Time Bomb?

Banks Pressured to Buy Government Debt

By Jeff Cox

US and European regulators are essentially forcing banks to buy up their own government's debt—a move that could end up making the debt crisis even worse, a Citigroup analysis says.

Regulators are allowing banks to escape counting their country's debt against capital requirements and loosening other rules to create a steady market for government bonds, the study says.

While that helps governments issue more and more debt, the strategy could ultimately explode if the governments are unable to make the bond payments, leaving the banks with billions of toxic debt, says Citigroup strategist Hans Lorenzen.

Say's Law of Markets

It is the capability of production which makes the difference between a country and a desert

by Murray N. Rothbard

While J.B. Say has been almost totally ignored by mainstream economists and historians of economic thought, this is not true for one relatively minor facet of his thought that became known as "Say's law of markets." The one point of his doctrine that the active and aggressive British Ricardians got out of Say was this law. James Mill, the "Lenin" of the Ricardian movement (see below), appropriated the law in his Commerce Defended (1808), and Ricardo adopted it from his discoverer and mentor.[1]

Kiss NASA goodbye

SpaceX’s Achievement Should Prod NASA to Think Big

By Bloomberg Editors

On Thursday, a space capsule known as the Dragon touched down in the Pacific Ocean.

After launching into orbit May 22, the capsule had performed a series of complicated maneuvers, docked with the International Space Station, dropped off more than 1,000 pounds of supplies and returned home bearing a load of science experiments.

It was the first commercial spacecraft to complete such a feat. And the company that developed it, Space Exploration Technologies Corp., or SpaceX, was rewarded with a U.S. government contract of $1.6 billion to fly 12 more supply missions.

Optimists saw a nimble private company leveraging public investment, reducing future taxpayer burdens and heralding a new age of commercial space flight.

Amelia Earhart: New evidence tells of her last days on a Pacific atoll

An Era when the sky was the limit

New information gives a clearer picture of what happened 75 years ago to Amelia Earhart and navigator Fred Noonan, where they came down and how they likely survived – for a while, at least – as castaways on a remote island.

By Brad Knickerbocker,

For decades, pioneer aviator Amelia Earhart was said to have “disappeared” over the Pacific on her quest to circle the globe along a 29,000-mile equatorial route.

 Now, new information gives a clearer picture of what happened 75 years ago to Ms. Earhart and her navigator Fred Noonan, where they came down and how they likely survived – for a while, at least – as castaways on a remote island, catching rainwater and eating fish, shellfish, and turtles to survive.

The 5th Avenue to Serfdom

Nobody thought about taking away your Big Gulp until the government began to pay for everyone's health care

By HOLMAN W. JENKINS, JR

Mike Bloomberg's move to regulate the size of sodas sold in his city illustrates why it's a good thing he is a mayor of New York and not the czar of all the Russias. American big cities tend to be one-party states to begin with, but at least their totalitarian impulses end up being merely cute because they're so easy to evade.

Under the Bloomberg plan, any cup or bottle of sugary drink larger than 16 ounces at a public venue would be verboten, beginning early next year. You'll still be able to buy as much Coke as you want in a supermarket. Go home and pour yourself a bucketful. As Mr. Bloomberg himself was the first to note, you'll also still be free to buy two medium drinks in place of today's Big Gulp at ballgames, theaters, delis and other venues where the ban would be in effect.

"New York City is not about wringing your hands; it's about doing something,'' added Mr. Bloomberg, peculiarly.

Half of the city's residents allegedly are obese or overweight—a stat seemingly belied by the ladies who lunch and the impression on the subway that New York remains one of the few places in America where people have not ballooned to supersize. But by the state's own estimate, it spends $8 billion annually treating obesity-related ailments under Medicaid, which is how 40% of city residents now get their health care.

Austerity With Growth?

Easy To Achieve, But Witless Politicians Don't Know How

By Nathan Lewis

Now Europe’s leaders say they want “austerity with growth.” Sounds nice. They have no clue as to how to achieve it.

Back in 2008, I said that the typical response of mediocre governments to the economic problems would be a combination of “austerity” and “stimulus.”  They actually use exactly those words. They can’t even manage to make up some new words, for generation after generation.

