The Greek Crisis is Now Threatening the Credit Rating of the Stronger Eurozone Members

Posted by PITHOCRATES - July 29th, 2012

Week in Review

Since 2009 we’ve been hearing about the European sovereign debt crisis.  Also known as the Eurozone crisis.  And here we are in 2012.  Despite numerous rescue packages and recovery plans the crisis continues on.  Greece can’t borrow money in the credit markets because no one believes Greece will ever be able to pay them back.  For Greece has been running some pretty big deficits.  Which has accumulated an enormous pile of debt.  Resulting from their large spending obligations for public sector wages and pensions.  They don’t have the money.  They can’t borrow the money.  So a massive Greek default is likely.  Which because of the common currency will be felt throughout the Eurozone (see Germany’s AAA rating under threat after Moody’s cuts outlook by Jamie Dunkley posted 7/24/2012 on The Telegraph).

Moody’s warned the outlook for the ratings of Germany, Luxembourg and the Netherlands is negative because the threat of a Greek exit from the eurozone and the need for greater financial support for struggling eurozone countries from the strongest members of the bloc.

In a statement, issued after the close of the US markets, it added: “The level of uncertainty about the outlook for the area and the potential impact of plausible scenarios on member states, are no longer consistent with stable outlooks.”

Not some pleasant choices.  Have a Greek default damage your credit rating.  Or make your taxpayers pay for another nation’s debt.  Which begs the obvious question.  Or should.  How is having other people pay for spending you can’t afford going to solve your problem of spending more than you have?  If Greece doesn’t cut their spending nothing will change in the long run.  They will need another emergency bailout following this emergency bailout.  Because this emergency bailout doesn’t address the source of their trouble.  Excessive government spending.

Keynesians encourage excessive government spending because they think it’s stimulative.  That it creates economic activity.  In fact the Keynesian solution to the Greek crisis is more government spending to stimulate the economy.  Which begs the obvious question.  Or should.  If government spending does all of this why after all of their government spending is Greece on the precipice of bankruptcy?  Huh?  Answer that one smart Keynesian person.

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The US and UK are pressuring Germany to print Euros and guarantee Greek Debt

Posted by PITHOCRATES - May 20th, 2012

Week in Review

Greece is in a world of hurt.  Their government spends too much money.  And their people answer calls for austerity with riots.  They simply refuse to address the problem that got them where they are.  Too much spending.  If they continue to reject austerity measures to bring their spending in line with their ability to pay for it they’re going to be cut off from future loans.  And broomed out of the Eurozone.  That won’t be pretty.  Because if others don’t prop them up they simply won’t be able to service their debt.  They will default on their sovereign debt obligations.  And the banks who have loaned large sums of Euros to them will struggle to recover from these losses.  Many of them simply won’t be able to.  Once the banks start failing the contagion will spread throughout Europe.  And the world.  Bringing on a worldwide recession.  That could easily slide into a depression.  And all of this because of excessive government spending.  There’s a lesson to learn here.  STOP SPENDING SO MUCH.  But no one ever learns this lesson.  Especially when Keynesians are running the government.

They’re talking about your typical Keynesian solutions.  More of the same that got Greece into the trouble they’re in.  Quantitative easing.  Printing money.  To stimulate these troubled economies with…wait for it…more government spending.  As if they can fix their debt troubles with higher consumer prices.  Which is what you get when you print more money.  Especially when the supply of money grows at a rate greater than its economy grows.  So prices will rise while the value of the Euro will fall.  It’ll make their exports cheaper.  But it’ll also make the value of all those outstanding sovereign Euro bonds worth less.  Those bonds all those banks are holding.  Giving them a negative return on their investment.  Pushing these banks closer to insolvency.

And it doesn’t end there.  The strongest economy in the Eurozone is Germany.  They know a thing or two about inflation thanks to the hyperinflation in Weimar Germany that gave the world Adolf Hitler.  So the Germans have governed responsibly.  By living within their means.  And their people have been paying a lot of taxes to pay for all of those Eurozone bailouts.  A nation that has truly gone above and beyond.  Their reward for responsible governing and selfless sacrifice?  They’re asking the German taxpayer to assume the Greek debt (see David Cameron and Barack Obama lead charge to save the eurozone by James Kirkup posted 5/19/2012 on The Telegraph).

Angela Merkel of Germany came under intense pressure to do more to support the struggling currency by putting German economic credibility behind the debts of weaker economies like Greece…

There is growing agreement among G8 leaders that the answer to the eurozone crisis is for members of the single currency to “mutualise” their debts, meaning strong members like Germany partly guarantee the debts of weaker ones like Greece.

Mrs Merkel has resisted any such plans, reluctant to ask German taxpayers – who already resent the bill for helping other eurozone countries – to underwrite the budgets of indebted southern Europeans…

That’s fair.  Except to the Germans, of course.  The problem is if the Greeks don’t reduce their government spending the underlying problem will remain.  Excessive spending.  Which means they will need bailout after bailout.  One or two or three just won’t do it.  And it will delay the inevitable.  And take more people with them when this Keynesian house of cards implodes.

Giving people benefits is easy.  People love you for your generosity.  Taking benefits away is very, very difficult.  People will hate you.  The longer you wait to start the more difficult it will be to cut these benefits.  And the more the people will hate you.  Which is why it is so difficult to govern responsibly.  Because politicians find it is easier to buy votes with generous benefits than it is win votes with good ideology.  This is why governments everywhere embrace the failed policies of Keynesian economics.  Because it gives legitimacy for the easy way of winning elections.  Buying votes with excessive government spending.

And this is the ultimate problem in the Eurozone.  Keynesian economics.  For if governments did not deficit spend or ‘stimulate’ their economies with monetary policy there would be no Eurozone sovereign debt crisis.  Being debt free makes everything easier.  Because you don’t have to borrow.  Service your debt.  Or roll it over.  You have none of those headaches when you live within your means.  Just look at the Germans.

