Where is the Cash ?

Spain Announces Yet Another Impossible Solution to Its Problems

By Graham Summers

Spain continues to heap one impossible idea on top of another.

The latest “plan” consists of Spain creating a bad bank called SAREB that will buy up bad assets in Spain in an effort to clean up the country’s finances.

SAREB was part of the €100 billion Spanish bailout plan which was set forth in June. Once again, none of it makes any sense.

          Spain's Bad Bank to Buy Up Assets

SAREB, which is set to begin operations on Dec. 1, will absorb soured investments that have dragged down the balance sheets of Spanish banks since the collapse of the country's housing market four years ago.

Fernando Restoy, head of Spain's bank-bailout fund, said SAREB will likely purchase about €60 billion of toxic assets using Spanish resources and some of the funds allocated under the bank-bailout agreement 

It will apply an average 63% discount on land and housing units and an average 46% discount on real estate loans, he said, and will aim to sell the assets to investors over the next 15 years, with a return on investment of at least 14% for any investors in the bad bank.

 Wait a second… isn't Spain bankrupt?

An Iceberg Called Bernanke

Manipulating interest rates is only the tip of the Federal Reserve’s agenda

By CHARLES HUGH SMITH

No wonder the policies of the Federal Reserve are so widely misunderstood: in many ways the Fed is like an iceberg, with its public pronouncements being only the visible 10 percent above water. The real mass of the Fed’s actions lies beneath the surface, invisible to us mere citizens.

Consider the Fed’s public mandate, which is to “promote stable prices, maximum sustainable output and employment.” This is solid public relations, selflessly focused on the good of the nation, but it’s also deeply disingenuous, as the Fed’s less PR-pretty agenda is rather obviously to preserve the banking sector’s profits and power.

We can find clues to the Fed’s real goals in its actions behind closed doors—the 90 percent of the iceberg that’s out of public view.

On the surface, the Fed has increased its balance sheet by about $2 trillion since the 2008 global financial crisis. This electronically created money purchased about $1.1 trillion in mortgage-backed securities (MBS) to support the housing market and $1 trillion in Treasury bonds to keep interest rates low. These two goals—super-low interest rates (also known as “zero interest rate policy,” or ZIRP) and supporting assets such as housing and stocks—are the core strategies the Fed publicly deploys to boost growth and employment.

Supporting the banks is not mentioned, for obvious PR reasons. Yet a Government Accountability Office audit found that the Fed provided $16.1 trillion in “emergency program” loans to global banks from 2007 to 2010. A Levy Institute study uncovered a total of $29 trillion in Fed support—roughly ten times larger than the Fed’s public programs. For context, the annual U.S. gross domestic product is about $15 trillion.

This suggests we should take the Fed’s assurances that its policies are all for the public good with a grain of salt roughly the size of the Fed’s D.C. headquarters at 20th and Constitution Avenue.

Who Is for Hope and Change?

A band of brethren united, no more

By PATRICK J. BUCHANAN

“Providence has been pleased to give this one connected country to one united people — a people descended from the same ancestors, speaking the same language, professing the same religion, attached to the same principles of government, very similar in their manners and customs, and who, by their joint counsels, arms, and efforts, fighting side by side throughout a long and bloody war, have nobly established general liberty and independence.”

So wrote John Jay in Federalist No. 2, wherein he describes Americans as a “band of brethren united to each other by the strongest ties.”

That “band of brethren united” no longer exists.

No longer are we “descended from the same ancestors.”

Indeed, as we are daily instructed, it is our “diversity” – our citizens can trace their ancestors to every member state of the United Nations — that “is our strength.” And this diversity makes us a stronger, better country than the America of Eisenhower and JFK.

No longer do we speak the same language. To tens of millions, Spanish is their language. Millions more do not use English in their homes. Nor are their children taught in English in the schools.

