Tuesday, June 12, 2012

Quick Hits - June 12, 2012

The announcement in Europe for the bailout of Spanish banks, to the tune of between $125 billion and $160 billion USD, has done little to settle the crisis down from the high boil it's currently on....

The Wall Street Journal reports....
Spanish bond yields hit a euro-era high, fanning speculation that the country might need a bailout of its own, just days after the government said it would seek a support package for its beleaguered banking system.

The turmoil spread to Italy, the euro zone's third largest economy, where bond yields leapt ahead of a crucial bond sale later this week and weekend elections in Greece that could decide that country's fate in the common-currency region.

The deepening gloom surrounding Spain's creditworthiness could have grave implications. A bailout for Spain would severely test the firepower of the euro area's rescue funds and leave little money in the pot if Italy were to be shut out of bond markets.

As noted by the UK's Telegraph...
Spanish 10-year bond yields jump past 6.8pc, a 13-year high, as German Chancellor Angela Merkel warns that any funds for the country will be tied to reforms of its banking sector.

Investors Business Daily notes that little of this is really unexpected, because another bailout, or more bailouts, just won't work to fix the fundamental challenges at the core of the Eurocrisis...
As expected, the European Union rode to Spain's rescue Monday with a $125 billion bailout for that country's banks. The oh-so-brief rally in European and U.S. markets can't hide a simple fact: It won't work.

We don't mean to be downbeat, but another bailout is the last thing Europe needs. As any drunk can tell you, another drink may ease your pain for now, but it will leave you with one heck of a headache later.

That's where Europe is now. After bailing out Greece, then Spain, who's next? Italy? Ireland? Portugal? All could make a case that they're just as deserving — maybe more.

Then there's France. Its new Socialist government has given more pension benefits to workers and lowered the retirement age by two years to 60.

Why will it not work? Remember Einstein's definition of insanity? It's doing the same thing again and again, but expecting different results. This is European insanity...
When you realize that of the potential $100 billion to spend, 22% of that has to be provided by Italy and their lending to Spain is at 3% but Italy has to borrow at 6%. They have to lend to Spain $22bn at 3% - it is just madness. Everybody is getting worried again. The solution that they seem to have come up with seems to be worse than the problem in the first place.

Europe is really on the brink...
The European Union was created to avoid repeating the disasters of the 1930s, but Germany, of all countries, has failed to learn from history. As the euro crisis escalates, Berlin should remember how the banking crisis of 1931 contributed to the breakdown of democracy across Europe. Action is urgently needed to stop history from repeating itself...

...Astonishingly few Europeans (including bankers) seem to remember what happened in May 1931 when Creditanstalt, the biggest Austrian bank, had to be bailed out by a government that was itself on the brink of insolvency. The ensuing European bank crisis, which saw the failure of two of Germany's biggest banks, ushered in the second half of the Great Depression. If the first half had been dominated by the American stock market crash, the second was all about European banks going bust.

What happened next? The banking crisis was followed by President Hoover's one-year moratorium on payment of World War I war debts and reparations. Nearly all sovereign borrowers subsequently defaulted on all or part of their external debts, beginning with Germany. Unemployment in Europe reached an agonizing peak in 1932: In July of that year, 49 per cent of German trade union members were out of work.

The political consequences are well known. But the Nazis were only the worst of a large number of extremist movements to benefit politically from the crisis. "Anti-system" parties in Germany -- including Communists as well as fascists -- had won 13 percent of votes in 1928. By November 1932, they won nearly 60 percent. The far right also fared well in Austria, Belgium, Czechoslovakia, Hungary and Romania. Communists gained in Bulgaria, France and Greece.

The result was the death of democracy in much of Europe. While 24 European regimes had been democratic in 1920, the number was down to 11 in 1939. Even bankers know what happened that year.

Ultimately the argument being made in the above op-ed in Der Spiegel is for a push for a stronger federal / central European government - where member nations sacrifice key elements of their national sovereignty, specifically monetary and fiscal policies, to a stronger EU bureaucracy which has control of these aspects across the European Union.

The alternative to this is the opposite approach - to back away from the single currency which currently links the EU nations - to a looser alliance, primarily around free trade, but not tied to a single currency 'one size fits all' approach. In this manner, each individual nation remains accountable and responsible to themselves for their fiscal policies and fiscal standings. Europe avoids the disruptive effects of the few wealthy productive nations being placed in a position to subsidize the less productive entitlement enamored nations.

To look at this comparison - how would the workers of Texas feel if they were required to directly send billions from their state to 'solve' California's budget deficit or bailout the state if it could no longer afford to borrow to fund its budget deficit?

