Sunday, June 10, 2012

Quick Hits - June 10, 2012

Spain is Greece after all...
After two years of denials, we finally have the right answer: Spain IS Greece. Only much bigger (it is also the US, although while the US TARP was $700 billion or 5% of then GDP, the just announced Spanish tarp is 10% of Spanish GDP, so technically Spain is 2x the US)...

...And ironically, what just happened, is that the Eurozone, with the tacit agreement of Germany, essentially gave insolvent banks a green light to short themselves into a full bailout.

How long until Italian banks get the hint, and proceed to short each other, or themselves, either with shares of stock or , better yet, through CDS which unlike in the sovereign case, can be held without an offsetting cash basis position.

In other words: is it time for the Italian bank suicide trade?

Because only when they are on the verge of nationalization, will Italian banks be rescued. And remember: he who defects (or in this case drops the fastest), first, reaps the biggest benefits of the resultant action.

We also wonder how will Ireland feel knowing that it has to suffer under backbreaking austerity in exchange for Troika generosity, while Spain gets away scott free.

Finally, there is the question of how today's action will impact the Greek elections. As noted earlier today, today's precedent will likely serve as a huge boost to the popularity of Syriza. Oh yes, the Greek elections next Sunday.

Remember those, and the whole Grexit thing?

Spanish Prime Minister Mariano Rajoy on Sunday tried to convince the Spanish public that a European Union financial bailout for their country will help shore up an ailing economy and dispel doubts about the single European currency, but he also warned that it won't prevent the country from staying mired in recession this year or stop more people losing their jobs.

Mr. Rajoy also stressed that Madrid hadn't caved into pressure from the EU to fix its banks, but instead said he was the one calling for the aid.

The €100 billion ($125 billion) aid agreement came after days of talks between Spanish and European officials that culminated in a conference call among finance ministers Saturday afternoon, in which the framework for the support was agreed upon.

"The European project, the future of the euro and our banking system all won new credibility yesterday," Mr. Rajoy told reporters at a televised news conference in Madrid. "This is a clear message that the euro project is irreversible."
Irreversible?  Perhaps.  If that is the case, then we know it's ultimately doomed.

Why?  Here's one reason....  Ireland is demanding renegotiation of its bailout terms to match Spain's.  Can Greece be far behind?
Only with Greece the wheels for a bailout overhaul are already in motion and are called a "vote of Syriza on June 17." And remember how everyone was threatening the Greeks with the 10th circle of hell if they dare to renegotiate the memorandum? Well, Spain just showed that a condition-free bailout is an option. Which means Syriza will get all the votes it needs and then some with promises of a consequence free bailout renegotiation.

Apparently, what will and fortitude that exists in Europe is entirely behind doubling down on the fundamental failure of governance and structure that led to this crisis.  

This goes beyond the questions if Germany, the IMF, and the US can ultimately afford to keep providing condition free bailouts to other troubled EU nations. As Margaret Thatcher once said, eventually you run out of someone else's money.

But are these bailout's really condition free?  What about the price that needs to be paid in terms of lost sovereignty?  That's fundamentally what is being asked of all EU members - to sacrifice a portion of their national sovereignty towards the EU bureaucracy when it comes to fiscal policy and budgets.  That is the core of the 'solution' being advocated to be part of the 'fiscal responsibility' to maintain the Euro as the single currency - put more power in the central government to 'solve' the current crisis.

Decades ago, when Europe contemplated its future - there were two competing visions.  One was advocated by Margaret Thatcher - that of a closer alliance between the nations, but each country maintains its own currency and sovereignty.  The other was the vision of a United States of Europe, with a central government bureaucracy to administer the new union, a single currency, and visions of economic power.

But those who advocated the vision of a United States of Europe failed to learn from either history of human nature.  What the EU created was a framework as feckless as the Articles of Confederation were for the 13 states of the newly independent United States of America - although with more federal powers than the Articles permitted in the United States.

It did not take long for the United States to realize the problems within the Articles of Confederation.  They moved to address these with a new constitutional convention and developed the existing Constitution of the United States with clearly enumerated powers and a very limited federal government.

However, in Europe, in 'Merkozy' and now in the vision of the statists and socialists like France's Francois Hollande, the goal is not a limited government and an end of the entitlement state to address the fiscal problems, but an expansion of the power of the central EU bureaucracy and the Keynesian expansion of the entitlement state - with the wealthy (Germany) paying for those who aren't willing to exert themselves to the same level (France, Spain, Italy, Portugal, Greece).  Where is the incentive, in this case, for the Germans to continue to produce, to work until they are 67 or 70 or 75 in order to fund others to retire at 50 or 55 or 60?