Killing Economic Prosperity

Debt And Deficits 

by Lance Robert

What is really causing the economic malaise that the U.S. faces today?  Most economists believe that it is the lack of aggregate demand that is causing the problem which can be rectified by continued deficit spending.  The current Administration believes that it is simply the lack of the "rich"  not paying their "fair share" and that a redistribution of wealth will solve the issue.  Romney believes that his 5-point plan will create 12 million jobs in the near future.  All are wrong.   

Raising Taxes Ain't Gonna Do It

First of all, as we have discussed in the past, raising taxes and redistributing wealth will impede economic growth.  Louis Woodhill put it best:  

"To 'tax' is to take away something from someone and give it to the government. 'The rich' are rich because they own a lot of assets. So, what it means to 'tax the rich' is to take assets away from rich people and transfer them to the government.

So, what are the assets that the rich own? The rich don't have money bins full of cash, like Scrooge McDuck. Rather, they own things like factories, office buildings, and oil wells, either directly or indirectly via stocks and bonds. In other words, the rich own most of the 'nonresidential fixed assets' of the nation. These assets certainly count as 'wealth', but what they are physically are the tools that workers use to produce America's GDP.”

This is critically important to understand.  By increasing taxes, to generate additional revenue for the government, you decrease the available capital that could be used for productive investments.  Since the government doesn’t want factories, office buildings, or oil wells, but rather cash, this forces the liquidation of productive investments thereby reducing capacity for economic growth.

California, Here We Stay

Reasons not to flee an imploding state

By Victor Davis Hanson

California’s multidimensional decline—fiscal, commercial, social, and political—sometimes seems endless. The state’s fiscal problems were especially evident this past May, when Governor Jerry Brown announced an “unexpected” $16 billion annual budget shortfall. Two months later, he signed a $92 billion budget that appears balanced only if voters approve an $8.5 billion tax increase in November. According to a study published by a public policy group at Stanford University, California’s various retirement systems have amassed $500 billion in unfunded liabilities. To honor the pension and benefit contracts of current and retired public employees, state and local governments have already started to lay off workers and slash services.

Not just in its finances but almost wherever you look, the state’s vital signs are dipping. The average unemployment rate hovers above 10 percent. In the reading and math tests administered by the National Assessment of Educational Progress, California students rank near the bottom of the country, though their teachers earn far more than the average American teacher does. California’s penal system is the largest in the United States, with more than 165,000 inmates. Some studies estimate that the state prisons and county jails house more than 30,000 illegal aliens at a cost of $1 billion or more each year. Speaking of which: California has the nation’s largest population of illegal aliens, on whom it spends an estimated $10 billion annually in entitlements. The illegals also deprive the Golden State’s economy of billions of dollars every year by sending remittances to Latin America.

Meanwhile, business surveys perennially rank California among the most hostile states to private enterprise, largely because of overregulation, stifling coastal zoning laws, inflated housing costs, and high tax rates. Environmental extremism has cost the state dearly: oil production has plunged 45 percent over the last 25 years, even though California’s Monterey Shale formation has an estimated 15.4 billion barrels of recoverable oil, according to the U.S. Energy Information Administration. Geologists estimate that 3 trillion cubic feet of natural gas sit untapped as well. Those numbers could soar with revolutionary new methods of exploration (see “California Needs a Crude Awakening,” Summer 2012).

The Man Who Saved Colombia

What Colombians Needed—and Found in Their Last President—was Churchillian Mettle

By Alvaro Vargas Llosa

Certain political leaders, whatever their aspirations, become overwhelmed by events they once thought they could master. Think of Alexander Kerensky (cast aside by Russia’s October Revolution) or even Jimmy Carter (reduced to political impotence by stagflation and Iran). Other leaders, though, meet enormous challenges with a vision and a resolve that allow them to shape events and guide the course of history—think of Winston Churchill (defying Hitler), Margaret Thatcher (resurrecting Britain) or Helmut Kohl (reunifying Germany). To this second group belongs Alvaro Uribe Vélez, the president of Colombia from 2002 to 2010.

