U.S. and Europe : Governments of Equal Size ?

Total U.S. spending is already roughly equivalent to European spending

e21 Editorial

There is a sense among many commentators that the United States is “becoming” more like Europe in that the government is growing beyond thresholds that could be reasonably financed by the private sector. Putting aside the merits of this view, the general description of the U.S. as “moving towards” Europe makes the distance left to be traveled seem farther than it really is. The graphic below, constructed from the International Monetary Fund (IMF) World Economic Outlook (WEO) data, compares the combined government-to-GDP ratio of the 17 countries that use the euro currency to the combined government-to-GDP ratio of the U.S.

Based solely on government outlays, the U.S. government is about 8 percentage points (or about 16%) smaller than that of the euro zone. However, this is not really an apples-to-apples comparison because it does not include the disparate accounting for health insurance premiums. In the euro zone, health insurance premiums are generally financed directly through taxation; in the U.S. employer-sponsored health insurance premiums are deducted from pay checks or contributed directly by employers. The net effect is to leave after-tax income lower to pay for health insurance.

The Terrifying New Normal

A vast transfer of wealth from those who saved to those who owe

By Victor Davis Hanson

Why Save?

The hallmark advice of retirement planning was always to scrimp, save, and put away enough money to make up for retirement’s lost salary, increasing medical bills, and the supposed good life of the “golden years.” If a couple had saved, say, $300,000 over a lifetime (again, say, putting $500 away each month for 30 years at modest compounded interest), then they might expect a so-so annual return at 5% of about $15,000 a year on their stash, or about $1,250 per month.

In other words, perhaps Mr. and Mrs. Retiree could find enough with Social Security to live okay and pass on the principal to their kids. But well aside from the fact that many Americans have been laid off, taken pay cuts, lost home equity, had their 401(k)s pruned, or had to take care of out-of-work relatives, there is no 5% any more on anything, not even 2% or  in most cases 1%.  Saving money means nothing really in terms of return, only the realization that inflation eats away the principal each year.

To earn a decent return, the retiree has had to wade into bonds, stocks, and real estate buying and selling, with all their attendant risks that loom larger after 65. The old American idea of receiving a fair so-so interest on a little money in the savings account vanished. And no one seems to care.

America’s Real Fiscal Problem

Federal Gov't Has Become a Gigantic Wealth-Transfer Machine

By mark perry

The charts above illustrate two disturbing trends that help frame the long-run fiscal challenges confronting the U.S. that far outweigh any possible near-term fallout from the pending “fiscal cliff” that the federal government faces at the end of this year. 

1. The top chart above (data here, see Table 6.1) displays the increasing share of the federal government’s spending on “payments to individuals,” based on actual data from the Office of Management and Budget (OMB) for the years 1952 to 2011 and its projections through 2017.

In 1952, less than one out of every six dollars spent by the federal government represented payments to individuals.  By 2010 payments to individuals had increased so dramatically over time that roughly two out of every three dollars (66.1 percent) spent by the federal government in that year were payments to individuals for programs like Social Security, Medicare and Medicaid, public assistance, food and housing assistance, and unemployment assistance.  Last year, payments to individuals as a share of federal spending decreased slightly to 65 percent, and that category was more than three times larger than the share of 2011 federal spending on defense (20.1 percent), and more than ten times larger than the share spent by the federal government on interest payments for the national debt (6.4 percent).  The OMB estimates that payments to individuals will exceed 68 percent of federal spending in 2014, 2015 and 2016, before falling slightly to 67.5 percent in 2017 when payments to individuals will exceed $3 trillion for the first time.

False Choices and the True Dilemma

The only choice is Liberty

by Daniel James Sanchez

In 1789 a group of men gathered in Paris to sound the death knell for the ancien regime, and to inaugurate the modern political world. But there were some differences among them. Some wanted to abolish the old order more completely. Others wanted to retain some vestiges of the old privileges. In this "National Constituent Assembly" of France, the ideological birds of a feather sat together: the more radical members on the left, the more conservative members on the right.

