply, if you want your children to have a life of dependency and food stamps, you have a candidate and that’s Barack Obama. If you want your children to have a life of indepedency and paychecks, you have a candidate and that’s Newt Gingrich…
Part of our long-term security interests is having an American energy policy. I want America to become so energy independent that no American President ever again bows to a Saudi King. Let me give you an example of a common sense conservatism that solves problems. You have well over $29 billion of natural gas offshore. As President I will authorize on the very first day the development of it. That natural gas will create jobs that, in Louisiana, average $80,000 apiece. In addition, it generates royalties. Part of the royalties should be used to modernize the port of Charleston, which affects 1 out of every 5 jobs in South Carolina.
But it’s not enough just to find the money. The Corps of Engineers bureaucracy is so long and so stupid that they currently take 8 years to study, not to do the project but to study the project. We fought the entire Second World War in 3 years and 8 months. Now if you can beat Nazi Germany, fascist Italy and Imperial Japan in 3 years and 8 months, it is almost unimaginable that it now takes 8 years to study the project…
The President’s decision to veto the Keystone pipeline…you have to wonder how out-of-touch with reality this administration is…The President says, no, we don’t want you to build a pipeline from central Canada straight down, with no mountains intervening, to the largest petrochemical center in the world, Houston, so that we would make money on the pipeline, we would make money on managing the pipeline, we would make money on refining the oil, and we would make money in the ports of Galveston and Houston shipping the oil.
Oh no, we don’t want to do that because Barack Obama is taking care of his extremist left-wing friends in San Francisco. They think that will really stop the oil from getting out. No. Prime Minister Harper…is going to cut a deal with the Chinese, and they will build a pipeline straight across the Rockies to Vancouver. We will get none of the jobs, none of the energy, none of the opportunity. An American President who can create a Chinese-Canadian partnership is truly a danger to this country.
Gingrich certainly owes a great deal to the much-reviled media, and possibly to Romney’s mishandling of his tax issue. More surprises ahead no doubt, but even Romney partisans know that important changes are needed, and quick.
Henry Adams reflected on changes in America in about 1904: “The American boy of 1854 stood closer to the year 1 than to the year 1900.” Charles Eliot commented on the range of knowledge among some Americans in 1854: “We are accustomed to seeing men leap from farm or shop to court-room or pulpit, and we half believe that common men can safely use the seven-league boots of genius.” Those days are long gone.
As VDH says, and as we have written as well, Americans don’t know much about the world that existed in the days of Adams and Eliot. The world seems magic now, because of technology; it hardly was magic back then.
The ignorance is not just sad, it’s actually perilous. To take a mundane example, technology has permitted the elimination of inventory everywhere in the global supply chain. How large are the buffer inventories of gasoline, fruits and vegetables, meat, canned goods, and so forth, in case some serious disruptions should occur? A month or two, like the SPR? What happens when the gas and the cheeseburgers run out after that?
Charles Eliot advocated a new curriculum in higher education that focused on specialization. This time in our view would benefit by more respect for the generalist of 1854. It is colossally arrogant to think that there will not be a breakdown in the supply chain at some point. And the consequences of arrogance are not pretty. If there’s a Plan B for the US in such a crisis, we haven’t heard of it. And offshoring so much of America’s needs to foreign lands heightens the risks in our perilous present.
Charleston wants to deepen its port by 5 feet. George Will:
The first container ship reached Charleston in 1966, carrying 600 containers. Today the port receives ships carrying more than 9,000. By 2014 there will be 1,200 “post-Panamax” ships — marvels of naval architecture, floating mountains — built for commerce after the canal widening. They will carry up to 18,000 containers. The widening, says Jim Newsome, CEO of the South Carolina State Ports Authority, will be “the biggest game-changer in the history of containerization”…70 percent of imports from Asia arrive at West Coast ports and are distributed inland by truck and rail. But shipping is the cheapest transportation per mile and will become cheaper with post-Panamax ships, including those coming here.