I didn’t expect things to follow this blueprint quite so exactly.

Governments find that they bounce back and forth between these “austerity” and “stimulus” strategies, discovering that they are both unsuccessful.

What tends to happen is that “stimulus” means more government spending. Soon, people discover that this “stimulus” spending tends to be directed to abject waste and crony capitalists, and the government’s debt burden explodes. Thus, the political system careens back toward “austerity.”

“Austerity” usually means less spending and higher taxes. The higher taxes are implemented, but it is soon discovered that nobody wants to reduce spending, especially when the economy is crumbling due to the higher taxes. What small reductions in spending there are tend to be directed toward genuinely beneficial services, while the waste, graft and crony capitalist payoffs continue unabated. The sagging economy leads to shortfalls in tax revenues, and the deficit may even expand.

The Neo-Keynesian Trap

Cheap, abundant credit stimulates the wrong kind of growth

By CHARLES HUGH SMITH

The grand global debate in political economy boils down to Keynesian stimulus vs. austerity. Stripped of rhetoric, the debate is much the same in nominally communist China, socialist Europe, and notionally free-market America: should the central state continue borrowing and spending enormous sums of money to maintain or restart economic growth (Keynesianism), or should it live within its means (austerity)?

Polemics have distorted the debate on several levels, starting with what “Keynesianism” and “austerity” actually mean. As many observers have pointed out, John Maynard Keynes did not, in fact, advocate permanent government deficits, but rather a commonsense policy of paying down public debt in good times and borrowing in bad times to bolster demand for goods and services.

What Paul Krugman and his allies propose today is neo-Keynesianism, and what that prescribes should be spelled out without spin: governments should borrow and spend all the time, but a lot more during recessions.

The neo-Keynesians have succeeded in painting austerity as the grim policy of wresting bread crusts away from widows and orphans, but its unspun meaning is that governments must live within their means rather than fund basic programs with borrowed money.

Austerity With Growth?

Easy To Achieve, But Witless Politicians Don't Know How

By Nathan Lewis

Now Europe’s leaders say they want “austerity with growth.” Sounds nice. They have no clue as to how to achieve it.

Back in 2008, I said that the typical response of mediocre governments to the economic problems would be a combination of “austerity” and “stimulus.”  They actually use exactly those words. They can’t even manage to make up some new words, for generation after generation.

I didn’t expect things to follow this blueprint quite so exactly.

Governments find that they bounce back and forth between these “austerity” and “stimulus” strategies, discovering that they are both unsuccessful.

What tends to happen is that “stimulus” means more government spending. Soon, people discover that this “stimulus” spending tends to be directed to abject waste and crony capitalists, and the government’s debt burden explodes. Thus, the political system careens back toward “austerity.”

“Austerity” usually means less spending and higher taxes. The higher taxes are implemented, but it is soon discovered that nobody wants to reduce spending, especially when the economy is crumbling due to the higher taxes. What small reductions in spending there are tend to be directed toward genuinely beneficial services, while the waste, graft and crony capitalist payoffs continue unabated. The sagging economy leads to shortfalls in tax revenues, and the deficit may even expand.

Minority America

How do I fit in?

by Joel Kotkin

Recent news from the Census Bureau that a “minority” majority might be a reality somewhat sooner than expected --- 2042 instead of 2050 --- may lead to many misapprehensions, if not in the media, certainly in the private spaces of Americans.

For some on the multicultural left, there exists the prospect of America firmly tilting towards a kind of third world politics, rejecting much of the country’s historical and constitutional legacy. Some left-leaning futurists, like Warren Wagar envision a nation of people fundamentally torn by “racial conflict.” By mid-century, Wagar sees an America suffering from a “gigantic internal struggle” that will eventually lead to its ultimate decline.

The xenophobic right, probably much larger but no less deluded, sees the similar potential for mischief, where American values are undermined by what 19th century Nativists called “ a rising tide of color.” It is part of a scenario that the likes of Pat Buchanan and Samuel Huntington envision as the rise “revanchist sentiments” along the nation’s Southern border.

Merkel Rejects Debt Sharing as Obama Urges End to Crisis

"Precious time was used to spend too much money in consumption and too little time in tackling reforms"

By Brian Parkin and Ben Sills

German Chancellor Angela Merkel hardened her opposition to joint debt sharing in the euro region as President Barack Obama singled out Europe’s leaders for not doing enough to arrest the financial crisis.