The country he inherited, upon his election, was a perfect hell. Various paramilitary groups and Marxist terrorist organizations, pre-eminent among them FARC (the Revolutionary Armed Forces of Colombia), controlled half of the country’s territory, often aided by Colombia’s left-wing neighbors, Venezuela and Ecuador. Every year, an average of 28,000 Colombians were killed and 3,000 kidnapped, usually to coerce a ransom. Drug traffickers generated $3 billion annually. Unemployment was close to 16%.

Who Really Cares About the Poor?

Subsidizing vs Eliminating Poverty

Havana - 2012

By John C. Goodman

Capitalism favors the rich. Socialism helps the poor. These are core beliefs of almost everybody on the left, including our president. Ah, but it turns out that this worldview is completely wrong.

Economists associated with the Fraser Institute and the Cato Institute have actually found a way to measure "economic freedom" and investigate what difference it makes in 141 countries around the world. This work has been in progress for several decades now and the evidence is stark. Economies that rely on private property, free markets and free trade, and avoid high taxes, regulation and inflation, grow more rapidly than those with less economic freedom. Higher growth leads to higher incomes. Among the nations in the top fifth of the economic freedom index in 2011, average income was almost 7 times as great as for those countries in the bottom 20 percent (per capita gross domestic product of $31,501 versus $4,545).

What about the effects on the poorest citizens? In the 2011 report, the average income of the poorest tenth of the population in the least free countries was around $1,061. By contrast, the the poorest tenth of the freest countries’ populations earned about $8,735. If you are poor, it pays to live where capitalism is less hobbled.

What about equality of incomes? As it turns out there is almost no global relationship between the distribution of income and the degree of economic freedom. But in a way, that’s good news. It means that the rich don’t get richer and the poor poorer under capitalism. Everybody becomes better off.

The enemy within

Obama’s EPA Plans for 2013

By S. Fred Singer

The November elections will determine the direction of US climate policy—and therefore also energy policy and the pace of economic growth: jobs, standards of living, budget deficits and inflation. Obama has already promised to make climate change the centerpiece of his concern—with all that implies: “Green” energy policy, linked to loss of jobs (Keystone pipeline disapproval), rising gas prices (ethanol mandates), and crony capitalism (Solyndra).”

By contrast, Romney is a climate skeptic—and Ryan has been quite outspoken: the perfect anti-Gore. The science supports Romney-Ryan—notwithstanding the UN-IPCC, and the bulk of the climate scientists living high on the hog on government grants.

All of this emerged from campaign rhetoric—but it needs to be spelled out more clearly. Note that Obama no longer promises to “heal the Earth and stop the rise of the oceans.” He has also been uncharacteristically quiet about his efforts to “make electricity prices skyrocket.” But there is more in store if he is re-elected and unleashes the full regulatory apparatus of the EPA.

Senate report

Earlier this month, Senator James Inhofe (R-Okla. ), Ranking Member of the Senate Committee on Environment and Public Works, released a new EPW Minority Report entitled, “A Look Ahead to EPA Regulations for 2013: Numerous Obama EPA Rules Placed On Hold until after the Election Spell Doom for Jobs and Economic Growth.”

Fascism without the funny hats

Our System Is Not Socialism, but Participatory Fascism

By Robert Higgs

I continue to encounter many discussions in which the author or speaker bemoans the economic order’s drift toward socialism or, in some cases, its actual existence as such. If this characterization were simply a matter of linguistic imprecision, it might not matter much. But it is much more than a matter of terminology, because one’s understanding of the nature of our current economic order hinges on how we characterize it.

Socialism is a system in which all the major means of production are owned and operated by the state. Except perhaps for small firms or farms, all productive enterprises are state enterprises. All natural resources belong to the state. All resources are allocated and employed as the state dictates, insofar as its dictates can actually be carried out in practice (all such systems display much slack between orders given and actual conduct on the ground, owing to corruption and attempts to “fix” flaws embedded in the state’s overall plan).