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Obamacare – Lies and Politics to transform One-Sixth of the U.S. Economy into a Welfare Program

Posted by PITHOCRATES - March 11th, 2012

Week in Review

Here’s the skinny on Obamacare.  And it isn’t good.  For it transfers health insurance into a massive welfare program.  That ultimately will be paid for by the state.  Which means we the taxpayers will pay for it with massive new taxes.  After Obamacare shuts down the private health insurance industry.  Which it appears to be designed to do (see Obama’s health care law: A trek, not a sprint by RICARDO ALONSO-ZALDIVAR, Associated Press, posted 3/11/2012 on Yahoo! News).

The Affordable Care Act gradually reorganizes one-sixth of the U.S. economy to cover most of the nation’s 50 million uninsured, while simultaneously trying to restrain costs and prevent disruptions to the majority already with coverage.

If the government takes over one-sixth of the U.S. economy this won’t be the same USA anymore.  It won’t be free market capitalism here.  But a European social democracy.  Like the European nations suffering from the European sovereign debt crisis.  Caused by excessive government spending.  And excessive government borrowing to pay for that spending.  Which will happen under Obamacare.  Because you can’t provide more for less.  More health care will cost more.  And when the private health insurance industry fails when they can’t provide more for less that leaves government as the sole provider in the health care market.  The ultimate plan for Obamacare.  As it has to be.  Because you can’t provide more for less.

“We really haven’t seen the main game,” said Drew Altman, president of the California-based Kaiser Family Foundation, a nonprofit information clearinghouse on the health care system. “The major provisions that will affect the most people and cost the most money don’t go into effect until 2014 or later.”

The timing of Obamacare is further proof that it will be a disaster for health insurers and for those buying health insurance.  If it was good they would have implemented it before the 2012 election.  So Obama could campaign on its successes.  But knowing it was a failure they pushed back implementation until after the 2012 election.  So that failure wouldn’t dash all hopes for an Obama second term.

Millions of people are getting preventive care that now must be provided at no additional cost to patients. Birth control for women soon will be on that list. Insurance premium increases are getting more scrutiny.

You can’t provide more for less.  Forcing health insurers to provide free birth control without charging more in premiums to pay for this will put the private insurers out of business.  Unless they allow insurers to increase premiums.  Then everyone will pay more so women can use birth control without paying for it.  A product that shuts down a natural biological function of the human body.  Which isn’t insurance on more than one level.  First of all, it’s not financial protection against an unexpected catastrophic health care expense.  For there is nothing unknown about this expense.  Second, getting pregnant is the proper thing for female body to do after sex.  Stopping this process is not a health issue.  It’s a lifestyle choice.  And therefore shouldn’t be paid for by the same thing we use to pay for cancer treatments.  An unexpected catastrophic expense.

A highly promoted program that provides a lifeline to people denied coverage because they already had medical problems has probably saved lives. But enrollment in the Pre-Existing Condition Insurance Plan has been disappointing, with only about 50,000 people nationwide.

Glenn Nishimura, a consultant from Little Rock, Ark., checked it out and found his premiums would come to about $6,300 a year.

“It’s out of my price range,” said Nishimura. It makes more financial sense to take care of his high blood pressure and high blood sugars by paying out-of-pocket and gambling that his health will hold up, he reasons. In three years he’ll be eligible for better coverage under Medicare.

This individual mandate, the main target for the law’s critics, also takes effect in 2014. Without it, many experts fear that the new exchanges, the state-based markets for private insurance, won’t work. Healthy people would be tempted to postpone signing up until they get sick, raising costs for everybody.

You can’t provide more for less.  And there’s nothing that costs more in the health insurance industry than paying for preexisting conditions.  Because if you’re covering a preexisting condition it means that the preexisting medical condition wasn’t covered before it existed.  Meaning the person did not buy health insurance when they were younger and healthier.  And paid nothing into the health insurance pools to help offset the costs of those who fall ill with an unexpected and catastrophic illness.  Only now that they are sick and facing large medical bills do they want health insurance coverage to pay these bills.  Which isn’t insurance.  It’s welfare. 

The individual mandate addresses this.  But it’s unconstitutional.  For the government doesn’t have the right to make people buy anything.  And, no, it’s not the same as car insurance.  Because if you don’t drive a car you don’t have to buy car insurance.  And if the Supreme Court upholds this unconstitutional individual mandate it will have the same effect as a massive tax increase.  And kill economic activity.  At a time the nation is still reeling under the Great Recession.  Massive new government expenditures and a fall in economic activity, and therefore a fall in tax revenue, will put the U.S. ever closer to those European social democracies wallowing in the European sovereign debt crisis.  And in case you’re wondering what that would mean it would be a bad thing.  A very, very bad thing.  Unless you like riots in the streets.  As they had them in Greece, France, and the UK.  And elsewhere wherever they tried to cut back some great government welfare program.

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Obama’s Economic Policies have Failed because they’re Keynesian Economic Policies

Posted by PITHOCRATES - September 2nd, 2011

Government Spending and Easy Monetary Policy haven’t created any Jobs 

The new jobs report is in.  It’s not good.  Surprise, surprise (see ‘No confidence’ sparks rush to safety by Blake Ellis posted 9/2/2011 on CNNMoney).

The Labor Department reported that the economy added no jobs in August, while the unemployment rate remained at 9.1%. That was the worst reading since September 2010, when the economy lost 27,000 jobs.

Economists had been expecting a weak report given the recent debt ceiling gridlock, plunging consumer confidence and the downgrade of the United States’ credit rating in August. But what they got was even worse than expected.