Europe's decision is to go one way or the other - it can no longer try to walk a middle road. I personally think the economic and cultural issues / differences are such that even the 'United States of Europe' option would be unworkable. Add these issues and conditions to the failure of the concept of Marxism when human nature is considered - and we've reached the fundamental issue in the Eurozone crisis that is not being addressed - the Euro-socialist entitlement state model.

Democrat analyst and pollster, Pat Caddell, comments about the leaks of classified information from the Obama Administration - leaks which are made to provide a political boost to the Administration, and names the member of the Obama Administration who he believes is behind the security leaks.  According to Caddell, National Security Advisor Tom Donilon is the source of the security leaks.

Remember this is not any ordinary leak. This is as she (Senator Diane Feinstein) says putting American foreign policy and American lives in jeopardy. The New York Times’ review of Mr. (David) Sanger’s book by Thomas Ricks who is a one of the Pulitzer Prize winners of the Wall Street Journal and Washington Post defense experts. In his review in the New York Times he says, “And throughout Mr. Sanger has clearly enjoyed great access to senior White House officials most notably Tom Donilon. Mr. Donilon is effect the hero of the book in fact the chief commentator and records of events.” It’s all about this stuff. When Gates, when we had the disclosure of SEAL Team 6, Robert Gates went to the White House and told Tom Donilon, “I have a new communication strategy, you know what it is? Keep your effing mouth shut.” Tom Donilon is known for this. He is a political operative.

This would not be a surprise to many. Neither would the President's unwillingness to take action against Donilon if this is really the case.

In the waning days of the Second World War, Adolf Hitler, sequestered within his Berlin bunker, moved further and further into delusion as the war approached its last days. He would create / order phantom units or armies to make attacks - when those units existed only on paper or were at a fraction of their optimal combat strength and capabilities. One of these examples were his orders to Army Detachment Steiner - ordered to attack the Russian Army to prevent Berlin from being encircled. When informed that Steiner's forces couldn't / didn't launch their attack, he exploded.

We like to tell ourselves that when faced with adversity, we need to look forward, we need to look for the cloud's silver lining, in order to keep moving forward.  But there is a difference between trying to rally around the good to overcome adversity - and being delusional about reality.  Howard Dean, speaking to the attendees at the Netroot Nation convention in Rhode Island, was delusional.

As Allahpundit, on Hot Air, notes -
How does it help his side to omit those details and encourage complacency instead of treating the Walker victory as a Democratic disaster and a five-alarm fire for November? Good lord.

Oh, he’s also pretty sure that President Romney and a Republican Congress will be even worse for deficits than Obama is, even though the left’s spent three years now screaming that the GOP can’t be trusted with power because they’ll slash government spending to ribbons. (“Draconian!”) So, aces all around here.

The President remains in real trouble over his economic policies and statements like the one last Friday that 'the private sector is doing fine' and we need more government hiring and spending to stimulate the economy. According to the Federal Reserve, Americans saw their wealth plummet 40% between 2007 and 2010.
The recession caused the greatest upheaval among the middle class. Only roughly half of middle¬-class Americans remained on the same economic rung during the downturn, the Fed found. Their median net worth — the value of assets such as homes, automobiles and stocks minus any debt — suffered the biggest drops. By contrast, the wealthiest families’ median net worth rose slightly.

Americans have tried to re¬balance the family budget but have found it difficult to reverse the damage.

Meanwhile, Investors Business Daily has an editorial today that castigates the President for his 'the private sector is doing fine' comment...
'Tone deaf" fails to describe President Obama's statement at Friday's press conference that "the private sector is doing fine," when median income is down 10% in three years, family net worth has plunged 39%, 23 million Americans are out of work and the official unemployment rate tops 8% for the 40th month in a row, the longest sustained period at that level since the Great Depression.

Mitt Romney's charge that the president is "out of touch" might be more accurate, but we would prefer "clueless."

Then came the walk-back at a later press event: "It is absolutely clear that the economy is not doing fine. That's why I had a press conference," Obama explained to those who were wondering, and as if the two statements did not contradict one another. Cognitive dissonance has been redefined.

Lost in the commotion caused by the dueling teleprompters was the president's suggestion that, aside from job-killing ATMs, the economy was in the tank because state and local governments weren't big enough and spending enough.

As noted before, 'the private sector is doing fine' was not a gaffe - this is what the President, looking at the country through his ideologically tinted glasses, really sees and believes. He believes that its the public sector that needs help - more government spending and more hiring - to 'fix' our economy and spark a vibrant economic recovery. He looks at the decrease in jobs in the public sector, like the 13,000 net jobs lost in the May unemployment numbers, as a sign that this is the sector that needs investment.

