Now that he has pummelled the financial service industry into submission, Obama is back after the oil companies. Instead of looking for constructive solutions to America's problems, Obama repeats his recurrent themes of fingerpointing and the blame game. Is that all there is?
One thing for sure, there is oil to be discovered in the Gulf, whether Obama likes it or not? Why not try to be helpful instead of simply villifying people who are working very hard to deal with a major accident? Isn't fixing the problem the real issue instead of after-the-fact name calling?
Obama seems to think that the "bully pulpit of the presidency" is meant to bully people who are in no position to defend themselves, regardless of right or wrong or legality.
When will Obama turn constructive? Ever? When will he defend America's free enterprise system? Ever?
Don't expect much hiring with this President in office.
Jumat, 14 Mei 2010
Regulators to the Rescue of Day Traders
The 1,000 point slide in the Dow Jones last week, that no long term investor even noticed, has drawn the rapt attention of the regulators. The exchanges, under the now-watchful eye of the SEC, have adopted five minute "circuit breakers" -- a phrase that means a seller can't sell his stock without waiting for five minutes (even if there are bids well above the last quoted price!). This absurd system will simply speed the transfer of financial markets to a friendlier climate outside of the United States.
The only conceivable group that can benefit from this "five minute" delay are the most frantic of day traders who spend all day in front of a computer trading stocks. Are these the folks that the SEC is really out to protect? Whatever happened to the idea that financial regulation was supposed to protect long term investors? I guess the SEC doesn't buy into that anymore.
Who wants to own something that you can't sell?
The only conceivable group that can benefit from this "five minute" delay are the most frantic of day traders who spend all day in front of a computer trading stocks. Are these the folks that the SEC is really out to protect? Whatever happened to the idea that financial regulation was supposed to protect long term investors? I guess the SEC doesn't buy into that anymore.
Who wants to own something that you can't sell?
Lets Talk Germany and France
All the conversation, so far, has been about the weaker, southern European countries. These are the profligate countries, so goes the story. Don't believe it.
Germany and France are basket cases. Their banking systems are in dire straights and much of the rationale for the recent Trillion dollar rescue package was based on the desire to prop up the larger commercial banks across Germany and France. Neither of these countries has seen any real economic growth for two decades and their growth rates today fluctuate around zero.
German and French debt? Big trouble lies ahead. These countries have rigid labor laws that perpetuate high levels of unemployment and discourage young people. These are demographically old societies that are growing dramatically older. Both countries have angry minorities that have never shared in what prosperity there is in these countries. The battle ahead will be to be to fend off the young and the minorities, who are expected to pay for health care and retirement benefits that they cannot expect for themselves. This unfortunate dynamic will dominate the politics in Germany and France for the next decade. The outcome is unclear.
But, what is clear is that neither Germany nor France will experience any real economic growth. Both economies will stagnate, even without the the perils of picking up a new Trillion dollar liability for the likes of Greece, Portugal, Spain, and Italy. The idea that Germany and France are the stewards of fiscal sanity is absurd. Germany, France and the UK for that matter are headed for fiscal disaster with or without the current debt problems of southern Europe.
Germany and France are basket cases. Their banking systems are in dire straights and much of the rationale for the recent Trillion dollar rescue package was based on the desire to prop up the larger commercial banks across Germany and France. Neither of these countries has seen any real economic growth for two decades and their growth rates today fluctuate around zero.
German and French debt? Big trouble lies ahead. These countries have rigid labor laws that perpetuate high levels of unemployment and discourage young people. These are demographically old societies that are growing dramatically older. Both countries have angry minorities that have never shared in what prosperity there is in these countries. The battle ahead will be to be to fend off the young and the minorities, who are expected to pay for health care and retirement benefits that they cannot expect for themselves. This unfortunate dynamic will dominate the politics in Germany and France for the next decade. The outcome is unclear.
But, what is clear is that neither Germany nor France will experience any real economic growth. Both economies will stagnate, even without the the perils of picking up a new Trillion dollar liability for the likes of Greece, Portugal, Spain, and Italy. The idea that Germany and France are the stewards of fiscal sanity is absurd. Germany, France and the UK for that matter are headed for fiscal disaster with or without the current debt problems of southern Europe.