On that day, on the eve of the French Revolution, not only was the modern political world born, but so was its terminology.[1] To this day, politics is bisected into a "left wing" and "right wing." Much digital ink is daily spilled in vain on the web over the "best" distinction between "right" and "left." Now, with regard to specific, fleeting political agendas, vague distinctions like this make sense. Movable umbrella terms are necessary, because legislation involves shifting coalitions of people who do not agree on every single point. The trouble starts when the terminology of the political moment is imported wholesale into the language of science, in which precise, fixed distinctions are called for. The left/right divide is downright confusing for social science.

Where this confusion is most pronounced is in intellectual discussion of Western society following World War I. According to common opinion, there are two politicoeconomic extremes: communism (or socialism) on the left, and fascism (or Nazism) on the right. Sound policy, then, is considered a balancing act between two opposite forms of totalitarianism. If one leans too far to the left toward the interests of the poor and weak, one arrives at communism/socialism. Veer too far to the right toward the interests of the rich and strong, and you get fascism. This political taxonomy is entirely unscientific. Neither fascism nor Nazism has ever been scientifically identifiable social orders. They are party platforms, and thus are assemblages of often-contradictory ideas and slogans. Calling fascism a "social order" makes as little sense as calling "Tea Partyism" or "Blue Dog Democrat-ism" a social order.

Earth To Conservatives

Immigrant Amnesty Is A Conservative Policy

"I believe in the idea of amnesty for those who have put down
 roots and lived here, even though sometime back they may have  entered illegally."  - Ronald Reagan.

By Jerry Bowyer

Latinos are religious, morally conservative and tend disproportionately to join the military. They also tend to be hard working and entrepreneurial. Do we really have too many of them?

Do we really want to pack them up, forcibly, by the millions in the greatest forced migration in human history? How many are there, 15, maybe 20 million? No one has ever moved 15 million people against their will. No one has ever moved half that many without concentration camps, forced marches of one form or another and mass death through plague.

If there’s another way to do it, please tell me what it is. But I haven’t heard one. What I hear is slogans like ‘what part of illegal don’t you understand’ and attacks on ‘amnesty.’  Slogans move callers to dial in to talk radio, but they don’t move 20 million people voluntarily back into poverty and squalor. Soldiers do that (unhappy ones); box cars full of people do that. Camps surrounded by barbed wire do that. In the end you either let them stay or you herd them out. If you want to call it amnesty, go ahead.

After all, what’s wrong with amnesty? The idea has a well-worn legal tradition, one strongly associated with the Christian faith. It means forgiveness. After the Civil War, Lincoln offered amnesty to rebel soldiers. Was he wrong to do so? They had taken up arms against their own government; they had killed hundreds of thousands.  But Lincoln (as opposed to the radical republicans) had the wisdom to offer forgiveness. What about runaway slaves after emancipation? They had broken the law, shouldn’t they have had to pay the price even after the laws were changed? Of course not. Why should immigration laws be any different? If we liberalize them, which seems well overdue, should we still punish the people who violated the law which we later deemed too harsh?

China, Europe export gangsters and low wages to Africa

The most dangerous challenge for Africa in terms of foreign criminal penetration is coming from Europe

By Emanuele Scimia

Africa is a battleground for the geopolitical interests of China and Europe. But despite Beijing's and Brussels' claims about the distinctive features of their respective approaches to developing countries, Chinese and European companies treat African workers badly in equal measure. Meanwhile, transnational crime syndicates and criminal gangs are spreading from the Old Continent and the Middle Kingdom to many African regions. 

Thirty-four miners shot dead by police at a British-owned platinum mine in South Africa; a Chinese manager killed by local workers at a coal mine in Zambia. Alongside the emerging heft of "Made in China" criminality in Africa's Chinatowns are the dramatic advances of criminal organizations from Europe throughout the African continent. Notwithstanding theoretical disputes over distinctions between Western colonialism and Chinese neo-colonialism, it seems that Europe and China alike are exporting to Africa some of their worst pathologies. 

Demands for better pay
At the Marikana platinum mine in Rustenburg, South Africa, miners were killed during a strike over pay on August 16, while asking for an increase in their minimum wage from US$545 to $1,500 a month. The strike had begun a few days earlier and 10 people, including two police officers, had already died after fierce clashes. 