With Europe’s debt crisis cited last week for canceled IPOs, weaker-than-expected Chinese manufacturing figures and a rise in the U.S. jobless rate, Merkel rejected joint debt issuance in the 17-nation euro area as a solution, saying “under no circumstances” would she agree to Germany-backed euro bonds.

Now, some “come along and ask for euro bonds, saying all we need are equal interest rates and everything will turn out all right,” Merkel said in a speech to members of her Christian Democratic Union in Berlin yesterday. Instead, what’s needed is an economic overhaul to tackle the lack of competitiveness in Europe, she said.

Merkel, the head of Europe’s biggest economy and the largest contributor to bailouts for Greece, Portugal and Ireland, is the pivotal player in efforts to resolve the crisis now in its third year. As Spain struggles to avoid becoming the next country to call for a rescue and the euro slides near a three-year low against the dollar, Obama added to pressure from the European Central Bank, France and Italy to do more to halt the spread of contagion.

European ‘Cloud’

Obama, speaking at a Chicago fundraiser on June 1 as he bids for re-election in November, said that a report showing the slowest month of U.S. employment growth in a year was in large part “attributable to Europe and the cloud that’s coming over from the Atlantic.” The “whole world economy has been weakened by it,” he said.

No one wants to actually balance the budget. Ever

Prudent Fiscal Policy And Political Suicide 

By Wolf Richter

French President François Hollande cobbled together his government yesterday, appointing no less than 34 ministers (of whom 16 are ministers of state). Exactly half of them are women, for the first time in the macho French political world. During their first working session, they, including the President, gave themselves a 30% cut in pay, implementing not only item number 47 on the 60-point agenda but also Hollande’s campaign promise (Nicolas Sarkozy raised his own salary by 172% after he’d arrived in 2007, which the French never forgave him). And barely appointed Minister of Economy, Finance, and Trade, Pierre Moscovici surprised the world: “A country that indebts itself is a country that impoverishes itself,” he said and proclaimed that the government would the deficit because “public debt is an enemy for the country.”

Powerful words. Though they may drown in Socialist Party priorities, they have nevertheless been spoken, and they're reasonable and refreshing. What a difference from what we’re getting dished up in the America.

President Barack Obama and House Speaker John Boehner met over sandwiches yesterday to discuss what to do about the deficit, if anything, while the national debt ticked higher, passing in its inexorable manner $15.716 trillion. But instead of even worrying about it, the President and the Speaker performed a charade of election machinations and grandstanding. The Speaker demanded some cuts in social programs and excluded raising taxes. To show how serious he was, he threatened to block extending the debt ceiling, set at $16.394 trillion to be reached later this year. If he sticks to his threat, it would send the US into default once the Treasury runs out of wiggle room. And the President pushed his own proposals to increase spending on some jobs initiatives. Must have been a fun lunch.

Short Guide to Hell and Back?

Why A Grexit Would Make Lehman Look Like Childs Play

By Peter Tchir

Maybe I’m wrong, but every time I look at the possibility of a Greek exit right now I see it spiraling out of control and dragging down the entire global economy.  I hear and read the arguments of why it is controllable and they just don’t seem credible.  They either link a Greek devaluation to other devaluations that have little, if anything in common.  They also seem to ignore human nature and how the markets will likely respond.  I think with planning and time, a Greek exit would be manageable but right now it would create chaos, first within Europe and then the globe.

The ECB, EFSF and IMF will take massive losses

The ECB has €50 billion of GGB bonds still on their books.  Those would not get paid at par by Greece if this is an amicable breakup, but this is quickly heading to a pots and pans thrown in the kitchen sort of break-up.  Why would Greece pay the ECB if they feel like the ECB drove them out?  Don’t forget, not for a second, that most of the money Greece now gets goes to pay back the ECB and IMF.  The EFSF is totally out of luck.  The ECB might be able to offer something to a post drachma Greece, but the EFSF offers nothing.  The IMF has more negotiating power, as their direct loans had more protection in the first place and they are likely to provide additional funds post exit, but quite simply Greece won’t be able to pay them in full on existing loans.