However, in this case, he looks at the symptoms and misreads the cause for those symptoms...
San Jose [California - which just had nearly 70% vote to reform public sector pensions] had an average of 7.5 employees per 1,000 residents from 1986 to 2005, and never dropped below 7.0. But in the last two years, that ratio has cratered -- to 5.6 per thousand this year, with further cuts expected next year.

This is partly because revenue has risen only modestly, with general fund receipts rising 19 percent in a decade. But the main reason is that costs for a full-time equivalent employee are astronomical and skyrocketing. San Jose spends $142,000 per FTE on wages and benefits, up 85 percent from 10 years ago. As a result, the city shed 28 percent of its workforce over that period, even as its population was rising.

A lot of that increase is due to rising required pension payments, as the assets in the city’s pension funds have lost value. But much also had to do with what Mayor Chuck Reed, a Democrat, describes as “irresponsible policy actions” over the last 15 years. Here’s his list:

1. Giving out raises faster than revenues were growing.

2. Giving out raises and increasing benefits when revenues were falling.

3. Giving out raises and benefits retroactively.

4. Allowing employees to cash out unlimited amounts of sick leave when they retire.

5. Providing lifetime health care for retirees.

He also notes that “the City Council and outside arbitrators also significantly enhanced retirement benefits. The maximum benefit for public safety employees grew from 75 percent of final salary to 90 percent, and a guaranteed 3 percent cost-of-living adjustment was awarded to all employees.”

In other words, the city made a lot of promises that it could barely afford when times were good, and now that times are bad, it really can’t afford them.

One of the key items in yesterday's QH post was the E.J. Dionne column from the Washington Post that advocated the progressive economic solution as being the only option that can 'fix' this country. Hot Air's Ed Morrissey does a very good job at hammering the vapidity of progressive economics - and provides a very good tool to help graphically make the case from the Minneapolis Fed to compare this recession and recovery to past recessions and recoveries....
The greatest lesson of the 20th century, at least in economics, was the triumph of F. A. Hayek and the exposure of the fallacy of central control of economies. The only people who still think that government can “heal” economies through central control and planning are the true believers, for whom evidence and experience means little or nothing.

Update: The proper argument here is the difference in opportunity between the two approaches. The US economy has added jobs in the past three years since the recovery, obviously — about 3.1 million of them. However, as I repeatedly point out, that averages out to 86,300 a month, far below the 125K-150K level needed to keep up with population growth. The opportunity cost between the Reagan and Obama approaches has been enormous, and represents a lost opportunity to avoid years of pain and social ills.

Art Laffer, the economist behind the Laffer Curve, and Stephen Moore, of the Wall Street Journal, took to today's WSJ to show that we've already embraced the concept of massive government spending to stimulate the economy - and despite that spending, the economy did not respond. What's notable about this op-ed, is that they, quite correctly, link the last several years of President Bush's tenure to massive increase in government spending.
There’s no way around the facts – Under Presidents Bush and Obama, government exploded as a share of the economy.

From the second quarter of 2007, i.e., the first full quarter of a Pelosi-Reid dominated Congress and a politically weakened President Bush, to the second quarter of 2009 when President Obama assumed office, government spending skyrocketed to 27.3% of GDP from 21.4%. It was the largest peacetime expansion of government spending in U.S. history.

After taking office in 2009, with spending and debt already at record high levels and the deficit headed to $1 trillion, President Obama proceeded to pass his own $830 billion stimulus, auto bailouts, mortgage relief plans, the Dodd-Frank financial reforms and the $1.7 trillion ObamaCare entitlement (which isn't even accounted for in the chart). While spending did come down in 2010, it wasn't the result of spending cuts but rather because TARP loans began to be repaid, and that cash was counted against spending.

In 2011 and 2012, the pace of spending was slowed when a new emboldened breed of Republicans took back the House promising to end the binge. The House Budget Committee, headed by Wisconsin Rep. Paul Ryan, has identified about $150 billion of new spending Mr. Obama wanted in 2011 and 2012 that Republicans would not approve. As the chart shows, government spending as a share of GDP fell, and taxes were not raised. But to attribute this drop in government spending to the president or congressional Democrats would be dishonest.

Keynesians, of course, are advising more deficit spending and easy money. But the most amazing feature of the nearby chart, which is rarely ever noted, is that when spending declined sharply the economy boomed under President Clinton, and when spending soared under Presidents Bush and Obama, the economy tanked.

Maybe Keynes was wrong and Milton Friedman was right when he warned that government spending is taxation and that government can't tax an economy into prosperity. Friedman made it clear time and again that restraining government spending stimulates the economy by liberating private resources.

From Hot Air, we get this report....
With this, it's time to get ready for another Obama pivot to focus on jobs and the economy.... 

President Barack Obama will use a campaign policy speech Thursday to contrast his preferred approach for the country’s economic future with ideas proposed by his likely Republican opponent, Mitt Romney, people familiar with the speech said.