Newsome says the study for deepening Savannah’s harbor was made in 1999. It is 2012, and studies for the environmental impact statement are not finished. When they are, the project will take five years to construct. “But before that,” he says laconically, “they’re going to be sued by groups concerned about the environmental impact.” A Newsome axiom — that institutions become risk-averse as they get challenged — is increasingly pertinent as America changes from a nation that celebrated getting things done to a nation that celebrates people and groups who prevent things from being done.
Newsome says that because of labor costs — in constructing and crewing ships — America has essentially no deep-sea shipping industry. This is a facet of the de-industrialization of the nation.
“China is expecting foreign trade growth to slow this year to around 10 percent amid a grim outlook for exports…Last year, China’s foreign trade grew 22.5 percent to $3.6 trillion…exports in December rose 13.4 percent, down slightly from November’s growth rate.” And from Bloomberg, “Growth may ‘trough’ at 7.5 percent in the three months through March and 7.6 percent in the second quarter.”
According to the BLS, the “labor force participation rate” — the ratio of the number of people either working or looking for work compared with the entire working-age population — is now 64%, down from 65.7% when the recession ended in June 2009. That’s the lowest level since women began entering the workforce in far greater numbers several decades ago. If you adjust for this drop, the unemployment rate would be close to 11%, instead of the official 8.5%.
The drawdown is not occurring in a vacuum, but is the bookend of a loud new ‘reset’ / ‘lead from behind’ strategy that deprecates traditional allies like Britain and Israel while failing miserably in outreach to supposedly new neutrals like Syria and Iran — all in a landscape of bowing, apologizing, and Cairo speechifying. All of these developments serve as force multipliers to the military retrenchment and confirm the impression of our enemies that the world is now entirely negotiable in a way not true four years ago.
The unspoken irony is that the military and our anti-terrorism protocols served Obama well when he arrived: he found a quiet Iraq with almost no monthly American casualties, a decimated al Qaeda (largely destroyed in Iraq), anti-terrorism measures that had foiled over 30 plots against the mainland (and were all demagogued by candidate Obama before President Obama embraced them), major powers like China, Russia, and Iran wary of pressing the U.S., allies like Japan, Taiwan, Germany, and South Korea secure under the U.S. nuclear umbrella, and the most seasoned and experienced U.S. military in generations…
The new $500 billion cuts must be considered against the nearly $5 trillion Obama has borrowed since assuming office, in addition to what he will borrow this next year. A defense budget that was tolerable prior to 2008 becomes apparently unsustainable with expenditures for Obamacare, vast new green projects like Solyndra, expansions in food stamps and unemployment insurance, and vast increases in the size of the non-military federal government. At least with the military our money earns safety and deterrence
The college professor continues his work. It’s as though the country elected not Jimmy Carter, but George McGovern. In any event the choice couldn’t be clearer this year. An America that might choose a McGovern administration is both unfathomable to us and, sadly, possible.
millions of Americans remain unaware that this nation is broke –- broker than any nation has ever been. A few days before Christmas, we sailed across the psychological Rubicon and joined the club of nations whose government debt now exceeds their total GDP. It barely raised a murmur -– and those who took the trouble to address the issue noted complacently that our 100 percent debt-to-GDP ratio is a mere two-thirds of Greece’s. That’s true, but at a certain point per capita comparisons are less relevant than the sheer hard dollar sums: Greece owes a few rinky-dink billions; America owes more money than anyone has ever owed anybody ever.
Public debt has increased by 67 percent over the past three years, and too many Americans refuse even to see it as a problem. For most of us, “$16.4 trillion” has no real meaning, any more than “$17.9 trillion” or “$28.3 trillion” or “$147.8 bazillion.” It doesn’t even have much meaning…there is no politically plausible scenario under which the 16.4 trillion is reduced to 13.7 trillion, and then 7.9 trillion and, eventually, 173 dollars and 48 cents…
Our most enlightened citizens think it’s rather vulgar and boorish to obsess about debt. The urbane, educated, Western progressive would rather “save the planet,” a cause which offers the grandiose narcissism that, say, reforming Medicare lacks. So, for example, a pipeline delivering Canadian energy from Alberta to Texas is blocked by the president on no grounds whatsoever except that the very thought of it is an aesthetic affront to the moneyed Sierra Club types who infest his fundraisers. The offending energy, of course, does not simply get mothballed in the Canadian attic: The Dominion’s Prime Minister has already pointed out that they’ll sell it to the Chinese, whose Politburo lacks our exquisitely refined revulsion at economic dynamism and, indeed, seems increasingly amused by it…
Last January, the BBC’s Brian Milligan inaugurated the New Year by driving an electric Mini from London to Edinburgh, taking advantage of the many government-subsidized charge posts en route. It took him four days, which works out to an average speed of 6 miles per hour – or longer than it would have taken on a stagecoach in the mid-19th century. This was hailed as a great triumph by the environmentalists.