Obviously the economic order that prevails in the economically advanced countries is not socialism. Indeed, these systems are commonly called capitalistic or market-oriented, notwithstanding the many types of government intervention that pervade their markets—various taxes, subsidies, direct government production, and regulations galore. Some people refer to these systems as “mixed economies,” which at least helps us to recognize that they are not market economies in any pure sense, not even in an approximate one. But in calling them mixed economies, we gain no insight into their nature or operation.

Jürgen Habermas’ European Dreams

Going to the Dentist

by Theodore Dalrymple       

Compared with reading a book by Professor Habermas, going to the dentist is a pleasant experience. He has made his career as a torturer – not of people, but of language. The esteem in which he is widely held is to me mysterious and itself of sociological and psychological interest, worthy of further research. Audiences have been known almost to swoon at his Teutonically polysyllabic vaticinations. He is largely incomprehensible; where he is comprehensible, he is either banal or wrong, or both. He is often funny, but not intentionally.

Let us take his banality first. At the bottom of page 69 of this short but frivolously dense book entitled THE CRISIS OF THE EUROPEAN UNION: A Response , we read with respect to his scheme for a world body that will deliver universal justice (modeled more or less on the triumphantly successful European Union): 

“But any design for a world order aiming at civilizing the exercise of political authority, no matter how farsighted it might be, must take account of the fact that the historical asynchronicity of regional developments and the corresponding socio-economic disparities between the multiple modernities cannot be erased overnight.”

Do we really need a professor of philosophy  – indeed, do we need anyone – to tell us this? Professor Habermas tries to squeeze significance out of truisms, as a constipated man tries to squeeze stools out of a reluctant colon, by the use of locutions such as ‘multiple modernities’ and the printing of the word ‘overnight’ in italics. But is there a single person in the world who thinks that all economic differences between individuals and nations could be ironed out overnight, and who either needs to or would be disabused of this notion by Professor Habermas’s contradiction of it? Academic vacuity can go no further.

New York: standing tall against nature’s wrath

Let’s praise the man made structures that withstood Sandy’s fury rather than fretting about allegedly man made Frankenstorms.

by Nathalie Rothschild 

It was the stuff of disaster movies: fire fighters travelling down 14th Street in inflatable boats; the facade of a Chelsea building blown out, exposing the interiors of tastefully decorated apartments; a power station explosion lighting up the New York sky; cranes dangling precariously off skyscrapers; floods causing the downtown Canal and Water Streets to live up to their names; Lady Liberty going dark and the lights of Manhattan switching off one by one until the Empire State was one of the few buildings still shining bright on the greatest skyline on Earth.

Following Hurricane Sandy’s pounding of the US East Coast from afar, eyes glued to my hyperactive Twitter feed where these astonishing images from New York City were doing the rounds, the thought of how limited the damage was in proportion to the strength of the storm was humbling.

Yes, it might sound soppy, but it’s worth reminding ourselves just how much gumption it takes to build and run a city that is largely able to withstand such relentless forces of nature as the Sandy superstorm. It’s pretty awesome, as Americans would say.

But on Twitter, the steady stream of blurry Instagram pictures and testimonies to individuals’ heroic efforts - such as the nurses who evacuated babies down nine flights of stairs in the dark - were interspersed with admonitions of human arrogance. We have ourselves to blame for nature’s havoc-wrecking, some suggested, and we are powerless in the face of nature’s wrath.

Doesn’t that seem paradoxical?

Spain, Rescued but Not Saved

The rot that Europe's bailouts won't fix

By RAYMOND ZHONG

In Spain's recent attempts to right its economy, a pattern emerges: There is intervention layered upon intervention, dithering as the problem deepens, "reform" resulting in higher taxes—and, sometimes, the suggestion of cronyism.