The Marikana mine is owned by London-based Lonmin, the world's third-largest platinum producer. South Africa is the largest platinum producer and its mining sector is worried that the latest unrest could affect the national output in the short run. Apart from the Marikana situation, Johannesburg-based Anglo American Platinum, the world's top producer of the metal, is also grappling with demands for pay raises. Similar pleas have come from workers at the Royal Bafokeng platinum mine just north of Rustenburg.

German politicians will make their country pay

Euro victim, not winner

By Gunnar Beck 

Germany has been the principal beneficiary of the euro, and for this reason ought to show solidarity with eurozone members in crisis. Once the eurozone is back on its feet, Germany will be the main beneficiary again. This is the familiar view of Germany’s position in the eurozone, which is simple enough. The truth, alas, it is not. 

Those who think that Germany has profited greatly from the euro almost always rest their case on Germany’s export surpluses. The euro created economic stability; it eliminated exchange rate risks; appreciated less than the Deutschmark would have, and thus aided German exports. But has the euro benefited Germany more than other countries? 

It is true that between 1998 and 2011, German exports grew by 117%, according to the German Statistical Office. But if the euro was so vital to Germany's external trade, then the increase in exports to eurozone members would have been greater than the increase to other countries. In fact, the reverse is the case.

The Myth of British Austerity

The cuts Paul Krugman thinks caused a double-dip recession don't exist

By ROBERT P. MURPHY

One of the problems with economic policy analysis is that pundits on both sides create their own versions of reality. A good example of this is economist Paul Krugman’s treatment of the British government’s spending since the financial crisis. As a Keynesian, Krugman of course thinks that massive government budget deficits are necessary in these times of depressed demand and a “liquidity trap.”

To ostensibly demonstrate how right he is, Krugman has repeatedly pointed to the British experience. According to Krugman, the Brits did what all the right-wingers wanted, and slashed spending in order to rein in deficits. Yet this led to a double-dip recession, just as Krugman warned. There’s just one problem with this argument: The British didn’t actually cut spending, and their fiscal pattern is quite similar to that of the U.S.

Desperate Maladies Require Desperate Measures

Acts of Desperation

“Government has no other end, but the preservation of property.”

                                                                                 -John Locke

By Mark J. Grant

One of the primary purposes of a government, any government, is to sustain itself. In its final hours it will do almost anything possible for its self-preservation. If the rumors are to be believed and Draghi is going to propose unlimited bond buying in the short end of the curve for the nations of Europe in maturities up to three years then it must be said that Mario Draghi, personally, has re-written the treaties for the European Union which specifically forbids what he is apparently about to undertake. In my mind, this is an act of desperation that makes me quite nervous because my thinking extends out past the announcement that will be made later today as I consider its consequences, ramifications and where the focus will shift which will be to the recession in Europe and to the fundamental financial health of the nations in the European Union and then to the fundamental financial health of the European Central Bank itself.

It was in January of 2010 when the yield on the Greek ten year was a 4.38% that I first stated that Greece was going bankrupt. It was several months later that I added Portugal, Ireland and Spain to the list. Three have gone and Spain is about to go and now I would add Italy to my list. The firewalls that were supposed to protect the Continent have failed miserably as exemplified by the current financial condition of both Spain and Italy. Now, in what I consider to be an act of desperation, the ECB is not only violating its mandate but putting the economics of the Continent in a perilous state and the markets are totally focused on the next few hours and not at all upon the consequences of the ECB’s decision. I am not surprised by this but I am reminded of the moments before the Lehman disaster when the relative calm did not predict the firestorm which was to ravage the world. The echoes remain; “WE SHOULD HAVE KNOWN,” and I am fearful that we may have another of these moments as people consider the consequences of the ECB’s actions incorrectly.

It's Time to Ask the People What They Think

A Referendum on Europe

The Germany democratic system has suffered as a result of the euro crisis, but it has also made fighting the crisis harder. Now it's time to hold a referendum on European integration. Only then will Berlin have the democratic legitimacy it needs to take effective action.