Steyn goes on to talk about the regulatory sclerosis that afflicts the country and is so evident over the march of decades. Of course it’s not all bleak. Some companies in the tech sector continue to show impressive growth. But the heavy lifting of massive job creation can’t occur unless government stops its spending binge and gets out of the way of business. 2013 can’t arrive fast enough.
Henry Miller reads from Black Spring. The narrator has been tasked with bringing his Aunt to the asylum:
It always seemed astounding to me how jolly they were in our family despite the calamities that were always threatening. Jolly in spite of everything. There was cancer, dropsy, cirrhosis of the liver, insanity, thievery, mendacity, buggery, incest, paralysis, tapeworms, abortions, triplets, idiots, drunkards, n’er-do-wells, fanatics, sailors, tailors, watchmakers, scarlet fever, whooping cough, meningitis, running ears, chorea, stutterers, jailbirds, dreamers, storytellers, bartenders — and finally there was Uncle George and Tante Melia. The morgue and the insane asylum.
No one knew that Tante Melia was going completely off her nut, that when we reached the corner she would leap forward like a reindeer and bite a piece out of the moon. And nobody could think quick enough to stop it. Just like that it happened. In the twinkle of a star. And now I’m going to tell you what those bastards said to me…
They said — Henry, you take her to the asylum tomorrow. And don’t tell them that we can afford to pay for her. Fine! Always merry and bright! The next morning we boarded the trolley together and we rode out into the country. If Mele asked where we were going I was to say – “to visit Aunt Monica.” But Mele didn’t ask any questions. She sat quietly beside me and pointed to the cows now and then. She saw blue cows and green ones. She knew their names. She asked what happened to the moon in the daytime. And did I have a piece of liverwurst by any chance?
During the journey I wept — I couldn’t help it. When people are too good for this world they have to be put under lock and key. There’s something wrong with people who are too good. It’s true Mele was lazy. She was born lazy. It’s true that she was a poor housekeeper. It’s true she didn’t know how to hold on to a husband when they found her one. When Paul ran off with the woman from Hamburg she just sat in a corner and wept. The others wanted her to do something — put a bullet into him, raise a rumpus, sue for alimony. But Mele sat quiet. She wept. She hung her head. She was like a pair of torn socks that are kicked around here, there, everywhere. Always turning up at the wrong moment.
And now she’s very tranquil and she calls the cows by their first name. The moon fascinates her. She has no fear because I’m with her and she always trusted me. I was her favorite. Even though she was a halfwit she was good to me. The others were more intelligent, but their hearts were bad.
Sometimes when she was fired from a job they used to send me to fetch her. Mele never knew her way home. And I remember how happy she was whenever she saw me coming. She would say innocently that she wanted to stay with us. Why couldn’t she stay with us? I used to ask myself that over and over. Why couldn’t they make a place for her by the fire, let her sit there and dream, if that’s what she wanted to do? Why must everybody work -– even the saints and the angels? Why must halfwits set a good example? I’m thinking now that after all it may be good for Mele where I’m taking her. No more work. Just the same, I’d rather they had made a corner for her somewhere.
Walking down the gravel path toward the big gates Mele becomes uneasy. Even a puppy knows when it is being carried to a pond to be drowned.