These Keynesian economists have been predicting every kind of wonderful they could with every new Keynesian policy.  But government spending and easy monetary policy haven’t created any jobs.  If they did we’d have them.  Jobs.  But we don’t have them.  After close to 3 years of trying.  I mean, the economy is so bad that oil prices are falling.

Since a healthy economy typically spurs demand for oil, fears that another recession is around the corner are causing traders to worry about waning demand, said Flynn.

“Crude oil is looking at demand destruction right now,” he said. “With a lack of people going back to work and economic data as a whole as it is, it’s just not a supportive environment for higher prices.”

So the Obama administration has spent the U.S. to record deficits.  And record debt.  But because so many people are unemployed demand for oil is destructing.  What a terrible tradeoff for cheaper oil.

Oil is the lifeblood of a healthy economy.  So you know an economy is not healthy when people aren’t buying oil.  In a country where chronically insufficient domestic supplies once raised the price of gasoline to over $4/gallon.  Now any spikes in gas prices seem to have more to do with a depreciating dollar (thanks to all that easy monetary policy) than demand.

Keynesians see no Downside to Excessive Government Spending or Inflation

Still there are some who say the problem is not excessive spending.  But spending that was not excessive enough (see Fatal Distraction by Paul Krugman posted 9/2/2011 on The New York Times).

Zero job growth, with unemployment still at nosebleed levels. Meanwhile, the interest rate on 10-year US bonds is down to 2.04%, and it’s negative on inflation-protected securities.

Aren’t you glad we pivoted from jobs to deficits a year and a half ago?

Krugman is a Keynesian.  So by ‘jobs’ he means government spending.  And by ‘deficits’ he means responsible government.  He sees no downside to excessive government spending.  Or inflation.  As if the 1970s never happened.

A lot of People hate the Rich and Successful, especially Ivy League Elitists

But the 1970s did happen.  And we had double-digit inflation at the end of that decade.  Didn’t help.  It didn’t make a dent in the unemployment numbers.  Yet there are those who want to take that very dangerous road again (see View: Inflation Is Easy to Free, Hard to Control by the Editors posted 9/1/2011 on Bloomberg).

…But now, a growing number of voices, mainly on the left wing of the Democratic Party but also in the Federal Reserve, are calling for what is in effect default in slow motion. It goes by the name of inflation.

Inflation decreases the value of debts, like the $14 trillion owed by the federal government to lenders such as the government of China (and a lot of ordinary American savers, too), and it increases the value of assets, like houses. Thus it helps all debtors, from the federal government to individual homeowners who can’t pay their mortgages. Inflation has been running at an average of 2.4 percent over the past decade. After a couple of years of, say, 6 percent inflation, that $14 trillion would be worth closer to $12 trillion in current dollars. A $400,000 mortgage would be worth about $350,000.

Some may say, shrinks debt?  Increases asset value?  Well where’s the problem with that? 

We call it class warfare.  Of the worse kind.  Creditors versus debtors.  The poor versus the rich.  The poor hate the rich because they have to borrow from them to buy a house.  And they would love to not pay them back.  But if you start doing this eventually the rich won’t loan their money anymore.  So there will eventually be no more home ownership.  Except for the rich. 

It’s a story as old as time.  And the U.S.  The states were passing debtor laws.  Favoring debtors.  Harming creditors.  And destroying legal contracts in the process.   Which a nation built on the rule of law could not have.  For if there are no contracts there is only force.  Where the most powerful get what they want.  And those not powerful enough to fight them off simply lose what they have. 

This is one of the reasons why the Founding Fathers called for the Philadelphia Convention in 1787.  To save what they just fought 8 years to get.  A nation where no man is above the law.  And contracts are legal binding.  Still, there are a lot of people who hate the rich and successful.  Who think contracts are merely suggestions.  Especially Ivy League elitists who have no ability but arrogance and condescension.  Who could never become rich and successful on their own.  Preferring privilege over hard work.  And have no problem trampling over people’s contract rights.  Or Constitutional rights, for that matter.  But that’s another story.  For another time.

As it happens, a couple of years of 6 percent inflation is exactly what the leading economist advocating this approach — Kenneth Rogoff at Harvard — recommends. He is joined by Paul Krugman and by a growing number of economic journalists and commentators. Some of these people have been saying that inflation is no threat worth worrying about, because it has not appeared despite circumstances that ordinarily would have produced it. Now they say inflation is no threat because a little of it would actually be a good thing.

At Bloomberg View, we think that doing anything to encourage increased inflation is a very bad idea. People who advocate it are either too young or too old to remember our last adventure with inflation, in 1979 and 1980…

You can’t easily pencil in two years of 6 percent inflation and then go on your merry way. Inflation is self-feeding and takes on a life of its own. And it works only by surprise. If lenders all know that the government is going to induce or at least tolerate something like 6 percent inflation, they will demand something like 8 percent interest from borrowers. There goes the grease on the wheels. And it’s not just lenders: Labor negotiators will have their backs stiffened if they know that any dollar figure they negotiate will buy less and less. Manufacturers who know their inputs are going to be getting more expensive, in dollar terms, will raise their prices in anticipation, thus making inflation a self-fulfilling prophecy. Long-term planning becomes difficult to impossible.

This is what happened in the Seventies.  It’s why there were double-digit interest rates.  Inflation was depreciating the dollar so fast that it took near usury rates before anyone would loan money.  It was great for people with money to loan.  But horrible for people who had to borrow.

There is no Record of increasing Taxation and Regulation increasing Economic Activity

This is not just a condemnation of the Obama economic policies.  This is a condemnation of Keynesian economics as a whole.  They only lead to a bloated federal government.  That grows at the expense of the job-producing private sector (see Needed: A Reagan Moment To Stop Our Decline by Lawrence Kudlow posted 9/2/2011 on Investors).