By Dirk Kurbjuweit

After World War II, the West gave Germany two great gifts. The first gift was democracy; the second gift was being integrated into a Europe of free nations. This also included the overriding vision that one day both gifts could be combined to create a democratic United States of Europe. But there was a lack of determination and strength to accomplish this. To make matters worse, both gifts have suffered from the attempt to use a common currency to integrate Europe. Postwar German democracy has never been in such a sorry state as today. It has been a long time since the peoples of Europe eyed each other with so much mistrust.

That is the current situation. Next week, Germany's Federal Constitutional Court will issue another ruling on Germany's euro policy. This is not expected to clear the air or fundamentally improve the situation. A court decision cannot accomplish that. But something must happen. We cannot allow both democracy and Europe to go to rack and ruin. Democracy and European integration form the foundations of our country. The problem is that they have come into contradiction with each other. Assuming the debt mania doesn't continue to spiral out of control, it's a fact that democracy impedes a rapid rescue for the euro, while a rapid rescue for the euro undermines democracy.

Such a contradiction begs a decision. What is more important to the Germans: their democracy or Europe? Or is there a way to reconcile the two, democracy and Europe? It isn't easy. It cannot be done without risks. But there is a way.

The State Of Democracy

The rescue policy for the euro has changed the country's power structure. The winner is the executive, in other words, the government. German Chancellor Angela Merkel negotiates in Brussels with the other heads of state and government. This is the body where the major decisions are made, decisions which are usually hammered out in advance during bilateral talks. What's more, the executive has the strongest apparatus behind it. In Germany, it is only the experts in the Chancellery and the Finance Ministry who have any idea what is happening and what needs to happen.

$16 Trillion Dollars Of Moral, Cultural And Political Decay

The National Debt  is but a symptom of a corrupt polity, divided nation and decadent culture

by Bill Flax

Wow! We’ll soon cross Sixteen Trillion Dollars in Federal Debt! S-i-x-t-e-e-n T-r-i-l-l-i-o-n D-o-l-l-a-r-s. That’s a lot of vote buying even for Washington. Is this ruin? Have we indentured our children into servitude? Solomon warned borrowers will be slaves to their lenders. Add $120 plus trillion in unfunded forthcoming liabilities and, well, we’re doomed.

Yet, as significant as this looks, and sixteen trillion of anything cannot be insignificant, the economic repercussions are the least of America’s worries. We still finance this cheaply. Rates on Treasuries remain low. Moreover, America endures as the world’s preeminent economic engine.

Obviously, debt weighs heavily on markets, especially the spending which spurred annual deficits exceeding $1 trillion. Government intervention smothers more gainful private pursuits. As Washington nonchalantly politicizes capital the economy suffers. Private actors would invest far better than politicians bribing the electorate.

As resources filter through the state’s machinations, liberty and prosperity are sacrificed to political ends. Massive debt is economically bad, really bad, and perhaps even hopeless; but much, much worse is what this reveals about America’s moral, cultural and political decay.

Battle of Columbus

Fast and Furious scandal gets a sequel in New Mexico

Pancho Villa

By ED WARNER
“Where are my guns?” demanded Pancho Villa, flamboyant bandit-warrior of the Mexican revolution. Though he had paid for them, the store across the U.S. border in the town of Columbus, New Mexico hadn’t delivered. He had other grievances as well. So in the early morning of March 9, l916, Villa led some 500 troops in an attack on Columbus that lasted until dawn, without doing too much damage. Next day, General John J. Pershing, of World War I fame, accompanied by George Patton, hero of World War II, arrived to drive out the Villistas and pursue their leader into Mexico. They didn’t catch him. He was eventually assassinated by other Mexicans in some kind of political intrigue.

Until now this was Columbus’s main claim to fame. Today, it’s been overtaken by another gun sale. In March last year federal agents drove into Columbus and arrested virtually all its top officials, including the mayor and police chief, for selling weapons to the Mexican cartels, who thereafter used them to kill other Mexicans, which is their habit. The arrests were no real surprise to Columbus citizens, who wondered why Mayor Eddie Espinoza had been driving a $50,000 car on a $700-a-month salary. Police Chief Angelo Vega already had a criminal record. In this town, says Addison Bachman, who runs a website reporting on local events in Columbus, “You get a job with a rap sheet, not a resume.”