And here we are today at the end of 2011. Is the country better or worse off? Of course materially much better off — but consider Miller’s first paragraph above. Look at how robust that writing is and how much our discourse has been dumbed down, self-censored, and made purposefully vague today. Here’s to better luck in 2012! HT: MS
Addendum: China is about 100 years behind the USA’s trends in urbanization and agricultural employment. They’re about where we were at the start of WWI, with some notable differences due to technology. Given the vast changes that have taken place and the vast changes that lie ahead, it’s hard to imagine where this country and China will be in another century.
From 1960 to 2010, the share of federal spending going for “payments to individuals” (Social Security, food stamps, Medicare and the like) climbed from 26 percent to 66 percent…
falling military spending — from 52 percent of federal outlays in 1960 to 20 percent today…
In 1960, federal taxes were 17.8 percent of national income (gross domestic product). In 2007, they were 18.5 percent of GDP…
the Forbes 400 richest Americans have a collective wealth of $1.5 trillion. If the government simply confiscated everything they own, and turned them into paupers, it would barely cover the one-time 2011 deficit of $1.3 trillion…
Obama has provided no leadership. Aside from Rep. Paul Ryan, chairman of the House Budget Committee, few Republicans have.
It looks like Mr. Samuelson is writing a contemporary history of America’s financial Armageddon. He has already done the chapter comparing US debt levels to those of the PIIGS. He’s already done the chapter on the ruinous healthcare law, though he was careful to put his criticism in the third person. His criticism of politicians is bi-partisan, but it seems clear enough that he has stronger feelings than he is willing to share in print.
Greece has a spending problem, a revenue problem, something along those lines, right? At a superficial level, yes. But the underlying issue is more primal: It has one of the lowest fertility rates on the planet. In Greece, 100 grandparents have 42 grandchildren – i.e., the family tree is upside down. In a social democratic state where workers in “hazardous” professions (such as, er, hairdressing) retire at 50, there aren’t enough young people around to pay for your three-decade retirement. And there are unlikely ever to be again.
Look at it another way: Banks are a mechanism by which old people with capital lend to young people with energy and ideas. The Western world has now inverted the concept. If 100 geezers run up a bazillion dollars’ worth of debt, is it likely that 42 youngsters will ever be able to pay it off? As Angela Merkel pointed out in 2009, for Germany an Obama-sized stimulus was out of the question simply because its foreign creditors know there are not enough young Germans around ever to repay it. The Continent’s economic “powerhouse” has the highest proportion of childless women in Europe: one in three fräulein have checked out of the motherhood business entirely. “Germany’s working-age population is likely to decrease 30 percent over the next few decades,” says Steffen Kröhnert of the Berlin Institute for Population Development. “Rural areas will see a massive population decline, and some villages will simply disappear.”
If the problem with socialism is, as Mrs. Thatcher says, that eventually you run out of other people’s money, much of the West has advanced to the next stage: it’s run out of other people, period…
In Italy, the home of the Church, the birthrate’s somewhere around 1.2, 1.3 children per couple – or about half “replacement rate.” Japan, Germany and Russia are already in net population decline. Fifty percent of Japanese women born in the Seventies are childless. Between 1990 and 2000, the percentage of Spanish women childless at the age of 30 almost doubled, from just over 30 percent to just shy of 60 percent. In Sweden, Finland, Austria, Switzerland, the Netherlands and the United Kingdom, 20 percent of 40-year old women are childless. In a recent poll, invited to state the “ideal” number of children, 16.6 percent of Germans answered “None.”
In China and India, the birthrate of boys to girls is as high as the unnatural ratio of 1.2-to-1, a formula for mischief up to and including war. So Western Europe is broke and disappearing, and the two largest countries on the planet are overdosing on testosterone. We don’t know what this adds up to, but it doesn’t look too good.
The key to understanding the impact of taxes on the economy is to focus on tax rates, particularly marginal tax rates, defined as the tax rate that applies to the last dollar earned. The tax rate determines how much the producer is allowed to keep out of what he or she produces. For example, at a 25% tax rate, the producer keeps three-fourths of his production. If that rate is increased to 50%, the producer keeps only half of what he produces, reducing his reward for production and output by one-third. Incentives are consequently slashed for productive activity, such as saving, investment, work, business expansion, business creation, job creation, and entrepreneurship. The result is fewer jobs, lower wages, and slower economic growth, or even economic downturn.