During the Bush years, the federal government increased from 18% of GDP to 21%. The debt went up $2.5 trillion, from roughly 32% of GDP to 40%. And now, during the Obama period, spending has moved even higher to at least 24% of the economy, while total federal debt has ballooned near 100% of GDP.

It’s almost a mirror image: The expansion of the public sector and the decline of the private sector. This is completely inimical to the American peacetime experience…

And all while jobs, the economy and stocks slumped over the past 10 years, the dollar dropped 37% and gold increased by nearly 500%, from $250 to nearly $1,900 an ounce.

We don’t have the kind of inflation today that we experienced in the 1970s. But it is certainly worth noting that a collapsing currency and a skyrocketing gold price are key barometers of a loss of confidence in the American economic story.

But the Keynesians aren’t worried.  Mr. Paul Krugman belittles those ‘responsible’ people who worry about phantom demons like inflation.  When it comes to spending, their constant refrain is to flame on.  And only worry when inflation is burning white hot.  Then they can simply tap their monetary breaks and make everything good again.  Or so they think.

But there is a bigger problem.  This ‘limited’ government of the Founding Fathers is growing into a leviathan. 

My key thought is that the U.S. in the last decade has adopted a wrongheaded policy of government expansion — primarily spending and regulating — financed by ultra-easy monetary policy and rock-bottom interest rates.

Tax rates haven’t moved much. But the whole tax system is badly in need of pro-growth flat-tax reform and simplification. However, the expansion of spending and regulating is robbing the private sector of its entrepreneurial vitality. Here’s the new fear: More big-government spending stimulus from Obama’s jobs plan. More EPA. More NLRB. More Dodd-Frank. More ObamaCare.

And as the policy mantle for growth has swung to Federal Reserve stimulus, we are learning once again what Milton Friedman taught us 40 years ago: The central bank can produce new money, but there is no permanent production of jobs and growth from that pump-priming.

Big government financed by easy money is a lethal economic combination. It must be reversed. We should be reducing the regulatory and spending state while keeping money predictably stable (and even re-linked to gold).

The supply-side nostrum that worked so well for 20 years, beginning with Ronald Reagan, was low tax rates, light regulation, limited government, and a hard dollar. Gold collapsed between 1980 and 2000 as stocks, jobs, and the economy roared. The last ten years? We’ve gotten the policy mix completely backwards. The results show it.

And that’s something that the Keynesians can’t point to.  When they had full legislative power (as they had since the Democrats won the House and Senate back in 2006), they can’t point to a historical record of success.  Like the tax-cutting supply-siders can. 

JFK cut taxes and saw economic growth.  Reagan cut taxes and saw economic growth.  George W. Bush cut taxes and saw economic growth.  But there is no record of increasing taxation and regulation increasing economic activity.  You know why?  Because it doesn’t.  If it did the economy would be booming now because the government has never spent or regulated more.

Let’s hope the Keynesians Concede Failure while there is still an Economy to Save

How many bad economic reports will it take before the Keynesians will finally concede failure?  When will the Ivy League elitists stop hating people who are more talented and successful than they are?  And when will the people that put them into power see that it’s only the power they’re interested in?  Not the economy.  Or our well being?

I hope these people come to their senses soon.  While there is still an economy to save.

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Learning nothing from Europe’s Financial Crises, Obama pushes hard to increase the Debt

Posted by PITHOCRATES - July 11th, 2011

No Economy is too Big to Fail

Having too much debt is a bad thing.  For one thing, you have to pay it back eventually.  And until you do, you have to service it.  Make interest payments.  Which can become very large if you have a lot of debt.

Greece has a lot of debt.  So much that they can’t sell any more.  And they can no longer service that debt.  Which is a big problem for the European Union (EU), in particular the Eurozone and its common currency the Euro.  Greece is small.  But the EU is big.  And Greece’s problem is now their problem because of that common currency (see Eurozone moves to stop Greek debt crisis by Gabriele Steinhauser, Associated Press, posted 7/11/2011 on USA Today).

Investors are concerned that the debt crisis, which has so far been contained to the small economies of Greece, Ireland, and Portugal, could soon drag down bigger countries like highly indebted Italy and unemployment-ridden Spain. The mere size of their economies could easily overwhelm the rescue capacity of the rest of the eurozone…

“The fact that contagion is spreading marks the failure of politicians to draw a line under the Euro-crisis to date,” Rabobank analyst Jane Foley said. “As yields rise and debt financing costs become even more exaggerated the difficulties of containing the crisis become even bigger.”

The Europeans crated the EU and the Eurozone to counter the economic prowess of the United States.  And it has.  Their economies run shoulder to shoulder.  Which is why the U.S. should be worried about what is happening in Greece.  And how scared the EU is that their contagion may spread.  For no economy is too big to fail from an overload of debt.

Excessive Government Debt making Investors Nervous

If you’re looking for confirmation on the size and reach of the Greek debt crisis, look no further than the world’s financial markets (see Markets Tumble on Debt Crisis by The Associated Press posted 7/11/2011 on The New York Times).

Wall Street and global stocks slid further Monday because of renewed concerns about the euro zone’s debt crisis and after a dismal jobs report in the United States last week rekindled concerns about the recovery in the world’s largest economy…

The downbeat sentiment in markets was worsened by indications that Europe’s debt crisis might be spreading beyond the three countries that have already received rescue packages. There have been mounting concerns that after Greece, Ireland and Portugal, much-larger Italy and Spain could need bailouts to manage its tremendous debt load.

Investors are nervous.  Both about Greece and the EU.  And the United States.  They’re worried about excessive government spending.  And excessive government debt.  Because the higher the debt the higher the interest paid on the debt.  And interest paid on the debt is money spent that results in nothing beneficial.  It’s just a drag on the economy (i.e., higher taxes are required to pay it).  Or worse.  As in borrowing money to service the debt.  Which makes a bad problem (too much debt) worse (more debt).  Which is a further drag on the economy.

