Week in Review
Do you know when a country has inflated their currency too much? When they start eliminating the smallest denomination of their money (see In Canada, the Lowly Penny’s Time to Shine Nears an End by IAN AUSTEN posted 3/29/2012 on The New York Times).
Jim Flaherty, the finance minister of Canada, pronounced a death sentence on the country’s penny during his budget speech on Thursday…
As pennies disappear, cash transactions will be rounded to the nearest nickel after federal and provincial sales taxes have been added. All other transactions, including payments by check, credit and debit cards, will still be calculated to the cent.
Britain, Australia and Norway are among the countries that preceded Canada in abandoning their smallest-denomination coins. A study by the Bank of Canada concluded that the move has no significant impact on inflation.
Won’t have a significant impact on inflation? Of course not. That damage is already done.
Pennies once had value. Before our government inflated them away. If you can find an old catalog from a department store look at the prices in it. Something from the Fifties. Or earlier. You’ll see a strange unit used on some of their prices. A thing that looks like this ‘¢’. It’s the symbol for ‘cents’. And we used it a lot back in those days. When a lot of prices were less than a dollar. When we often used the penny when shopping. Especially for making change when you bought something with the much larger nickel.
Penny candy. Shopping at the five and dime. Penny for your thoughts. Once upon a time, before the Keynesians embarked on a policy of permanent inflation, we bought most things with the coins in our pocket. Because they were worth something. And the only reason why they aren’t anymore is because of the inflationary policies of our government. As they printed more and more money they depreciated the value of each unit of currency. Until the penny became nothing more than a rounding error today.
Tags: cent, coin, currency, inflation, money, nickel, penny, rounding error
Week in Review
Gasoline haulers just TALK about a strike and it causes a panic of gasoline buying (see Fuel Strike: Unleaded Petrol Sales Rise 172% posted 3/30/2012 on Sky News).
Ministers have held crisis talks with haulage bosses after panic-buying saw sales of unleaded petrol shoot up by 172%…
Meanwhile, the Government discussed contingency plans with company bosses to try to mitigate the effects of any walkout by tanker drivers.
Energy Secretary Ed Davey – who has advised drivers who usually only fill their tanks by one-third should consider upping this to two-thirds – lead the talks…
The Petrol Retailers Association, which represents around 5,500 garages, blamed advice from the Government on keeping tanks topped up, including the much-criticised call by cabinet office minister Francis Maude to fill up jerry cans.
This is what President Obama and his energy secretary Steven Chu want for the U.S. High gasoline prices. And less of it. Which is what their policies will do. They’ve stopped drilling in the Gulf. They won’t open up new federal lands to oil exploration. And they said ‘no’ to the Keystone XL pipeline from Canada. All of these things would have helped bring the cost of gasoline down. But they said ‘no’ to lower gasoline prices. By saying ‘no’ to increasing oil supplies. Instead they want to be able to tell Americans to only fill their tanks up to one-third full. Banish the idiom “fill ‘er up” from the American lexicon. And make you pay European prices for what little they would like you to have.
Tags: gasoline, gasoline prices, panic-buying, strike
Week in Review
France is in big trouble. Or is about to be. For they have put the ‘social’ in social democracy. And the French people are about to learn how all that government largess can kill an economy. And take with it all the social benefits they’ve come to enjoy (see A country in denial posed 3/31/2012 on The Economist).
France has not balanced its books since 1974. Public debt stands at 90% of GDP and rising. Public spending, at 56% of GDP, gobbles up a bigger chunk of output than in any other euro-zone country—more even than in Sweden. The banks are undercapitalised. Unemployment is higher than at any time since the late 1990s and has not fallen below 7% in nearly 30 years, creating chronic joblessness in the crime-ridden banlieues that ring France’s big cities. Exports are stagnating while they roar ahead in Germany. France now has the euro zone’s largest current-account deficit in nominal terms. Perhaps France could live on credit before the financial crisis, when borrowing was easy. Not any more. Indeed, a sluggish and unreformed France might even find itself at the centre of the next euro crisis.
It is not unusual for politicians to avoid some ugly truths during elections; but it is unusual, in recent times in Europe, to ignore them as completely as French politicians are doing. In Britain, Ireland, Portugal and Spain voters have plumped for parties that promised painful realism. Part of the problem is that French voters are notorious for their belief in the state’s benevolence and the market’s heartless cruelty. Almost uniquely among developed countries, French voters tend to see globalisation as a blind threat rather than a source of prosperity. With the far left and the far right preaching protectionism, any candidate will feel he must shore up his base.
In America they say no president can win a reelection with unemployment at 8%. The French have been 1% below that rate for 30 years. Their banking system is not that far away from cascading bank runs. Their big cities are surrounded by tinderboxes of unemployed youth just waiting for something to set them off. And a large current account deficit means they are uncompetitive in international trade. Which means that their economy is not about to create a lot of new jobs to employ the unemployed. And with the government already spending over half of their GDP they’re not going to be able to throw much at the unemployed youth to keep them from expressing their discontent at being unemployed. And with France’s history of generous state benefits the unemployed will not take kindly to any austerity programs. Nor will those who have jobs.