In contrast, if the tax rate is reduced from 50% to 25%, what producers are allowed to keep from their production increases from one-half to three-fourths, increasing the reward for production and output by one-half. That sharply increases incentives for all of the above productive activities, resulting in more of them, and more jobs, higher wages, and faster economic growth. Moreover, these incentives do not just expand or contract the economy by the amount of any tax cut or tax increase, as a Keynesian stimulus purports to do. For example, a tax cut of $100 billion involving reduced tax rates does not just affect the economy by $100 billion. The lower tax rates affect every dollar and every economic decision throughout the economy. That is because every economic decision is based on the new lower tax rates…
Similarly, regulations impose increased costs on businesses and consumers, and sometimes flat out prohibit productive economic activity altogether. See, e.g., the Keystone pipeline. Academic studies estimate the total costs of regulation in the economy to be rapidly rising towards $2 trillion per year, or $8,000 per employee. That is close to 10 times the corporate income tax burden, and double the individual income tax. When the resulting effects on the economy are considered, the total losses due to regulatory burdens may total $3 trillion, or one fifth of our entire economy.
These regulatory burdens increase the cost of production, and consequently reduce the net return to the producers, reducing the reward for production quite similarly to taxes. They consequently also slash the incentive for production, reducing economic growth and prosperity. Alternatively, reducing regulatory burdens reduces the cost of production, increasing the net return to producers, and so adds to the incentives for production. The result is increased economic growth and prosperity…
These pro-growth, free market economic policies are the opposite of trickle down economics. They all involve decentralized markets, with prosperity welling up from the people to create a rich and prosperous nation.
We left out the partisan elements of Ferrara’s piece. What’s the point? Go into any faculty lounge in one of our top 50 universities, pick out a humanities professor at random, put him in the Oval Office, and you’d get pretty much what we’ve got now in terms of policy views. Add some Chicago-way thuggishness, and you have as bad a situation as the country has faced in many decades. WFB said “I should sooner live in a society governed by the first two thousand names in the Boston telephone directory than in a society governed by the two thousand faculty members of Harvard University.” He didn’t know the half of it.
The ECB has drastically lowered its standards for the collateral it accepts for these loans, so banks get to offload some very risky assets. The cash they’ll receive will generate a superficial improvement for banks — cash is considered the least risky asset to hold. But to move beyond a temporary solution banks have to lend the cash out in order to generate earnings. The cash itself would not earn enough interest to repay the 1 percent rate on the loans.
One of the most talked-about options for generating profits would be buying more European government bonds. European politicians and other advocates of this plan paint it as a win-win scenario. Banks generate earnings by purchasing higher yielding sovereign debt, such as Spain’s or Italy’s
So the ECB is accepting compromised collateral, possibly at par, and may encourage the banks to buy even more compromised debt. That’ll work! We flash back three years to the dark days of late 2008. The de-leveraging process still has a long way to go, and the can is still being kicked down the road.
banks snapped up €489 billion ($639 billion) in cheap loans from the European Central Bank on Wednesday, a sign of just how hard or expensive it has become to borrow from each other. The huge demand for newly available three-year loans comes as fears rise that heavily indebted European governments could default and force banks and other bond holders to take big losses…
The loans to 523 banks surpassed the €442 billion ($578 billion) in one-year loans extended in June 2009, when the global financial system was reeling from the collapse of the U.S. investment bank Lehman Brothers. It was the biggest ECB infusion of credit into the banking system in the 13-year history of the euro. The ECB wants banks to use the money to help pay off or refinance some €230 billion ($300 billion) in existing loans early in 2012…
it was far higher than the €300 billion ($392 billion) expected…”The good news is, the ECB’s efforts to increase liquidity are working,” said Jennifer Lee, an analyst at BMO Capital Markets. “The bad news is, high demand for the loans creates worries that banks are urgently in need of funds to boost liquidity.”