Last month La Moncloa announced "perhaps one of the most necessary reforms" to address the "debt hole left by previous governments." Since 1998, Spain has subsidized the production of green power via feed-in tariffs, which require electrical companies to pay renewables producers a fixed, above-market price for their output. It worked. In 2008, Spain accounted for half of the world's new solar-power installations in wattage terms.

But to keep household electricity bills from rising too quickly, the government covered the utilities' extra costs out of the public purse. The accumulated "tariff deficit" had grown to €24 billion by this year, and was set to grow an additional €5 billion annually. (Spain's entire 2011 budget deficit was €100 billion.)

September's solution is a 6% tax on all energy production, renewable and otherwise. The Spanish treasury will also assume €2.1 billion of next year's cost of servicing outstanding obligations. New levies on nuclear waste and hydro power round out the measures, which are expected to eliminate new tariff deficits starting in 2013.

The Lie That Is Social Security

The money you pay into Social Security is not yours

by Lance Roberts

The problems facing the U.S. economy are daunting especially when it comes to issues of Government spending and the current deficit. We recently wrote about the dependency on Government programs which are currently making up as much as 35% of personal incomes. Social Security, Medicaid and Medicare make up the largest portions of the current spending requirements of the Federal Budget. The current administration has promised that cuts will not be made to government "entitlement" programs but is that a promise that any administration can actually keep?

When it comes to Social Security the facts are rather alarming. By 2017 the Social Security Administration will pay out more in benefits than it takes in. This is not surprising given that in the 1950's there were roughly 5 workers for every retiree. Today, it is roughly half of that. With 78 Million "baby boomers" moving into retirement the demands on social security are set to spiral higher in the coming years ahead. Is it really any wonder then that with demographics heading in the wrong direction, not to mention a much slower growth economy, that the Social Security Administration has moved up its estimate that the Social Security Fund will be exhausted entirely by 2033?

With these rather stark points in mind it was much to my dismay that Smart Money published an article by Alicia Munnell entitled "Social Security: The Cheapest Annuity In Town" which stated: 

"The Center for Retirement Research at Boston College has just released a new study that shows that the best way for people to turn their 401(k) balances into a stream of income is to 'buy' an annuity from Social Security. Many people don't recognize that Social Security is in the annuity business, but it is and it has the cheapest product in town."

Government-mandated fantasies

‘Maximum temperature law’ to prevent ‘temperature gouging’ makes as much sense as laws to prevent ‘price gouging’

By Mark J. Perry 

The summer of 2012 was the third-warmest summer on record in the United States.  The average temperature of 74.4 degrees from June-August this year was just one-tenth of a degree below last summer’s average temperature of 74.5 degrees, and two-tenths of a degree short of the hottest summer on record back in the Dust Bowl of 1936, according to the Weather Channel.

The extreme heat waves during the last two summers, and the hardships they have caused for millions of Americans (including 82 heat-related deaths this year), firmly establishes that we are at the mercy of a very cruel, ruthless, merciless, cold-hearted, and uncaring force: Mother Nature. Without some kind of government intervention in the market for high temperature readings being registered on existing thermostats, Mother Nature will continually and ruthlessly expose Americans to harsh summer conditions of unconscionably high temperatures. Who among us wouldn’t agree that the excessively high summer temperatures this year were a form of unfair “temperature gouging”?

The Economics of Dracula

Liberty or Security ?

by Peter C. Earle

Another Halloween is upon us, bringing its late autumnal burst of costumes, candy, and merriment. Ghosts, witches, mummies, zombies, Frankenstein's monster, film and television characters, and others will make appearances, as will the quintessential Halloween figure: Dracula.

Most people are familiar with Count Dracula's first literary appearance in Bram Stoker's 1897 Gothic horror novel Dracula. And many are also aware that the undead villain was loosely based on a real historical figure, Vlad Tepes III — "Vlad the Impaler" (sometimes "Vlad Dracula") — who ruled mid-15th century Wallachia, a region of modern day Romania.