Finally! The candidate will address the issue that most voters put at the top of their priority list, rather than gay marriage and Romney’s prep-school antics. What new solutions will he offer? Er …

Mr. Obama’s address in Cleveland, described by his aides as a “framing” speech, isn’t expected to include any major new proposals. While some of his political advisers had pushed for that, his economic team made clear they don’t see many fresh options, particularly when Congress hasn’t passed the bulk of a jobs bill that the president unveiled nine months ago, according to people familiar with the discussions.

Well, the Senate is controlled by his own party. If they haven’t passed Obama’s agenda — indeed, his own team seems entirely disinterested in it, to the extent they know about it at all — maybe that’s a hint that some new thinking is required. Instead, Obama plans to push ahead with the same, tired proposals that have received bipartisan indifference. And most worrisome for Obama’s allies is that the administration still hasn’t come up with a Plan B:

People familiar with the speech say the White House believes those proposals still represent Mr. Obama’s best ideas for spurring the economy, and there are no alternative policies waiting in the wings.
These are the decisions which will cost the President his bid for reelection...and the parallels between Barack Obama and Jimmy Carter become more justified....

[T]he state of Florida has filed a lawsuit in federal court demanding that the state be permitted to check the names of registered voters with an immigration database maintained by the US Department of Homeland Security. This comes the same day that the DoJ announced that it is going to ask a federal court to block the state with removing non-US citizens from its voter rolls – the DoJ is contending that removing non-US citizens is a violation of federal voter laws. Florida Governor Rick Scott said the following during an interview on FNC conducted by Neil Cavuto - “I have a job to do to defend the right of legitimate voters,” Scott told Neil Cavuto of Fox News. “We want to have fair honest elections in our state and so we have been put in the position we have to sue the federal government to get this information.”
The efforts by the Obama Administration, and their allies like the ACLU, La Raza, and other open border / illegal immigration advocacy groups to fight Voter ID laws is just another policy that alienates the Administration from moderates in this country....

Elizabeth Warren, the embattled Democrat candidate for the Massachusetts Senate seat currently held by Scott Brown, is going to have more challenges beyond her unsubstantiated and dishonest claim of being a Native American minority.  A new scandal is set to break that also addresses her character and dishonesty - as well as the bias within Harvard Law towards accepting and covering up ethical conduct that would get just about any student tossed from the school.  Breitbart is reporting on an academic scandal around Warren's 'scientific misconduct'...

In 1990, Rutgers Professor Philip Shuchman charged Elizabeth Warren, along with Teresa A. Sullivan (above), the President of University of Virginia who resigned unexpectedly yesterday, and Jay Westbrook, her two co-authors of the 1989 book, As We Forgive Our Debtors: Bankruptcy and Consumer Credit in America, with “scientific misconduct.” Within a few months, Warren’s friends and former colleagues at the University of Texas quickly completed an error-filled investigation.

This secret report was accepted by University of Texas President William Cunningham. For two decades, Warren and her co-authors have claimed in academic circles that this report--never before made public--exonerated them.

But the central charge made by Professor Shuchman was neither investigated nor refuted in this secret report. Shuchman cited four specific criticisms of the 1989 book. It is the fourth and last complaint upon which charges of scientific misconduct hang.

Read it all - as well as the links which support the argument against Elizabeth Warren, former University of Virginia President Teresa Sullivan, and Jay Westbrook.

This Day in History

1939 - The National Baseball Hall of Fame and Museum was dedicated in Cooperstown, NY.

1940 - 54,000 British and French troops surrender to German General Erwin Rommel at St. Valery-en-Caux, along the English Channel, as German forces continue to make gains in France.  German forces move towards Paris as General Maxime Weygand orders the military governor of Paris to ensure that Paris is an open city - offers no resistance to the Germans.  He advocates France seek an armistice with Germany and blames France's military challenges on Britain.

1987 - Twenty-five years ago today, President Ronald Reagan delivers a major speech for freedom in front of the Brandenburg Gate, West Berlin...

Tear Down This Wall!
1994 - Nicole Brown Simpson and Ron Goldman are murdered in the Brentwood area of Los Angeles.  O.J. Simpson, Nicole Brown Simpson's ex-husband, was charged with the murder.  He was acquitted in a controversial criminal trial in 1995.  He was found guilty in a 1997 civil trial and forced to pay $33.5 in punitive and compensatory damages.
1998 - Compaq Computer paid $9 billion for Digital Equipment Corp (DEC) - the largest high-tech acquisition to that date.  In 2001, Hewlett-Packard would acquire Compaq Computer for $25 billion.

2003 - Actor Gregory Peck dies in Los Angeles at the age of 87.

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