Hope in a new kind of union

The EU is ending because it is hopeless

By Francesco Sisci 

The European Union is at a dead end. This is not because the Germans, Italians, and French and the failing Spanish and Greeks are at loggerheads about how to improve their national accounts. The EU is ending because it is hopeless: there is no hope, no program, and no real plan to hold the union together or to demonstrate why countries with different traditions, laws, and senses of identity - countries that have been at war with one another for most of the past three centuries - should now merge and embrace the future together rather than repelling it. 

The cultural and political debate has not moved to the real question about the future of the continent and its people. It is stuck in petty bean-counting, constantly sustained by the lack of a thrust for common trust in the union. 

Certainly, here the southern countries didn’t live up to their part of the bargain when they signed on for the euro 20 years ago. For two decades, some, like Italy, made no real effort to improve their national accounts, and others, like Greece, went as far as falsifying their bills to suck more support from Berlin, via Brussels. Others again, like Spain, Ireland, or Portugal, were innocent enough to believe that a real estate binge was as real as the bricks they used to build their houses. 

These are certainly true and grave faults, issues whose solution has been delayed for almost a generation. However, there is also a flip side to this, which doesn’t excuse the guilty PIIGS but does put the current European difficulties into perspective. 

Will The Federal Reserve Create The New Socialist Man?

A permanent state of adolescence

"Government cannot make man richer, but it can make him poorer." – Ludwig von Mises

by Karen De Coster and Eric Englund, June 26, 2006

Personal character and money are linked. No, we are not implying that a person of great wealth is necessarily an individual with high character. All one needs to do is look at the moral sewer known as Wall Street in order to comprehend how a whole host of elites have traded their souls for mind-boggling sums of money.

The linkage between character and money has everything to do with self-ownership. Aside from one's body, the most personal property one may possess is the fruit of one's labor. In a capitalist society, typically, this labor gets rewarded in the form of money — a paycheck. Hence, a person's sense of value and self-worth is significantly influenced by how society values his labor — with money not only being that most personal asset, but also being the measuring rod. In days gone by, an individual developed character by learning that an honest day's work would be rewarded with honest money (i.e., gold). Never has there been a more stable measure of value than gold.

In 1913, at the behest of the richest and most powerful banking elites in the world, an agent of social decay was established in the United States. Indeed, the Federal Reserve was founded. The stabilizing influence of gold money, gradually, was replaced by government fiat. Consequently, the character of Americans depreciated in lockstep with its fiat currency.

Paul Cantor describes this phenomenon in his provocative essay Hyperinflation and Hyperreality: Thomas Mann in Light of Austrian Economics. To wit:

"Inflation is that moment when as a result of government action the distinction between real money and fake money begins to dissolve. That is why inflation has such a corrosive effect on society. Money is one of the primary measures of value in any society, perhaps the primary one, the principal repository of value. As such, money is a central source of stability, continuity, and coherence in any community. Hence to tamper with the basic money supply is to tamper with a community's sense of value. By making money worthless, inflation threatens to undermine and dissolve all sense of value in a society."

Over the past ninety-three years, since the founding of the Federal Reserve, the dollar has depreciated by over 95%. With money no longer being a stable repository of value – thanks to inflation –  a predictable shift in the American character has occurred. Gone are the low-time-preference days where hard work and savings paved the road to a better life for parents and children.

As our fiat money perniciously lost value, time preferences shifted upwards as it made more sense to spend a depreciating currency today than save for the future. And, better yet, what is more seductive than to borrow ever-depreciating fiat money –  as heavily encouraged by the Federal Reserve –  and pay the principal back with money that has become worth even less? Gradually, savings becomes a vice, profligacy a virtue, and the character of a people regresses to a permanent state of adolescence — as all sense of value is forgone in favor of instant gratification.

Dodging the Pension Disaster

The looming pension meltdown is still within our power to avert

by JOSH BARRO

When Dan Liljenquist began his first term as a Utah state senator in January 2009, his financial acumen quickly earned him serious legislative responsibilities. A former management consultant for Bain & Company, Liljenquist was appointed by the Utah senate president, Michael Waddoups, to three budget-related committees; he was also made chairman of the Retirement and Independent Entities Committee. As Liljenquist remembers it, