The ongoing European Debt Crisis hasn’t ended, it’s merely undergoing a summer hiatus while the various bankers and Eurocrats involved in the shell game take their customary 8 week vacations. As such, expect a new round of crisis headlines to come rolling in during the fall.
Remember: The purpose of the shell game is to let insiders unload their bad debts onto taxpayers. (Look how it was done in Ireland for pointers.) The shell game will continue as long as the insiders can get away with buying off restive electorates with an unsustainable cradle-to-grave welfare state.
Europe’s present is our future.
Once again, Greece is being given money to pretend to reform. Look for more fake austerity, and another bailout in six months.
“Greece will never repay the money it’s been lent to ‘save’ it. The current debate over whether Greece has done enough by way of reform, tax hikes and spending cuts to have earned the next tranche of bailout funds is largely beside the point. If Greece is cut loose, or walks away, its euro-zone creditors will lose their money. The Greeks and the Germans are surely both aware of this. They’re also aware that Greece’s external debt position is far worse than when the bailouts began—when its debt stood at a mere 129% of GDP—and that any talk of debt sustainability in Greece has become a joke.” It’s now at 157% of GDP.
Predictably, Greek unions respond to more fake austerity and staff cuts by extending strikes.
Europeans realize that their governments are corrupt. Those who think they’re not corrupt? “In Spain that number is just 8 percent. In Italy, it’s 13 percent. And Greeks and Portuguese have the least trust in the world regarding their governments’ efforts: Just 1 percent of respondents say their government is making strides against corruption.”
And just how corrupt is Greece? “Politicians and journalists are viewed as on the take by most Greeks with 50 percent also saying they’ve had to bribe public officials to get services.”
The EU is preparing a banking union bill. No word on whether it will require depositors to take haircuts like those in Cyprus in the event of a bank failure.
Italy could be forced to beg for a bailout in six months.
UK actually proposes to roll back some 35 EU laws. This may be the first sign that Cameron’s wet Tories have actually noticed how effectively Nigel Farge’s UKIP is eating into their base…
Time for another update of just how hard Texas is kicking California’s ass:
Chuck DeVore has the skinny on California’s recent “growth:”
The BEA revised California’s real GDP growth downward from 2009 to 2011 in each of three years by a cumulative 2.6 percent, the third-largest negative revision in the nation.
In other words, California’s economy shrank an additional 2.6 percent before it grew 3.5 percent.
So, in the past five years California’s real GDP contracted 0.3 percent, one of ten states where economic activity was less in 2012 than it was in 2008.
By contrast, the BEA revised Texas’ growth upward by 0.5 percent from 2009 to 2011.
Texas’ newly revised real GDP growth from 2009 to 2012 was 13 percent.
From 2009 to 2012, California’s share of the U.S. economy shrank from 13.1 percent to 12.9 percent while Texas’ portion of the American economy increased from 8.2 percent to 9 percent.
What should be the Federer vs. Nadal of state-level competition has become a lopsided trouncing: Texas has humiliated its opponent in straight sets. The federal Bureau of Economic Analysis is out with its state-by-state economic growth numbers for 2012, and Texas is dancing the two-step all over California’s “recovery.”
“Texas and California provide real-world results from the so-called laboratory of democracy — the states. The results aren’t even close. Texas wins and has been winning for years. California, champion of the big government blue state model, is in a death spiral. Texas, champion of the small government red state model, continues to grow and lead the way.”
California’s legislature has the highest salary in the country. (By contrast, Texas legislators make $600 per month, plus a per diem that’s currently $139 for every day the Legislature is in session.)
The Nanny State wants to regulate nannies. “Yo dawg, I heard you liked nanny states, so I put the nanny state in charge of your nannies so the nanny state nannies can nanny nannies.”
Billionaire Texas Democrat seeks to reform California pensions. Might want to pop some popcorn for this one. (Arnold does indeed give primarily to Democrats, but recently he’s also made contributions to Ted Cruz ($2400 in 2011), Tom Coburn and the RNC, plus a relatively paltry $200 donation to John McCain in 2010.)
Remember: If you’re going to kill somebody, it’s far better to do it in California than Texas. “At the pace the state has executed inmates over the last 35 years – roughly one execution every three years – it would take the state about 2,000 years to clear its backlog.” Why is why rail-traveling serial killer Angel Maturino Resendiz was executed after 7 years in a Texas prison, but “Night Stalker” Richard Ramirez spent 23 years living at the expense of California taxpayers before dying of natural causes.
California city of Atwater avoids bankruptcy by the skin of its teeth. Naturally, public employee unions are saying that now is the time to get raises…
California’s mullet budget: conservative in the front, but with a long greasy, tangled mane of liberal spending and debt in the back.
“Public pension costs are increasing simply because liabilities are growing faster than assets….To meet the rate at which pension liabilities were growing in 1999, Calpers needed the Dow to reach 30,000 by now.”
“California still has a mammoth long-term pension gap. If it used the same pension accounting standards as private companies must, its total debts would be a terrifying $1 trillion.”
What does the future look like in California? Well, take a look at Detroit, another one-party liberal Democrat fiefdom, where decades of chronic overspending and mismanagement are leading to a bankruptcy filing which will screw bond-holders and pensioners alike.
Speaking of bankrupt cities that can’t pay their bills, Stockton is paying out $5.1 million in settlements for retirees who are losing their health benefits due to the bankruptcy.
Some inside baseball news on maneuverings in the Stockton and San Bernardino bankruptcies.
Due the huge looming deficits, California’s public employee unions have had to accept wage cuts. Ha, just kidding! They’re getting raises.
Forbes makes the same point that I have made repeatedly: Austerity has not been tried and failed in Europe, it has been found difficult and left untried.
The official figures show that PIIGS governments embarked on massive spending sprees between 2000 and 2008. During this period, their combined general government expenditures rose from 775 billion Euros to 1.3 trillion – a 75 percent increase. Ireland had the largest percentage increase (130 percent), and Italy the smallest (40 percent). These spending binges gave public sector workers generous salaries and benefits, paid for bridges to nowhere, and financed a gold-plated transfer state. What the state gave has proven hard to take away as the riots in Southern Europe show.
Then in 2008, the financial crisis hit. No one wanted to lend to the insolvent PIIGS, and, according to the Keynesian narrative, the PIIGS were forced into extreme austerity by their miserly neighbors to the north. Instead of the stimulus they desperately needed, the PIIGS economies were wrecked by austerity.
Not so according to the official European statistics. Between the onset of the crisis in 2008 and 2011, PIIGS government spending increased by six percent from an already high plateau. Eurostat’s projections (which make the unlikely assumption that the PIIGS will honor the fiscal discipline promised their creditors) still show the PIIGS spending more in 2014 than at the end of their spending binge in 2008.
Remember: Real austerity is cutting budgets until receipts match outlays. In Europe this hasn’t been tried outside the Baltic states. Meanwhile, Japan has been trying Keynesian stimulus for two decades and has nothing to show for it but a mountain of debt.
Or take this abstract (I’m still working through the actual paper) from German Institute for Economic Research economist Georg Erber: “The core thesis of the paper is that taking a close look at the actual statistics available from Eurostat on the PIIGS-countries plus Cyprus, one finds little empirical evidence that the governments there have de facto reduced their total public expenditures.”
Keynesian pump-priming hasn’t worked in Europe. Could real austerity (i.e., cutting budgets until they’re balanced) work to restore growth in Europe (and here)?
Wait, Vernon? Vernon hasn’t already declared bankruptcy? The city that would probably win “Most Corrupt City in California” if not for stiff competition from Bell?
If I had to wager, I’d pick Vernon, though Compton and Mammoth Lake are also good candidates…
For a shocking change of pace, the Friday LinkSwarm will be on Friday:
“How can we ‘gun people’ honestly be expected to come to the table with anti-gunners when anti-gunners are willfully stupid about guns, and openly hate, despise and ridicule those of us who own them?” Read the whole thing.
The lovely qualities of Jihadi Facebook pages: “The further I crawled down the extremist rabbit hole and the more caved-in skulls and headless corpses I saw.”
“The Euro cannot be destroyed by any craft that we here possess. It was made in the fires of Frankfurt. Only there can it be unmade.” What does it say when Sauron wants the ring, er, Euro destroyed as well? Though once again: Austerity hasn’t failed in Europe, it hasn’t been tried.
“It was one thing to do amnesty during the white hot Reagan economy of the mid to late 80s. It’s quite another to do it in the midst of the Obama depression.”
London mayor Boris Johnson thinks it would be a good thing for democracy if the UK were to just walk away from the EU.
Travis County Democratic District Attorney Rosemary Lehmberg is out of the clink after serving half a 45 day sentence for DWI. A jury will evidently determine “whether her drunken driving was habitual or whether the recent arrest was the result of a one-time event.” Because lots of people without alcohol problems suddenly decide “Hey, I’m going to go cruising around town with an open bottle of vodka and a blood alcohol level of .239! That sounds like a great idea!” I might believe that…if Lehmberg was 21.
“It’s time for public employee unions to wake up and take a look around. Government services are shrinking, cities are crumbling, and they’re enjoying pay and benefit packages that many in the private sector would kill for. They need to give a little back…Because up and down the state of California, and beyond, public officials foolishly negotiated contracts they can’t pay for without taking a cleaver to basic services, including police and fire protection, park maintenance, street repair.”
California’s total government debt, at all levels, is estimated between $848 billion and $1.126 trillion. Funny how the word “trillion” crops up in reference to debt when Democrats are in charge of things…
The New York Timesall but comes out and says that the LA Times is an extension of the Democratic Party. Which is why both the MSM and the Left are panicking that it might be sold to the Koch Brothers.
In a rare spot of good news for California, their revenue are running just far enough ahead of schedule that they no longer need to make do with internal borrowing between state agencies. But I would suggest that this windfall will prove to be temporary…
Texas once again named the best state for business by CEO Magazine. And California was once again named the worst.