Let’s do some arithmetic. Much of the €489 billion goes to refinance some €230 billion coming due next month. So there’s €259 billion of net additional liquidity spread among 523 banks. Not that much on a per bank basis, but the largest amounts are no doubt concentrated in the largest institutions.
Still, this is a drop in the bucket, compared to some estimates of the needs of the banking system, and it does nothing at all to deal with the €2.6 trillion sovereign debt problem. Question: what happens when the debts begin to mature and liquidity starts coming out of the system?
North Korea’s young and inexperienced next leader will lean on a seasoned inner circle headed by his aunt and uncle to guide him through the transition to supreme ruler. Kim Jong Un, who vaulted into the leadership role with the death of his father, Kim Jong Il, made his public debut as anointed successor only 15 months ago. Since then, the whirlwind political campaign has barreled ahead…
The late Kim Jong Il had 20 years of preparation at the side of his father, North Korean founder Kim Il Sung, who died in 1994. Experts say that because Kim Jong Un doesn’t have that kind of experience, the youngest member of the political dynasty will need the brains and political brawn of his father’s closest confidants before formally taking power…
two close, trusted family members and political power brokers have emerged as Kim Jong Un’s main protectors: paternal aunt Kim Kyong Hui and her husband, Jang Song Thaek, who have risen to the top of North Korea’s political and military elite since the succession campaign began two years ago. Both 65, they also have the weight of seniority so important in a society that places a premium on age and alliances.
The AP joins Ted Turner and Eason Jordan in the big suck-up to just about the most vile place on earth. Probably better to quit than to write neutral-to-positive prose about a country that routinely starves its own people.
The eclipse of Keynesian economics proceeds. When Keynes wrote “The General Theory of Employment, Interest and Money” in the mid-1930s, governments in most wealthy nations were relatively small and their debts modest. Deficit spending and pump priming were plausible responses to economic slumps. Now, huge governments are often saddled with massive debts. Standard Keynesian remedies for downturns — spend more and tax less — presume the willingness of bond markets to finance the resulting deficits at reasonable interest rates. If markets refuse, Keynesian policies won’t work.
Countries then lose control over their economies. They default on maturing debts or must be rescued with loans from friendly countries, the International Monetary Fund (IMF), government central banks (the Federal Reserve, the European Central Bank) or someone. There are other reasons why Keynesian policies might fail or be weakened. But they pale by comparison with the potential veto now posed by bond markets. Ironically, the past overuse of deficits compromises their present utility to fight high unemployment.
There is no automatic tipping point beyond which a country’s debt — the sum of past annual deficits — causes bond markets to shut down. But Greece, Portugal and Ireland have already reached that point, with gross debt in 2011 equal to 166 percent, 106 percent and 109 percent of their national incomes (gross domestic product), according to IMF figures. Heavily indebted Italy and Spain could lose access to bond markets…
In 2012, the American budget deficit is projected at 7.9 percent of GDP; Greece’s is 6.9 percent; Italy’s 2.4 percent. In 2012, U.S. government borrowing — the deficit plus renewing maturing debt — is estimated to be 27 percent of GDP; Greece’s is 24 percent; Ireland’s 19 percent. On the plus side, the U.S. debt-to-GDP ratio is smaller than Europe’s worst. Also, a “safe haven” effect — reflecting the size of the U.S. economy and past political stability — contributes to America’s good fortune…
Americans seem to think they’re invulnerable to a bond market backlash. Economist Barry Eichengreen, a leading scholar of the Great Depression, is dubious: “Given low interest rates and the still-weak U.S. economy, it will be tempting for the U.S. government to continue running deficits and issuing additional debt. At some point, however, investors will recognize this behavior for the Ponzi scheme it is…If history is any guide, this scenario will develop not gradually but abruptly.”
We left out the parts where Samuelson tries to add balance to his article by citing the other side. It’s as though he wrote the piece for the edification of his fellow writers at the Washington Post who continue to believe that arithmetic doesn’t matter and that unfinanceable deficits are financeable if only we click our heels together three times. What part of EU can’t they understand? More evidence that even failed religions die hard.