Incredibly, though, there is a real but lesser-known horror story behind Dracula — a story of the long-term effects of inflationary policies and a consequent campaign of economic nationalism, rather than of a mythic, powerful undead creature: interventionism pursued terrifyingly, diligently, to its logical ends.

Euro breaks up the hard way

Credit to EU governments rose by 8.3% while credit granted to the private sector declined by 1.3%

By Martin Hutchinson 

The eurozone appears to be trying to do things the hard way. It has softened conditions on Greece, while promising an unlimited fund to buy debt of the other PIGGY governments and supporting the creation of a supranational banking regulator. In the short term, this has quieted market speculation. In the long term it has increased the probability of a break-up of not only the eurozone but the European Union itself. 

Growth in the eurozone has run just below the flatline this year, with The Economist team of forecasters expecting 0.5% shrinkage of the eurozone economy in 2012 and a tiny 0.1% growth in 2013. Only inflation is creeping up, expected to reach 3% this year as the European Central Bank's various monetary "stimulus" policies have their inevitable side-effects. 

Euro M3 money supply rose only 2.7% in the year to September, a reasonable rate, but in the same year credit to government rose by 8.3% while credit granted to the private sector declined by 1.3%. In other words, the eurozone monetary crisis is squeezing the private sector while its banks contribute further to the perpetual aggrandization of government. 

The real problems are arising in the countries being bailed out. Greece is being given an additional 16-18 billion euros (US$21-$23 billion) through 2016, and in return will be expected to allow direct EU "advisory" interference in its tax collection and budgeting.

Good luck with selling that on the streets of Athens! 

Italy faces an election in March in which neither Silvio Berlusconi, the most important figure of the past two decades, nor Mario Monti, the darling of the EU technocrats, will officially run. The country ranks 92nd on the Heritage Foundation's Index of Economic Freedom, just below Azerbaijan, while public spending runs at 52% of gross domestic product (GDP) and debt above 100% of GDP. The country's relatively lavish living standards are now wholly incompatible with its third-world economic policies. 

Austerity Has Yet To Come To Greece

The idea that austerity is killing Greece is simply absurd

By Nikos Tsafos

The idea that deep cuts are pushing Greece to the brink makes for great punditry. But it is a woefully incomplete description of what is really happening. Austerity is not killing Greece. Instead, austerity has yet to come to Greece.

There is no doubt that the plight of the Greek people is real. The government’s draft budget shows that GDP in 2013 will be 22 percent below its 2007 peak. Over eight hundred thousand people have lost their jobs, and unemployment is at 25.1 percent. Private deposits have fallen 35 percent as people and companies tap into savings or send their money overseas. Tax hikes have led to the highest inflation in a decade, further squeezing incomes. Households are suffering with no end in sight. Greece is in the midst of a lost decade.

It is easy to blame austerity for this. But it is also wrong.

Austerity came from the recession, not the other way around. The recession started in mid-2008 and worsened in 2009. Yet government spending rose in both 2008 and 2009. In fact, the recession started during the largest expansion of the state since the 1980s and at a time when government primary spending, or spending excluding interest payments, as a share of GDP was at a historic high. The problem was that despite this stimulus, Greece was not only in a recession but also had a budget deficit that it could no longer finance. That is when austerity started.

Why should the EU be uniquely exempt from austerity?

Almost all EU states, including the United Kingdom, must borrow the money they are sending to Brussels

By Daniel Hannan

The change has been so sudden, so dizzying, that commentators are struggling to keep up. As recently as a a couple of years ago, British Europhiles used to aver that we shouldn't get too hung up about our budget contributions. Paying more in, they said, gave us additional leverage in Brussels; complaining, by contrast, cost us influence.