Under the policies and agenda of President Obama, the United States is racing to catch up with Europe - even as we see Europe wallow in the fiscal crisis that their embracing of fiscal irresponsibility and the entitlement state created.

According to the President, the 'private sector is doing just fine' and the solution for the anemic economic recovery we find ourselves in is more public sector jobs and more government spending.  We need another round of stimulus - even though the $850 billion stimulus of 2009, and the massive increase of government spending (33% since 2008) has generated $5 trillion in new federal debt in 39 months, millions of unemployed, and less than 2% growth in the GDP.  Our government is already spending more per capita than any of the most troubled EU nations.

This is the crux of the latest message from the Obama campaign - and attack on Mitt Romney...

The problem we face is that the entity that is 'doing fine' under President Obama is BIG GOVERNMENT!
To Obama, the private sector is always “doing fine,” so it really doesn’t matter if the public sector overloads it with too many taxes and too much regulation. The private sector? Oh, you means guys like Bain Capital who like to fire people.

No wonder there’s been so little sense of urgency by the Obama White House to cut the sky-high corporate tax rate or so little consideration given to the impact on small business of letting the Bush tax cuts expire. The private sector is “doing fine,” after all. Unintended consequences? What are those?

Approve the Keystone pipeline? Why? The environment comes first, especially at a time when the private sector is “doing fine.”

The private sector isn’t just millionaire CEOs of America’s largest companies. It’s also workers (who bear most of the burden of high corporate taxes) and investors and entrepreneurs. Again, Mitt Romney yesterday:
Where my vision believes in the ingenuity of the American people, his vision trusts the wisdom of political appointees and boards, commissions and czars. It’s one in which ordinary Americans must get permission from people in Washington before they can buy, build, invest or hire. It’s a world of federal mandates and waivers, tax credits and subsidies, federal grants and loan guarantees. It’s an economy where a company’s lobbyists will be more important than its engineers, and federal compliance lawyers will outnumber patent lawyers. Business models based on building a better mousetrap will give way to those that seek the right mix of government subsidies, waivers and loan guarantees. And Chief Government Officers will join the ranks of Chief Financial Officers and Chief Operating Officers in corporate America’s executive ranks.

President Obama trusts in the wisdom of government. I put my trust in the ingenuity and creativity and commitment to hard work of the American people.

Indeed, it seems that Obama thinks the only big flaw in the Obama recovery is that government isn’t hiring enough public union members. Everybody else is “doing fine.”

It's interesting in these competing visions. Look at it here in California - when Jerry Brown looks at a $16 billion budget deficit, he proposes $7 billion in new taxes to 'fix' the problem. Beyond the math not working, the argument from the progressives are always that we need the new taxes for more teachers, more police, more firefighters. Yet, when they get their hands on those tax revenues - most of them are spent elsewhere - new bureaucracies and programs to provide 'social justice' or repay special interest support groups.

This is why it's hard to spin the record.

Have you ever watched the comedy "Dodgeball"? In the movie, a film is used to explain the rules of Dodgeball - and in particular the '5 D's of Dodgeball'....

Dodge, Duck, Dip, Dive, and Dodge...

Here is Senior Obama Campaign advisor, David Axelrod performing the '5 D's of Dodgeball' on CNN this morning as he is asked about the President's statement from Friday that 'The Private sector is doing fine...'....

Our country has been trying the Keynesian solutions since January 2009 when Barack Obama was inaugurated.  Keynesian's like the President, his key advisers, and 'experts' like Paul Krugman say our problems today are not because Keynesian economic theories are fundamentally flawed - but that we've not done them completely enough - that we've not spent enough through government or expanded the public sector.  Yet, there's never been case where this has worked.

What has worked is smaller government and a greater focus towards encouraging growth and opportunity in the public sector.

That is what is at stake in November.  It is time to learn from history and not repeat the mistakes we see Europe is making in the name of an ideological dogma and redouble efforts to implement a fundamentally flawed idea without fixing those fundamental flaws.

Don't forget to visit and vote in today's Hot Air poll - What was the Obamateurism of the Week?

This Day in History

1692 - In Salem Village, in the Massachusetts Bay Colony, Bridget Bishop, the first colonist tried in the Salem witch trials, is hanged after being found guilty of witchcraft.

1752 - Benjamin Franklin flies a kite during a thunderstorm and collects a charge in a Leyden jar when the kite is struck by lightning - enabling him to demonstrate the electrical nature of lightning.

1940 - Norway surrenders to Germany; Italy declares war on France and Great Britain; Canada declares war on Italy

1999 - NATO suspends air strikes in Yugoslavia after Slobodan Milosevic agreed to withdraw his forces from Kosovo.

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