The Children refuse to Eat their Peas

And speaking of debt, there was no progress on the budget debate to increase the debt limit.  As if anyone was surprised by this (see WRAPUP 9-Obama, lawmakers fall short on US debt deal by Steve Holland and Thomas Ferraro posted 7/11/2011 on Reuters).

U.S. President Barack Obama and top U.S. lawmakers fell short on Monday of finding enough spending cuts for a deal to avoid an Aug. 2 debt default and Republicans came under fresh pressure to agree to tax hikes.

The two sides achieved no breakthrough in a roughly 90-minute meeting and scheduled a third straight day of talks for Tuesday. This came after Obama, at a news conference, declared it is time for both Republicans and Democrats to “pull off the Band-aid, eat our peas” and make sacrifices.

I’m a grownup.  And I like peas.  I think a lot of grownups like peas.  That’s probably why I see a lot of peas in grocery stores.  But one thing I don’t see is kids begging their mother to buy more peas.  No.  Mothers have to tell them to eat their peas even though kids don’t want to.  Because kids just don’t know what’s good for them.  And mothers, being mothers and not diplomats, don’t discuss this.  They just dictate terms to their children.  Which is what Obama appears to be doing.  Trying to dictate terms to the children on the other side of the aisle.  To get them to accept what’s best for them.  Because he knows best.  Like Mother.

The Treasury Department has warned it will run out of money to cover the country’s bills if Congress does not increase its borrowing authority by Aug. 2. Failure to act could push the United States back into recession, send shock waves through global markets and threaten the dollar’s reserve status.

This ‘running out of money’ line is very strange.  The government is currently collecting some $2 trillion plus in cash a year.  Which comes out to about $180 billion a month.  And as long as your employer is withholding taxes from your paycheck, there’s money flowing into Washington.  So how exactly are they running out of money?

Back into recession?  Didn’t know we ever came out of recession.

Boehner also took issue with Democrats’ suggestion that most of the spending cuts should be concentrated out into future years, rather than beginning right away.

Smart man that Boehner.  He knows Democrats lie.  “Raise taxes now and we’ll make spending cuts later.  Promise.  $3 in cuts tomorrow for every new dollar in taxes today.”  Ronald Reagan fell for it.  George H. W. Bush, too.  But tomorrow never came.  And neither did those spending cuts.  The Democrats had their new taxes.  So they said, “Screw you, Republicans.  Suckers.”

Obama used the latest in a series of White House news conferences to urge lawmakers on both sides to stop putting off the inevitable and agree to tax increases and cuts in popular entitlement programs, trying to persuade Americans he is the grownup in a bitter summer battle over spending and taxes…

Obama is seeking to cast himself as a centrist in the bitter debate. His 2012 re-election hopes hinge not only on reducing America’s 9.2 percent unemployment but on his appeal to independent voters who are increasingly turned off by partisan rancor in Washington and want tougher action to get the country’s fiscal house in order.

And that’s what this debate is all about.  The 2012 election.  If he comes out of this smelling like a centrist he wins.  Even if he loses the debate.  Because he can campaign as a centrist.  Even though he’s the biggest leftist to have ever entered the Whitehouse.  Who tripled the deficit.  And put the U.S. on the road to national health care.

So how much exactly are they looking to raise the debt limit by to save the country?

They said Obama’s view was that without tax increases, the package would at best be little more than $1.5 trillion in deficit reduction, far short of the estimated $2 trillion needed to extend the $14.3 trillion debt ceiling through the end of 2012.

Hmmm, $2 trillion dollars.  Where can we find $2 trillion dollars?

You Repeal Obamacare and we’ll raise the Debt Limit by $2 Trillion

Here’s a thought.  How about repealing Obamacare?  If we need to live within our means and can’t muster the guts to reform entitlements, then Obamacare is a no-brainer.  It’s not an entitlement yet.  No one would miss it if they repeal it.  Because how can you miss something you don’t even have yet?  So how much money would this save?  Let’s take a look at some facts and figures from an interesting article (see Obamacare Tragedy Primed To Further Explode the Deficit by Peter Ferrara posted 7/6/2011 on The American Spectator)?

…close analysis of the CBO score and additional new data indicates that, quite to the contrary, Obamacare will likely add $4 to $6 trillion to the deficit over its first 20 years, and possibly more…

Of course, the deficit is not the biggest problem.  Even bigger is that regardless of the deficit, Obamacare involves trillions of increased government spending and taxes…

In the Wall Street Journal on June 8, Grace-Marie Turner, President of the Galen Institute, estimated based on the numbers in the McKinsey report that as many as 78 million Americans would lose their employer provided coverage.  If those workers ended up receiving the new Obamacare exchange handouts, the estimated costs for those subsidies in the first 6 years alone would soar by 4 times, adding nearly $2 trillion to the costs and deficits of Obamacare during that time…

Such draconian cuts in Medicare payments would create havoc and chaos in health care for seniors.  Doctors, hospitals, surgeons and specialists providing critical care to the elderly such as surgery for hip and knee replacements, sophisticated diagnostics through MRIs and CT scans, and even treatment for cancer and heart disease would shut down and disappear in much of the country, and others would stop serving Medicare patients.  If the government is not going to pay, then seniors are not going to get the health services, treatment and care they expect.

Yet, reversing these unworkable Medicare cuts would add $15 trillion to the future deficits caused by Obamacare.

So Obamacare isn’t going to reduce the deficit after all.  How about that?  You see, Boehner is right not to trust Democrats.  Because they lie.  And while they’re bitching and moaning about trying to raise the debt limit by $2 trillion Obamacare will add another $4 to $6 trillion, or more, to the deficit over its first twenty years.  And there’s a whole bunch of unpleasantness in addition to that.  78 million people losing their private insurance coverage.  And the gutting of Medicare that will destroy that program.  Which will add another $15 trillion to future deficits. 