If there is a single politician making that argument today, I have yet to hear him. Even Denis MacShane –Denis MacShane, for Heaven's sake – now contends that the EU, just like its member nations, must learn to get by with less.

The key amendment tomorrow is the one moved by the Rochester and Strood MP, and former top-rated UK economist, Mark Reckless. It calls for a real terms cut. In other words, the EU budget should increase more slowly than inflation.

The Reckless amendment is remarkably modest. Almost every one of the 27 member governments, including the United Kingdom, is making far more severe cuts than it demands. And almost all of them, including the United Kingdom, must borrow the money they are sending to Brussels. As I argue in a comment piece in the main newspaper today, Britain's contribution to the EU budget more than wipes out all our domestic spending cuts put together.

An Italian Tsar

Mario Draghi backs Wolfgang Schaeuble's 'super commissioner' plan

Mario Draghi told Spiegel that he "completely supported" a plan drawn up by German Finance Minister Wolfgang Schaeuble to bolster the power of the EU's economic and monetary affairs commissioner.

Mario Draghi told Spiegel that he "completely supported" a plan drawn up by German Finance Minister Wolfgang Schaeuble to bolster the power of the EU's economic and monetary affairs commissioner.

"I am certain: if we want to restore confidence in the eurozone, countries will have to transfer part of their sovereignty to the European level," Draghi told Spiegel in comments published in German.

"Governments have taken steps that would have been unthinkable a year ago. That is progress but it is not enough," added the powerful central bank chief.

He also insisted that European rules on economic governance be respected, which he noted had not always happened in the past.

Since the outbreak of the eurozone debt crisis three years ago, the European Union has taken unprecedented measures, including creating a fiscal treaty between them, setting up a huge joint bailout pot and moving towards a banking union next year.

Troika Calls for New Debt Relief for Greece

Another Default?

Greece's international creditors are calling for a new debt haircut for the country so as to bring down its massive debt load. This time, however, taxpayer money from Germany and other donor countries would be involved. Resistance, not surprisingly, is substantial.

By Spiegel

For all of the uncertainty surrounding Greece's future in the euro zone and the mixed messages regarding the political and economic reform process in the country, the math is actually relatively simple. Current plans call for Greece's sovereign debt to drop to 120 percent of gross domestic product by 2020. But the country's debt load is 169 percent of GDP and it is expected to rise to 179 percent by the end of next year. In absolute terms, that is almost €350 billion ($451 billion).

Paying that down will require nothing short of an extended economic miracle in the Mediterranean country, an eventuality not looking terribly realistic following five years of economic shrinkage and a sixth on the horizon.

The other option? Another partial default. That, indeed, would seem to be the conclusion that Greece's main international creditors have come to. According to information received by SPIEGEL, representatives of the so-called troika -- made up of the European Central Bank, the European Commission and the International Monetary Fund -- proposed just such a debt haircut at a meeting last Thursday held in preparation for the next gathering of euro-zone finance ministers.

What Is a Dollar?

Don't Ask the Fed

By SETH LIPSKY

When the House committee on financial services met in March to hear testimony from the chairman of the Federal Reserve Board, all eyes were on Congressman Ron Paul of Texas. After Republicans won control of the House last year, Paul acceded to the chairmanship of the subcommittee on monetary policy, which has direct oversight of the Fed. A physician by trade and a libertarian by conviction, Paul had emerged over a long career in Congress as the leading proponent of sound money; for more than 30 years, he had been waiting to play a central role in the nation's monetary debate. So eager was Paul to open up the topic that it took him some 670 words to get his question out.

The congressman noted the Fed's legal responsibility to strive for stable prices and full employment, and offered a review that illuminated the instability on both fronts since the early 1970s. He discoursed on the symbiotic relationship through which the Fed and the Congress have been facilitating government spending. He spoke about the importance of a "measurement of value," and asserted that the value of the stocks in the Dow Jones Industrial Average had plunged to eight ounces of gold from 44 in 2000. He reported that he was unable to find a definition of the dollar in the United States Code and wondered how the Fed could manage its task without a definition of the national unit of account. He therefore concluded his remarks with a simple question: "[W]hat is your definition of a dollar?"