Kamis, 13 Mei 2010
Euro Continues Lower
The Euro is now below 126 against the dollar -- a vote of no-confidence in the massive Trillion dollar bailout by the Eurozone for its more profligate members. In time, the bailout countries -- Germany and France -- will be looking for someone to bail them out. The spending trajectory and the enormous public sectors in most European countries are unchanged features of the landscape. This means more debt and renewed crisis at some future date.
Selasa, 11 Mei 2010
Now What?
The Euro continues to trade down this morning. The Euro had been trading around 129 on Friday, briefly ticked to 130 on Monday morning during the euphoria rally, but ended the day in the 127.5 area. This morning it touched 126 and change. So, the Euro market is not cheering this ECU rescue package. Bond yields on German and French bonds and CDS spreads on these bonds are moving higher, suggesting that German and French bonds will, in time, be the story.
Once attention focuses on the weak credit of Germany and France, brought on by the stimulus package, then there will be no one left to rescue the Eurozone and it will collapse.
The right answer is to let the weaker countries restructure their debt (partial bankruptcy) and move on. That would leave the Eurozone stronger and remove moral hazard from the picture. Urged on by Obama, Europe took another tack.
Just as Obama is losing his political strength in the US, Merkel and Sarcozy will not survive this politically. Neither German citizens nor French citizens are enthusiastic about the Eurozone bailout and will give Merkel and Sarcozy the boot at their first opportunity. Ironically, this will put Europe's left in charge of a forced dismantling of their welfare state. A bit of poetic justice.
Any effort to force austerity programs on Spain, Italy, Portugal, Greece (and others yet unnamed) will lead to street riots and political instability. More governments will fall and the economy of the Eurozone will plunge into darkness. These will be the fruits of the Obama-Merkel-Sarcozy policies.
Monday was a great one day rally. Now the reality will set in.
Once attention focuses on the weak credit of Germany and France, brought on by the stimulus package, then there will be no one left to rescue the Eurozone and it will collapse.
The right answer is to let the weaker countries restructure their debt (partial bankruptcy) and move on. That would leave the Eurozone stronger and remove moral hazard from the picture. Urged on by Obama, Europe took another tack.
Just as Obama is losing his political strength in the US, Merkel and Sarcozy will not survive this politically. Neither German citizens nor French citizens are enthusiastic about the Eurozone bailout and will give Merkel and Sarcozy the boot at their first opportunity. Ironically, this will put Europe's left in charge of a forced dismantling of their welfare state. A bit of poetic justice.
Any effort to force austerity programs on Spain, Italy, Portugal, Greece (and others yet unnamed) will lead to street riots and political instability. More governments will fall and the economy of the Eurozone will plunge into darkness. These will be the fruits of the Obama-Merkel-Sarcozy policies.
Monday was a great one day rally. Now the reality will set in.
Senin, 10 Mei 2010
The End of the ECB and the ECU -- Just a Matter of Time
Anyone who thinks that the European Central Bank is independent after this past weekend is simply not paying attention. The ECB was blackjacked into a number of policy changes that violate the very charter that created its founding. The long suspicion that the Euro would not survive its first major recession seems to be headed toward reality. The ECB was not the only casualty of this weekend's agreement. The ECU nations also agreed (with IMF money thrown in) to a $ 1 Trillion Dollar rescue package for Eurozone countries in trouble.
It won't work.
First of all, if the policy changes in the One Trillion "Rescue Plan" are really brought into force, it means economic disaster for the countries being rescued. Their economies will enter a period of long term decline. How can it be avoided? Austerity, in the midst of a recession, is a prescription for disaster. That is what lies ahead for Greece, Portugal, Spain, and Italy.
What is the future for Germany and France? We saw something of their future as we watched yields on German and French bonds rise (while the Euro fell) today amidst the spirited rally that swept world equity markets. Germany and France are not very good credits anymore, because they have underwritten the profligacy of the weakest of the Euro countries. That weakness is now the weakness of German and French sovereign debt. In time, a crisis will arise in the German and French sovereign debt markets. The US donated $ 50 billion to this foolishness (by way of the IMF).
There is some mild hope for the US and Britain, because they can drastically devalue their currencies and pump up inflation as ways to deal with their own debt crises. The debt crisis will reach Britain (sooner) and the US (later) -- but it will arrive in time. The US and UK have more flexibility, but they too may founder on foolish policy decisions. They certainly have made many such foolish decisions since the Fall of 2008.