This should be the Republican position.  This is the deal they should offer.  Raise the debt limit by $2 trillion.  And repeal Obamacare.  Final offer.  Take it or leave it.  Either eat your peas.  Or you, President Obama, can default on America’s debt obligations.  For it is your Obamacare that has put us in this position in the first place.

Too much Debt is a bad Thing

Having too much debt is a bad thing.  We see it in Europe.  The EU is worried about what’s happening in Greece spreading to larger countries in the Eurozone.  Markets are jittery about Europe’s financial crises.  Even on Wall Street.  Because too much debt is a bad thing.  And no economy is too big to fail from an overload of debt.

The whole world understands this.  That too much debt is a bad thing.  And yet what is the Obama administration doing?  Piling on to their debt.  And not in a little way.  They’re collecting some $2 trillion in cash each year but it’s not enough.  They need to borrow an additional $2 trillion this year to pay their bills.  I don’t know what’s going on in Washington but one thing for sure – it ain’t good governing.

Repeal Obamacare.  Solve a bunch of problems with one act of legislation.  And demonstrate some good governing for a change.

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Public Sector Pay and Benefits are Bankrupting France and New Jersey

Posted by PITHOCRATES - October 22nd, 2010

Soon, in France, You’ll be Able to Retire Before You Start Working – If the Protestors Get Their Way

Je suis français.  I am French.  And being French, it is my birthright to get lots of free stuff.  Or so says Gilly, a cemetery union representative in Marseille.  The following quotes come from AP’s French strike to save ‘birthright’ of privileges posted 10/20/2010 on Google News.

For Gilly and many other Frenchmen and women, social benefits such as long vacations, state-subsidized health care and early retirement are more than just luxuries: They’re seen as a birthright — an essential part of the identity of today’s France.

I remember reading about the French Paradox.  While Americans were suffering epidemics of heart disease, the French were living to ripe old ages.  Free from heart disease.  The paradox?  The French diet.  Heavy creams.  Cheese.  Wine.  Sure, the Americans eat a lot of crap.  But how can the French have such a high cholesterol diet and not suffer heart disease like the Americans?  Perhaps this can explain it:

“We want to stop working at 60 because it’s something our parents, our grandparents and even our great-grandparents fought for,” says Gilly, 50, a union representative at Saint-Pierre Cemetery, the largest in this bustling Mediterranean port city.

Retire at 60?  Work for half of your life (or less) and enjoy a generous retirement.  No wonder they’re living so long.  No stress.  Cradle to grave welfare.  An early retirement.  Gosh, that sounds good.  Almost too good to be true.  Once upon a time, in feudal France, you worked from childhood until you died.  Things have definitely got better.  Just how long has it been this good?  According to Gilly, it goes back generations.  All the way to his great-grandparents.  But has it?

It was in 1982, under Socialist President Francois Mitterrand, that the minimum age to stop working was lowered from 65 to 60. The measure, emblematic of the 14-year Mitterrand presidency, was adopted by a special ordinance that bypassed parliament.

And now the government wants to raise the retirement age to 62.  You can understand Gilly’s consternation.  If you do the math, the average lifespan per generation must be somewhere around 10 years.  So one can understand how the 50 year old Gilly is anxious to retire at age 60 instead of at age 62.  Because people in his family rarely live beyond 10 years of age.  Unless Gilly is exaggerating for effect.  Or lying.  Because the French were retiring at age 65 until Mitterrand changed that in 1982.

Tax the Rich, Middle Class and Anyone Else Who Isn’t in the Public Sector

This is all well and good as long as someone else is paying the bill.  And this is something that the people in the social democracies don’t understand.  There is a limit to the treasury’s generosity.  For the public treasury to pay these very generous benefits, there has to be money in the treasury.  And states fill their treasury, basically, in one of three ways: taxing, borrowing and printing money. 

If they tax too much, people will have less disposable income.  They will buy less.  Private business will see a loss in sales revenue.  At the same time, they will have to pay more in taxes.  They may lay off employees to adjust to the reduced demand and higher tax burden.  The economy will slow into a recession. 

If they borrow too much money, interest rates will rise.  This will increase the interest people pay on their credit cards.  They will buy less.  Private businesses will see a loss in sales revenue while their costs go up (because of the higher interest rates).  They may lay off employees to adjust to the reduced demand and higher costs.  The economy will slow into a recession.

If they print too much money, they may ignite inflation.  Inflation raises prices.  People buy less because of high prices.  Private businesses will see their costs go up with these higher prices.  They may lay off employees to adjust to the reduced demand and higher costs.  The economy will slow into a recession.

To summarize, excessive government spending leads to recession.  Which results in fewer jobs in the private sector.  This is a big problem for those public sector jobs.  Because it’s the taxes from those private sector jobs that pay for those public sector jobs.  In other words, the more the public sector demands, the more they kill the private sector, the golden goose providing that rich public sector pay and those glorious public sector benefits.

The Sans-Culottes are Very Much Avec-Culottes These Days – But They Still Revolt

I’m sure the French understand this.  I mean, how bad is it really getting over there?  Well, see Clashes, protests in French tensions over pensions by AP’s Angela Charlton on www. apnews.myway.com.  She begins with:

PARIS (AP) – Protesters blockaded Marseille’s airport, Lady Gaga canceled concerts in Paris and rioting youths attacked police in Lyon on Thursday ahead of a tense Senate vote on raising the retirement age.

A quarter of the nation’s gas stations were out of fuel despite President Nicolas Sarkozy’s orders to force open depots barricaded by striking workers.