We are not all destined for greatness

Murray Rothbard was one of them

by Gary North

I received my Ph.D. in history. My specialty was colonial America. Yet when I pull down a copy of one of Murray Rothbard's four-volume history of colonial America, Conceived in Liberty, to do a little "light" reading, I am always astonished. Page after page will relate incidents I have never heard of.

Now it's in one fat volume.

Rothbard wrote this book as a side venture. He was an economist by training, with a mathematics minor as an undergraduate. He had zero formal training as a colonial American historian.

How did he do it? Prof. Richard Ebeling provides insights. This is from a May 1, 2012 email.

"Roy Childs told me that once when he was visiting and staying with Murray and Joey in their New York apartment, Murray and he were in the living room, each reading a book.

Roy noticed that Murray seemed to be rapidly scanning and turning the pages of the book in his hands. He asked Murray how he could understand and remember anything going through a book that quickly?

Is the Deadly Kissing Bug Disease the New HIV/AIDS?

We 'll find out

By David DiSalvo

Chagas, a disease caused by a parasite transmitted via the Triatoma bug (aka, the kissing bug), is claiming thousands of lives in Central and South America.  Some experts are even calling it the “new HIV/AIDS of the Americas”.  But is this comparison accurate, and how big a threat is the disease to the US?

Chagas is not a new disease. It’s named after Carlos Chagas (circa 1909), a Brazilian doctor who discovered that Triatoma carry a potentially lethal parasite called Trypanosoma cruzi. After several of his patients developed a strange infection that he couldn’t identify, Chagas set out to investigate how humans come in contact with the pathogen and its effects on the body of its host.  He probably didn’t realize at the time that his work was groundbreaking in the history of epidemiology (Chagas later went on to identify the parasitic fungal genus Pneumocystis, another major discovery).

Kissing bugs, named because they bite the face and lips of humans (they’re also called assassin bugs), live in tropical climates near warm-blooded vertebrates to gain easy access to their blood.  They stay hidden for much of the day, living in concealed places such as the cracks in a piece of wood and thatched roofs, and usually strike their victims as they sleep.  The bugs defecate as they feed, allowing the parasite they carry to infect a new host.

The placebo of currency devaluation

Thoughts on the Greek crisis and the politicization of economics

by DETLEV SCHLICHTER

Should the Greeks have a referendum on whether they want to stay in the euro? Are the upcoming elections such a referendum? Would it be better for the Greeks if they left the euro? – Are you, like me, sick and tired of hearing these questions and then the answers based on the same stale and superficial logic?

Most commentators assume that it was a mistake of ‘the Greeks’ to enter European Monetary Union and that they would do better outside of it. I suspect some undue generalization behind such verdicts. For who do these observers talk about when they say ‘the Greeks’? It seems evident, for example, that to the extent that the Greeks are savers they do not believe that exiting the euro and having again a depreciating local currency is in their interest. In fact, they expect to get hurt by such a move. These savers – the forgotten men and women of the crisis – are already holding their own referendum. They are shipping their savings to Germany, the Netherlands and Finland in an attempt to protect them from confiscation through devaluation and inflation. They want their savings to stay in the Euro Zone. Such ‘voting’ could be characterized as ‘Germanic’, although I would say it simply serves to show that the interests of those who save are very similar, regardless of which country’s passport they hold.

U.S., Europe on different paths to same place

Defying not just the rules of economic gravity but the basic human life cycle

by Mark Steyn

The Eurovision Song Contest doesn't get a lot of attention in the United States, but on the Continent it's long been seen as the perfect Euro-metaphor. Years before the euro came along, it was the prototype pan-European institution and predicated on the same assumptions. Eurovision took the national cultures that produced Mozart, Vivaldi and Debussy, and in return gave us "Boom-Bang-A-Bang" (winner, 1969), "Ding-Ding-A-Dong" (winner, 1975) and "Diggi-Loo-Diggi-Ley" (winner, 1984). The euro took the mark, the lira and the franc, and merged them to create the "Boom-Bang-A-Bang" of currencies.