What you are likely to see is a race to the bottom as countries withdraw from international trade all together, reminiscent of the 1930s. Everyone will attempt to curb imports and expand exports (even within the Eurozone). It will not be pretty.
The Euro countries are in desperate straights. The Eurozone was forecast, prior to this weekend's bailout, to grow at a mere 1 percent next year. The bailout package should reduce this +1 to some kind of negative number. This means fiscal situations will get worse not better, throughout the Eurozone. The Eurozone will have a lot more debt and an increasing inability to fund that debt. Overall bankruptcy, in one form of another, is the future of the Eurozone if the "bailout" package is really implemented.
But, what is the chance of implementation? Greek workers have scheduled a nationwide strike for Wednesday. Germany's largest and wealthiest province, NRW, just handed the Merkel government a stunning defeat Sunday, causing the Merkel government to lose their majority in the German upper house of Parliament, which narrowly passed the much smaller Greek package put forth by the Merkel government just last week. The issue in the NRW: opposition to the ECU bailout program for Greece. Polls show that 70 to 80 percent of German voters oppose the bailout. Which German political party is going to step and push this package?
Will the Spanish, the Portuguese, and the Italians sign on for the austerity measures that this agreement will call far? Not likely.
One way or another this package is probably not really going to be implemented. The Germans and French will begin to get nervous as CDS spreads on German and French debt began to widen. They will be peering into their own futures as they watch the CDS market value their sovereign debt. Popular opposition to austerity programs will kill any real chance of slowing spending in countries like Greece and their southern European neighbors. Tax revenues will fall throughout the Eurozone and especially in the weaker countries.
The Euro is now doomed. It will not survive and the Eurozone will plunge into long term economic stagnation and sky high unemployment for decades to come.
The European bailout is the ultimate in "kicking the can down the road." The problem is that the road is straight down hill and can is gaining momentum. It will soon not be catchable at all. Only economic growth and a reduction in entitlements and public employees can bail out the European welfare states and that is no longer in the cards.
The right answer to the problems of Greece, Spain, Italy and Portugal is to let these countries have a partial bankruptcy, offering their creditors a workout of 25 to 30 cents on the dollar (or whatever makes sense), establishing a clean balance sheet and beginning anew in the credit markets. That solution would permit economic growth and would not drag Germany and France into the mix (although German and French banks would take quite a hit, which they should take -- after all, they made bad decisions -- they should pay for those bad decisions).
There is still hope for the US, but there is no hope for Europe.
It won't work.
First of all, if the policy changes in the One Trillion "Rescue Plan" are really brought into force, it means economic disaster for the countries being rescued. Their economies will enter a period of long term decline. How can it be avoided? Austerity, in the midst of a recession, is a prescription for disaster. That is what lies ahead for Greece, Portugal, Spain, and Italy.
What is the future for Germany and France? We saw something of their future as we watched yields on German and French bonds rise (while the Euro fell) today amidst the spirited rally that swept world equity markets. Germany and France are not very good credits anymore, because they have underwritten the profligacy of the weakest of the Euro countries. That weakness is now the weakness of German and French sovereign debt. In time, a crisis will arise in the German and French sovereign debt markets. The US donated $ 50 billion to this foolishness (by way of the IMF).
There is some mild hope for the US and Britain, because they can drastically devalue their currencies and pump up inflation as ways to deal with their own debt crises. The debt crisis will reach Britain (sooner) and the US (later) -- but it will arrive in time. The US and UK have more flexibility, but they too may founder on foolish policy decisions. They certainly have made many such foolish decisions since the Fall of 2008.
What you are likely to see is a race to the bottom as countries withdraw from international trade all together, reminiscent of the 1930s. Everyone will attempt to curb imports and expand exports (even within the Eurozone). It will not be pretty.
The Euro countries are in desperate straights. The Eurozone was forecast, prior to this weekend's bailout, to grow at a mere 1 percent next year. The bailout package should reduce this +1 to some kind of negative number. This means fiscal situations will get worse not better, throughout the Eurozone. The Eurozone will have a lot more debt and an increasing inability to fund that debt. Overall bankruptcy, in one form of another, is the future of the Eurozone if the "bailout" package is really implemented.