Gasoline shortages and violence on the margins of student protests have heightened the standoff between the government and labor unions who see retirement at 60 as a hard-earned right.

New violence broke out in Lyon, as police chased rampaging youths who overturned a car and hurled bottles. Riot officers tried to subdue the violence with tear gas. A gendarme helicopter circled overhead.

Wow.  If it wasn’t for the Lady Gaga and the airport and the gas stations and the police helicopter, you’d think the sans-culottes were making another revolution.  It brings to mind the classic lyrics of Adam and the Ants’ classic Ant Rap (my sister was a BIG fan):

Liberté, égalité, au jourd’hui c’est tres tres tres

Voici l’opportunite nous incroyables!

But this ain’t the 18th century.  And famine isn’t a way of life for the masses.  No.  In fact, life is pretty darn good.  No 18th century peasant lived as grand.  In fact, the life they’re protesting about today was closer to the French nobility than it was to the Third Estate in 1789.  These aren’t food riots.  This generation just doesn’t want to work another 2 years before retirement. 

It would appear that these protestors don’t understand the intricacies of a market economy.  Perhaps they have lived too long in a quasi-socialist state.  Been brainwashed by their unions.  Or maybe they just don’t care.  As long as they get their benefits now they don’t care how they impoverish future generations.  It’s a pity.  How a minority of the French people can destroy a great nation. 

Good Work if You Can Get it – and You Can Get it if You Belong to a Public Sector Union

One wonders how people can resort to violence.  Of course, when you consider how much better the public sector lives than the private sector, you wonder how this hasn’t exploded earlier.  Let’s go across the pond.  To New Jersey.  But first, if you work in the private sector, pause for a moment and think about your pay and benefits.  How hard you work and how little time you get off.  Feel overworked and underpaid?  If you worked a 60-hour week or two, you probably do.  Now, think about the last time some public sector union went on strike.  When they asked you to feel their pain.  To support their cause.  Okay, now read this excerpt from a My FOX New York article by Luke Funk (see Audit: NJ Turnpike Wasted Millions On Perks on www.myfoxny.com):

MYFOXNY.COM – Auditors say the New Jersey Turnpike Authority wasted $43 million on unneeded perks and bonuses.  In one case, an employee with a base salary of $73,469 earned $321,985 when all payouts and bonuses were included.

How does that make you feel?  Think about this the next time you get change from the person sitting in a New Jersey toll booth.  Think about your skill level and your pay.  Then think about the toll booth occupant’s skill level and pay.  Now switch places and imagine someone wanting to cut your pay and benefits.  I mean, if someone was trying to cut your pay by, say, $300,000 because the state is on the brink of bankruptcy, what would you do?  Start looking in the want ads for another unskilled job that pays 3-5 times of a skilled job in the private sector?  Or are you going to do what the French are doing?

Is it any wonder Europe is burning?  First Greece.  Now France.  You get pay and benefits like this and you live like royalty.  And one thing about royalty.  They don’t abdicate without a fight.

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Obama Makes FDR Look Like a Conservative

Posted by PITHOCRATES - September 29th, 2010

Then

None of FDR’s New Deal programs pulled the economy out of the Great Depression.  Businesses sat on their cash.  Afraid of further liquidity problems.  Afraid of what anti-business policy the FDR administration would pass next.  And the depression had left them with so much excess capacity (because no one was buying anything) there was no need to hire anyone to expand capacity.  So they didn’t.

FDR tried to stimulate the economy with record government spending.  None of it helped.  There were some make-work projects for some people.  But public make-work projects don’t stimulate an economy.  Jobs in the private sector do.  And excessive government spending just makes the businesses in the private sector nervous.  The government has to pay for that spending eventually.  Through higher taxes.  Excessive borrowing.  Or simply by printing money.  None of these actions bode well for the private sector.  They will just increase the cost of doing business (via higher taxes, higher interest rates or a higher inflation rate which makes everything more expensive).

The Great Depression finally ended thanks to Adolf Hitler and Hideki Tojo.  With a world plunged in war, our allies needed war material.  Enter the Arsenal of Democracy.  The FDR administration suspended the New Deal policies and allowed the private industry to do what it did best.  Unfettered capitalism.  Unimpeded by government.  And the rest is history.

Now

We are trying the failed policies of the FDR administration again.  And they’re working just as well as they did for FDR.  Excessive government spending is making the businesses in the private sector nervous.  Because they know the government will have to pay for that spending eventually.  Through higher taxes.  Excessive borrowing.  Or simply by printing money.  So they’re battening down the hatches.  Preparing for a rough ride through stormy, economic seas.  Sitting on excess capacity.  And piles of cash.  Because they don’t know what anti-business policy the Obama administration will pass next.

It’s worse now than it was then.  The world is not at war.  Massed armies are not threatening our allies.  There are no customers for the Arsenal of Democracy.  World war can’t pull us out of this depression.  We are on our own.  We will pick up the tab for Obama’s spending.  Well, not us.  Our children will.  Or their children.  Or their children’s children.  And each day the Obama administration spends more, the worse that day of reckoning will be. 

It doesn’t have to be this way, though.  If we stop the spending we can mitigate the damages.  But we have to act soon.  For we are fast approaching the point of no return.

I Have this Strange Feeling of Déjà Vu                                                           

Command economies don’t work.  That is, if you go by the historical record.  The New Deal failed.  The Soviet Union failed.  And where they haven’t failed, life isn’t so good.  I mean, no one is trying to sneak into North Korea or Cuba.  Why?  Because it sucks in those countries.  And yet we keep trying to be like those countries.  Why?