How will it all end? One recalls the 1990 Eurovision finals in Zagreb: "Yugoslavia is very much like an orchestra," cooed the hostess, Helga Vlahović. "The string section and the wood section all sit together." Shortly thereafter, the wood section began ethnically cleansing the dressing rooms, while the string section rampaged through the brass section pillaging their instruments and severing their genitals. Indeed, the charming Miss Vlahović herself was forced into a sudden career shift and spent the next few years as Croatian TV's head of "war information" programming.

Radically Lower the Cost Basis of the Entire Economy

Our choice is simple

Either continue on the State-cartel path of complexity and rising costs that leads to a death spiral, or re-energize the forces of the market and community. 

By Charles Smith

We are constantly told all our problems are too complex to be addressed with simple "big idea" solutions. Complex problems require complex solutions, we are assured, and so the "solutions" conjured by the Central State/Cartel Status Quo are so convoluted and complex (for example, the 2,319-page Dodd-Frank Wall Street Reform and Consumer Protection Act or the 2,074-page Obamacare bill) that legislators say they must "pass the bill to see what's in it." (What If We're Beyond Mere Policy Tweaks? February 6, 2012)

The real "solution" is to see that complexity itself is the roadblock to radical reformation of failed systems. Complexity is the subterfuge the Status Quo uses to erect simulacra "reforms" while further consolidating their power behind the artificial moat of complexity.

Nature is complex, but it operates according to a set of relatively simple rules. The interactions can be complex but the guiding principles can be, and indeed, must be, simple.

Big Idea One: Radically lower the cost basis of the entire U.S. economy. The cost basis of any activity is self-evident: what are the total costs of the production of a good or service? The surplus produced is the net profit which can be spent on consumption or invested in productive assets (or squandered in mal-investments).

New Yorkers Leave Like East Germans Fled Communism

New Yorkers' choice is a wrenching one

IBD Editorial

New York thinks of itself as the place to be, but its high taxes have made it a place to flee. Those who have escaped the Empire State tax man could fill a major city.

From 1949 to 1961, more than 2.6 million of East Germany's 17 million population escaped to West Berlin or West Germany, a hemorrhage of humanity that led the Communists to construct the infamous Berlin Wall in 1961.

The state of New York, with about 19.5 million people, has no known plans to erect concrete barriers or barbed wire fences. But from 2000 to 2010 it suffered an exodus of some 3.4 million New Yorkers — nearly a million more people than in Germany's post-war experience and more than that of any other state.

And the outflow hasn't stopped. The income loss for the state is $45.6 billion, the Tax Foundation says.

Nuclear Tuna Is Hot News, But Not Because It's Going To Make You Sick

Tuna and Bullshit

by RICHARD HARRIS

What snarky headline writer could resist a story about "hot tuna?" Or how about "tuna meltdown?"

Really, it seems just plain daffy to ignore a new study that says some Pacific bluefin tuna picked up traces of radioactive material from the Fukushima nuclear disaster last year and brought it across the Pacific Ocean.

And while, as a rule, we avoid making light of nuclear disasters, the tuna story is actually just plain curious, rather than threatening, once you understand the context.

You see, Pacific bluefin tuna spawn off the coast of Japan. They are superb swimmers, so in a few months time, they make it across the Pacific to the coast of Mexico and Southern California to feed — and then get caught. They are also delicious, pricey and on the verge of population collapse, according to Monterey Bay Aquarium Seafood Watch.

Last summer, scientists bought 15 of these beautiful fish from the docks in San Diego to check them for contaminants.

Why Bonn Is Not Athens

A walk through central Athens

By Victor Davis Hanson

This week I am leading a military-history tour on the Rhine River from Basel, Switzerland, to Amsterdam. You can learn a lot about Europe’s current economic crises by ignoring the sophisticated barrage of news analysis and instead just watching, listening, and talking to people as you go down river.

Switzerland, by modern standards, should be poor. Like Bolivia, it is landlocked. Like Italy, it has no real gas or oil wealth. Like Afghanistan, its northern climate and mountainous terrain limit agricultural productivity to upland plains. And like Turkey, it is not a part of the European Union.

Unlike Americans, the Swiss are among the most homogeneous people in the world, without much diversity, and they make it nearly impossible to immigrate to their country.

So Switzerland supposedly has everything going against it, and yet it is one of the wealthiest nations in the world. Why and how?