Could France be the country to break the Euro’s back? Perhaps. For they are definitely too big for Germany to save. And if France goes the grand experiment of the common currency will come to an end. For a common currency without a political unity is doomed to fail. For there is no way to stop a member state from not meeting the requirements of the Maastricht Treaty (which created the Euro). So their financial problems are everyone’s financial problems. Because of the common currency. And if you think the French are going to take austerity orders from Germany you don’t know the French. Or Franco-German history. For they will cooperate. But one will never subordinate themselves to the other.
So don’t be surprised if the next round of austerity fills the streets of French cities and towns with discontent. For it looks like it will soon be their turn in this unfolding saga of the decline and fall of the Euro. Pity to see this befall such a great people. For much of the Enlightenment came from French thinkers. And to see her collapse under the weight of her social democracy is painful to watch indeed.
Tags: austerity, benefits, common currency, current account deficit, deficit, economy, Euro, France, French, generous state benefits, Germany, international trade, jobs, social democracy, unemployed youth, unemployment
Week in Review
BRICS are on the ascendant. Producing healthy economic growth while the old dogs who taught them everything they know are wallowing in economic despair. Then again, the old dogs aren’t what they used to be. For they are nothing like their former selves. Or BRICS. Who are embracing economic growth. Instead of worrying about income redistribution and environmental policies that are killing the old dogs. And these new dogs are looking to teach the old dogs a new trick (see Bank tops agenda at Brics summit of emerging nations posted 3/29/2012 on BBC India).
Brazil, Russia, China, India and South Africa (the Brics group) are proposing an alternative to the World Bank.
Leaders of the five nations, which now account for nearly 28% of the global economy, discussed closer trade links…
“The Brics countries have agreed to examine in greater detail a proposal to set up a South-South development bank, funded and managed by the Brics and other developing countries,” Mr Singh later said.
The Delhi Declaration expressed concern over the current global economic situation, especially in the euro zone…
The countries also resolved “to promote greater interaction among the business communities of Brics nations and easier visa facilities for businessmen”.
Mr Singh said the Brics group must speak with one voice on important issues such as reform of the UN Security Council.
President Hu said Brics nations should “enhance co-operation and intensify communication in international trade”…
The Brics nations have radically different economies and political systems and have often struggled to find common ground in the past.
But, they have been looking at ways to increase their trade links and decrease dependency on Europe and the United States.
Speak with one voice and improve international trade? To compete against Europe and the United States? Other than that part about Europe this sounds very familiar. Oh, yes. I remember. This is what the Europeans said when they set up the Eurozone. Which is struggling to survive. Because they can’t speak with one voice. For the individual nations may have surrendered their currency. But they won’t surrender their sovereignty. Which is why uber responsible Germany is continually frustrated by spendthrifts like Greece and Spain. Not to blame Greece or Spain. A common currency without a political unity was just a bad idea.
I suppose as long as BRICS don’t do anything foolish like try to set up a common currency to compete against the US dollar or the Euro they may do all right. Being as they have such “radically different economies and political systems.” But let’s just hope they don’t follow the “institutions of global political and economic governance created more than six decades ago” and ruin their emerging economies by turning them into social democracies. Perhaps they can take a lesson from the Chileans. Who have done a remarkable job embracing free market capitalism. Thanks to their Chicago Boys. And a little Milton Friedman. Even privatized their social security system. They’re doing pretty well now. Unlike the nation that helped create them. Spain. Who is struggling with riots in their streets as they try to implement austerity to get their social spending under control. So they can remain in the Eurozone. And save the Euro.
Perhaps BRICS will be able to help bailout the Eurozone, too. You know, as long as they don’t follow the Europeans down the Road to Serfdom.
Tags: BERICS, emerging economies, Eurozone, international trade, Spain, trade, United States, World Bank
Week in Review
The Eurozone is suffering the consequences of their social democracies. Their cradle-to-the-grave welfare state. And huge governments full of government jobs. Paying nice salaries and benefits. Greece is on the brink of bankruptcy because of their out of control spending. And when they try to rein in that spending the people take to the streets in violent protest. Making it very hard for the government to take back some of the free stuff they’ve been giving out to buy their votes. And making it ever harder to avoid bankruptcy. Now it’s Spain’s turn (see Spain Unions On Strike Over Austerity Plans by Robert Nisbet posted 3/30/2012 on Sky News).
Scores of Spanish workers have been arrested after protesting on a day of anger over a swingeing austerity drive and changes to labour laws…
In scenes reminiscent of anti-austerity demonstrations in Greece, tens of thousands held protest marches in Madrid and other cities…
There is widespread anger at moves by Prime Minister Mariano Rajoy’s conservative government – which is not yet 100 days old – to slash Spain’s debt and boost the economy.
Spain’s biggest unions called the 24-hour strike over labour reforms which make it cheaper and easier for companies to lay people off and cut wages without consultation.