How bad is it?  Well, here’s one opinion:  U.S. Economy “Close to a Destructive Tipping Point,” Glenn Hubbard Says (by Aaron Task on Yahoo! Finance).  It’s a discussion of a new book:  Seeds of Destruction: Why the Path to Economic Ruin Runs Through Washington, and How to Reclaim American Prosperity by R. Glenn Hubbard and Peter Navarro.  Based on titles, I’d say it’s pretty bad.  You might want to add this book to your reading list.

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LESSONS LEARNED #5: “When it comes to regretting past choices, liberals lead conservatives when it comes to their vote.” -Old Pithy

Posted by PITHOCRATES - March 18th, 2010

BEFORE THE SS death camps, before the Einsatzgruppen (action groups tasked to mass murder civilians in Poland and the Soviet Union), before the policy of conquest for Lebensraum (living space) for the ‘master race’, before eugenics and selective breeding policies were enacted to produce a ‘master race’, before the Munich Agreement (the Nazi annexation of Czechoslovakia’s Sudetenland), before Kristallnacht (a coordinated Nazi assault on Jewish people and their property in Germany and Austria), before the Nuremberg Laws (anti-Semitic laws), before the Anschluss (the Nazi annexation of Austria), before the Enabling Act gave Hitler full dictatorial powers, before The Reichstag Fire Decree suspended habeas corpus and most of the Weimar Republic’s constitutional civil liberties, before these despotic actions there were free elections.  And the National Socialist German Workers’ (Nazi) Party rose to power by the ballot, not by arms. 

The Treaty of Versailles treated Germany poorly.  It blamed her solely for World War I.  And to the victors went the spoils.  From Germany.  Economically destroyed by the war, the peace was little better.  Runaway inflation and rampant unemployment of the Great Depression.  Humiliation.  People were looking for something.  They didn’t know what.  But Hitler did.

The National Socialist German Workers’ Party was the party for German workers, not the capitalists.   In fact, the Nazis were anti-capitalists.  This was good because the people blamed capitalists for the Great Depression.  Socialism put people before profits.  Nationalism would restore Germany’s pride.  There was a lot about the Nazi party to like in 1930s Germany.

The Nazis put people back to work.  Building public works and building for war.  They printed money to pay for what the confiscated wealth of the ‘undesirables’ didn’t.  They ‘enslaved’ workers by prohibiting strikes, labor unions and the voicing of workers’ complaints.  Hitler paid them less than they were in the Weimar (i.e., capitalist) days.  Then they turned on the business owners.  They once supported Hitler because they thought he would remove the grip of labor on business and allow unfettered capitalism.  But the state’s grip just replaced labor’s grip.

War followed the war economy.  And conscription.  And another generation of German dead.  The devastation of World War II dwarfed that of World War I.  World War I didn’t have carpet bombing.  And the Soviets never reached Berlin in World War I.  But it had all sounded so good back in the 30s.  A nation so eager for government to do something.  And government did.  But few Germans liked the result.  If they could all do it over again they would probably have supported the Weimar Republic, not the National Socialist German Workers’ Party.

THE CONSERVATIVE government of Winston Churchill won the war but the Labour Party won the peace that followed.  They, too, blamed capitalism for the Great Depression.  It wasn’t going to be business as usual now that the war was over.  So they nationalized Big Industry (coal, steel, rail, etc.).  There would be no more abject poverty or squalor.  They created a nanny state.  From the cradle to the grave.  And they created the National Health Service.  Health care for everyone.  Courtesy of the taxpayer.

Of course, to pay for such huge government spending you need taxes.  A lot of them.  And when you can’t tax anymore, you depreciate your currency (i.e., print money).  Like every other nation in the world has ever done when their government spent more than it could afford to spend. 

With monopolies came inefficiencies.  Shortages.  A shortage of coal required scheduled electrical blackouts.  Also with monopolies came power.  Union power.  Whenever they wanted more pay they just had a strike until the bosses caved.  It became the way of doing things.  The strikes were epidemic and crippling.  People outside of Great Britain called them the ‘British Disease’.

Excessive government spending to pay for the national industries, the unions, the nanny state and the National Health Service was turning Great Britain back to the discontent of a Dickens novel.  Only instead of the business owners, the oppressors were Big Labor and their unions.  The common people were tired of going without and sitting in the dark.  Especially when they were paying enormous taxes (the Beatles left Great Britain to escape the confiscatory taxes).   Economically, life was becoming more similar to that like in the Soviet Union.  The difference was that the Soviet people didn’t know what life under capitalism could be like.  The British, of course, did.  And they could vote.

And they did.  Labour was out.  The conservatives were in.  Margaret Thatcher took on the unions and privatized industry.  These moves were not popular at the time because poorly ran businesses lost government subsidies and failed.  Unemployment grew.  In the short term.  Things did get better in time, though.  You see, propping up bad businesses with government subsidies forced consumers to pay more for inferior goods.  This was in addition to already paying high taxes to subsidize the businesses in the first place.  It just couldn’t go on.  And didn’t.  They controlled costs.  The people kept more of their earnings.   They spent and stimulated.  The economy grew.  As did the living standards of the common Briton.

THE MORAL OF this lesson is to be careful what you wish for.  Whenever anyone talks about putting the people first, warning flags should go up.  History is full of people who have said this.  And just about every one of them was a liar.  They want something.   Anyone who read Mein Kampf would have known Hitler’s plans.  Some did but chose not to believe.  They just wanted to believe the lie.  They wanted what Hitler was offering.  It was just too good to be true.  And, as it turned out, it was. 

When they nationalized British industry the goal was not to repeat what had happened during the Great Depression.  For anyone who had lived through the Great Depression didn’t want to live through another.  So there was popular support.  But nationalization didn’t improve life for the common Briton.    Instead, the life of organized labor got VERY good at the expense of the common Briton.  Until it couldn’t be sustained anymore by the common Briton.

So be careful what you wish for.  You might just get it.  And all the unintended consequences that come along with it.

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