Take a look at these charts. Unemployment in Spain is up over 25%, and most have been unemployed more than 2 years. Matthew O’Brien is correct when he says that Spain’s inflexible labor laws contribute greatly to the unemployment, but errs when he says that “austerity hasn’t been the path to prosperity. It’s been the path to perma-slump.”
Austerity hasn’t failed in Spain. It hasn’t been tried.
Remember, real austerity isn’t trying to tax-and-spend your way to prosperity. Real austerity is cutting budgets until outlays match receipts. Estonia bit the bullet and balanced its budget, and its economy is now growing at a steady clip. Meanwhile, governments all across Europe continue to try the same deficit spending Keynesian pump-priming, and keep having the same recession. In most of Europe, “austerity” has meant digging their own graves more slowly rather that stopping digging.
If all this sounds familiar, that’s because it is. Europe makes the same mistakes, gets the same results, and keeps doubling down on stupid, content to keep the farce running as long as they possibly can. Instead actually of solving the interrelated problems of debt, unsustainable entitlements, and the Euro, the Euroelite seem content to preside over the world’s slowest, most boring train wreck. Yes, it’s a pity the train is sliding inexorably toward the chasm, but there’s such fine vintages to be had in the saloon car, and it offers such a magnificent view of the coming crash…
While attention was focused on the Boston bombing, Gosnell, and gay marriage, Greece just got another bailout. This is in exchange for further “austerity.”
What sort of “austerity” is Greece practicing? The sort that involves deficit spending at 10% of GDP, which is up from 9%. It was supposed to be cut to 7.5%.
So Greece wants more money because it can’t even keep to its previous promises on its fake austerity goals.
Let me explain it once again: Real austerity is cutting spending until it matches incoming receipts.Not reducing the rate of deficit spending. Not raising taxes so politicians can continue to spend.
No country in the EU (at least outside the Baltics) has practiced real austerity. That Forbes piece on the Baltic nations includes a lot of good advice that EU nations are largely ignoring:
Don’t run up big debts. It is a lot easier to manage when things go bad if you aren’t overextended to start. Observed Rosenberg: “Estonia’s experience shows that prudent policies during the boom may not avoid a bust, but they can put the country into a better position to deal with shocks.”
Don’t engage in an orgy of “stimulus” spending. That will run up big debts without generating long-term growth. When budgets eventually are cut, as they will have to be, the economic loss and political pain will be even greater.
Make tough decisions early. People typically are ready to act after the crisis hits. In the case of Latvia, argued Asmussen, by acting swiftly “most of the required painful budgetary decisions could be passed before the so-called ‘adjustment fatigue’ kicked in.”
Maintain fiscal responsibility. Otherwise any progress will be transitory. Growth is the natural result of reform. Delaying reform exacerbates the problem while prematurely terminating reform short-circuits the recovery.
Emphasize budget cuts. Expansive and irresponsible public outlays usually contribute to economic crisis. Moreover, the state as well as citizens should sacrifice after a crash. The answer is to cut expansive and irresponsible public outlays. In fact, economists Alberto Alesina and Silvia Ardagna found that “spending cuts are much more effective than tax increases in stabilizing the debt and avoiding economic downturns. In fact, we uncover several episodes in which spending cuts adopted to reduce deficits have been associated with economic expansions rather than recessions.”
Finally, don’t rest on one’s laurels. There always is more to do. Even nations which have implemented serious reform programs, like the Baltic States, could make further improvements.
As far as I can tell, none of the core EU states (and certainly none of the PIIGS) has tried this approach since the 2008 recession hit. They keep trying Neo-Keynesian pump-priming and deficit spending to keep both the Euro and their unsustainable welfare state afloat, and they keep experiencing endless recession. Their fake austerity comes in slightly reducing the amount of their deficit spending enough to pretend they’re in compliance to keep the bailouts coming. Ireland hasn’t practiced real austerity. Neither has Portugal, Spain, or Italy (though Italy has come closest).
The shell game of bailouts and fake austerity will continue as long as the Eurocrats can keep getting away with it.
Alarm bells have been ringing loudly in the heads of municipal bond investors…If you’re the chief of municipal bond investing for a big bank, whether on Wall Street or in San Francisco, Los Angeles or Chicago, this gets your attention. You might hesitate to lend hundreds of millions of dollars to other cities and counties if you fear they might go the Stockton route. Even if you proceed, you might insist on higher interest rates to compensate for what now appears to be added risk. That can translate to higher local taxes.
Current California pension reform proposals are only a start.
Sacramento proposes to spend $447 million on an arena for a losing, mismanaged basketball team. “It’s 60 to 75 percent public subsidies.”
Problem: California’s politicians spend money like drunken sailors with a stolen credit card. Solution: Eliminate Proposition 13 so they can spend even more.
Indeed, that was just one of the many pro-economic suicide measures passed at the California Democratic convention.