Spanish Contraction Continues, Austerity Spurs Inflation

Raising Taxes to Spur Growth - what can go wrong?

Spain’s economy contracted for a fifth quarter, undermining efforts to plug the budget deficit that’s pushing the nation closer to a bailout, while austerity measures kept inflation at a 17-month high.

By Emma Ross-Thomas

Spain’s economy contracted for a fifth quarter, undermining efforts to plug the budget deficit that’s pushing the nation closer to a bailout, while austerity measures kept inflation at a 17-month high.
Gross domestic product declined 0.3 percent in the three months through September, compared with 0.4 percent the prior quarter, the National Statistics Institute said today. That compared with the Bank of Spain’s estimate on Oct. 23 of a 0.4 percent contraction. Consumer prices, rose 3.5 percent from a year earlier, Madrid-based INE said.
The prolongation of Spain’s five-year slump, which is prompting record loan defaults at the nation’s banks and job cuts at companies including Gamesa SA (GAM), adds to pressure on Prime Minister Mariano Rajoy as he resists requesting international aid. While the tax hikes he’s implementing as part of his austerity program are depressing consumption, they are also spurring inflation, which threatens to add 3 billion euros ($3.9 billion) to the country’s pension bill.
“The real discussion should be about how protracted the recession will be and if you look at the fiscal tightening you really have to be conservative about next year,” said Martin Van Vliet, an economist at ING Bank in Amsterdam. “I’m very concerned about the size of the fiscal tightening, the fact they’re going to miss their deficit targets and the fact Rajoy is delaying the request for aid.”

Egalité without liberté?

Non, non, non!

A new army of equality quangos and experts promises to make us all equal – but at the expense of our freedoms 

by Brendan O’Neill 

Historically, when people talked about equality, they meant one of two things. They either meant political equality - that is, equal rights, the expansion of freedom to more and more sections of society. Or they meant material equality - that is, a rethink of the way resources are created and distributed, the expansion of wealth so that more and more sections of society could enjoy it.

But today, we have a very curious situation where the new equality industry - all those quangos, experts and politicians who present themselves as the guardians of equality - actively undermines those two goals of the old struggles for equality. Today, equality is promoted not as a means of expanding freedom, but of limiting it. And equality is celebrated not as a means of expanding wealth, but as a way of shrinking wealth, or at least making it less ostentatious.

Where once we fought for equality in order to expose greater numbers of people to the gains of freedom and the joy of wealth, now the state and its offshoots promote equality in order to protect us from those things - in order to protect us from the alleged dangers of too much freedom and from the alleged mental distress that comes from wanting too much material stuff.

Hurricanes Are Nature’s Keynesianism

Why catastrophic weather doesn't put idle resources to work and make us richer

By ROBERT P. MURPHY

It was inevitable that with the arrival of Hurricane Sandy, various economic pundits would speculate on its effects on “the economy.” Needless to say, some were saying that the hurricane would boost spending—both at the retail and then reconstruction level—and in that sense might actually provide a lift to GDP. The whole episode is yet another reminder that old fallacies die hard in economics. The commonsense notion that a natural disaster is bad is correct; only “sophisticated” analysts could think otherwise.

The basic problem here is what Henry Hazlitt called the “Broken Window Fallacy,”following the famous exposition of Frédéric Bastiat. The essential insight is that it is shortsighted to focus just on the employment given to workers who must rebuild after some act of destruction. In the present case, it is certainly true that glaziers, producers of telephone wire, and various construction crews will see more demand for their services following Hurricane Sandy. Their higher earnings in turn may lead them to spend more on restaurants, luxury items, and so forth, boosting employment in those sectors as well. This is the genesis of the notion that an act of destruction can actually have a silver lining.