The government claims they are needed to tackle the 22.85% jobless rate, which is predicted to rise to almost 24.3% this year…
The government is under pressure to reduce its budget deficit, which last year ballooned to 8.51% of all the goods and services produced by Spain.
The European Union says this must be reduced to 5.3% this year and 3% in 2013 but economists warn that growth in Spain is so sluggish and debt so high, it will be a tough deadline to meet.
There is good reason for nervousness in the Eurozone. Unlike Greece and Portugal, Spain is deemed too big to bail and British banks are also heavily exposed to Spanish debt.
With unemployment running at 50% among young Spaniards and, as a member of the Eurozone, no monetary levers to pull, the government in Madrid says it has little choice but to wield the axe once again.
Peak unemployment in the U.S. during the Great Depression was about 25%. So Spain is enduring Great Depression unemployment. That’s bad. What’s worse is that those who can be the most violent in their discontent, the young, suffer from 50% unemployment. Filling them with discontent. And a lot of free time on their hands. Never a good combination.
If Spain has a high budget deficit it can only mean one of two things. Either their government is spending too much. Or their economy cannot generate sufficient tax revenue from their tax structure. Either taxes aren’t high enough. Or taxes are too high and they dampen economic activity thus reducing tax revenue. With those high unemployment numbers, though, the smart money is on ‘they’re spending too much’. Both the government. And the employers. Where the unions are holding the cost of labor (wages and benefits) so high that it’s too costly to hire more employees. Whereas if the market set wages and benefits these costs would come down to reflect that large surplus of labor out there. And the people who want jobs could get jobs.
The problem with these social democracies is that they are anti-business. They favor the public sector over the private sector. But you can’t keep beating up on the private sector. Because they pay the taxes that fund the public sector. A lot of that unemployment no doubt are government workers they let go to meet their Eurozone requirements. And there are probably a lot more to follow. If they reduce the cost of labor in the private sector the private sector will be able to absorb these people. And as the private sector grows and becomes more productive more people will be paying taxes. And they will be able to bring down those massive budget deficits.
But if they don’t bring down labor costs or cut government spending, hello Greece. Which they are currently experiencing in the streets of Spain. Which, incidentally, is the path the U.S. is currently on.
Tags: austerity, benefits, budget deficit, cost of labor, debt, deficit, Eurozone, Great Depression, Greece, Madrid, private sector, protest, public sector, social democracies, Spain, tax revenue, unemployment, unions, wages
Week in Review
President Obama attacks rugged individualism. Entrepreneurialism. And the American spirit. What he calls ‘you’re on your own economics’. Lying about what hasn’t worked in the past. For he is either lying or he is incredibly uninformed when it comes to American economic history (see Obama: “You’re On Your Own” Economics Doesn’t Work posted 3/30/2012 on Real Clear Politics).
“It’s been tried in our history and it hasn’t worked,” Obama said. “It didn’t work when we tried it in the decade before the Great Depression. It didn’t work when we tried it in the last decade. We just tried this. What they’re peddling has been tried — it did not work!”
When the government left people alone in the Twenties that decade roared. The ‘leave the people alone’ policies of the Harding (and then the Coolidge) administration gave us the Roaring Twenties. A remarkable decade of technological growth. Both in the cities and on the farms. We mechanized. We electrified. We talked to people all over the country on the new telephones. We went mobile in our new automobiles. We listened to the radio in our homes. We used electric appliances in our homes. We went to theaters to watch the new motion pictures. People flew in airplanes. The Roaring Twenties were a seminal time. It marked the beginning of the modern world we know today. And it was full of real, solid economic growth. Until the progressive Herbert Hoover took over. And after he got rid of ‘you’re on your own economics’ everything went to hell.
The Great Depression was a wholly made government disaster. Massive interventions into the private sector economy. Price supports. A horrendous tariff bill (the Smoot-Hawley Tariff Act). And the resulting trade war. And then in the midst of all of this the Federal Reserve System destroyed the banking system. By NOT being the lender of last resort. Causing a cascade of bank failures.
The Seventies was Keynesian Economics at its pinnacle. It was everything President Obama believes in and wants today. Massive government spending. Paid for by massive taxes, borrowing and printing. The polar opposite of ‘you’re on your own economics’. Which were an abject failure. Even Keynesian Economists have to qualify the Seventies to explain away the stagflation (high unemployment AND high inflation) their policies gave us. Ronald Reagan fixed the Keynesian train wreck with exactly ‘you’re on your own economics’. It was so successful that Keynesians call it the decade of greed. A moniker no one can place on the Seventies.
So why is the president saying things that aren’t true? Because they want those failed Keynesian polices back. They want to tax and spend like there’s no tomorrow. For they like the power. The control. And the ability to buy votes. Which is the only way they can win elections. Because no one will willingly vote for their failed policies of the past.
Tags: economic, economic history, economic Past, government spending, Great Depression, Keynesian economics, Keynesians, not telling the truth, Obama, President Obama, Roaring Twenties, Seventies, Tax and spend, Twenties, you're on your own economics