But, what is the chance of implementation? Greek workers have scheduled a nationwide strike for Wednesday. Germany's largest and wealthiest province, NRW, just handed the Merkel government a stunning defeat Sunday, causing the Merkel government to lose their majority in the German upper house of Parliament, which narrowly passed the much smaller Greek package put forth by the Merkel government just last week. The issue in the NRW: opposition to the ECU bailout program for Greece. Polls show that 70 to 80 percent of German voters oppose the bailout. Which German political party is going to step and push this package?
Will the Spanish, the Portuguese, and the Italians sign on for the austerity measures that this agreement will call far? Not likely.
One way or another this package is probably not really going to be implemented. The Germans and French will begin to get nervous as CDS spreads on German and French debt began to widen. They will be peering into their own futures as they watch the CDS market value their sovereign debt. Popular opposition to austerity programs will kill any real chance of slowing spending in countries like Greece and their southern European neighbors. Tax revenues will fall throughout the Eurozone and especially in the weaker countries.
The Euro is now doomed. It will not survive and the Eurozone will plunge into long term economic stagnation and sky high unemployment for decades to come.
The European bailout is the ultimate in "kicking the can down the road." The problem is that the road is straight down hill and can is gaining momentum. It will soon not be catchable at all. Only economic growth and a reduction in entitlements and public employees can bail out the European welfare states and that is no longer in the cards.
The right answer to the problems of Greece, Spain, Italy and Portugal is to let these countries have a partial bankruptcy, offering their creditors a workout of 25 to 30 cents on the dollar (or whatever makes sense), establishing a clean balance sheet and beginning anew in the credit markets. That solution would permit economic growth and would not drag Germany and France into the mix (although German and French banks would take quite a hit, which they should take -- after all, they made bad decisions -- they should pay for those bad decisions).
There is still hope for the US, but there is no hope for Europe.
Minggu, 09 Mei 2010
$ 645 Billion Fund Makes Matters Worse Not Better
The problem is that budget deficits in Europe are out of control -- in every country. Nothing in the bailout package deals with that. The so-called "austerity plans" will not work in the middle of a recession. As the economies stagnate, so do tax revenues. So even budget cuts will be offset by revenue declines. Only economic prosperity will generate the tax revenues needed and, as prosperity goes forward, then budget cuts become possible, though they are never popular.
All the bailout package does is, ironically, postpone any serious efforts by European countries to bring their fiscal houses into order. So the situation will get worse. In a nutshell, the problems of Greece, Spain, Italy, and Portugal are now the problems of German and France. In time, someone will need to bail out Germany and France. Who will that be?
The only answer is to let Greece, Spain, Italy, and Portugal take some kind of controlled bankruptcy similar to what Argentina did in the late 1990s. Greece, for example, could offer bondholders $ .25 on the dollar for every bit of outstanding sovereign debt. Sure, French banks and German banks would then be in some serious trouble, but they are going to be in trouble anyway, eventually. Why not take the medicine now?
If you permit these countries to do a partial default, then there will be no need for extreme austerity measures and they can issue new debt, which they will now be able to do. This is the correct policy for Greece, Portugal, Italy, Spain, California, New York, Illinois, New Jersey, and so forth. There should be no bailouts. They will only permit miscreants to continue their miscreant ways.
All the bailout package does is, ironically, postpone any serious efforts by European countries to bring their fiscal houses into order. So the situation will get worse. In a nutshell, the problems of Greece, Spain, Italy, and Portugal are now the problems of German and France. In time, someone will need to bail out Germany and France. Who will that be?
The only answer is to let Greece, Spain, Italy, and Portugal take some kind of controlled bankruptcy similar to what Argentina did in the late 1990s. Greece, for example, could offer bondholders $ .25 on the dollar for every bit of outstanding sovereign debt. Sure, French banks and German banks would then be in some serious trouble, but they are going to be in trouble anyway, eventually. Why not take the medicine now?
If you permit these countries to do a partial default, then there will be no need for extreme austerity measures and they can issue new debt, which they will now be able to do. This is the correct policy for Greece, Portugal, Italy, Spain, California, New York, Illinois, New Jersey, and so forth. There should be no bailouts. They will only permit miscreants to continue their miscreant ways.
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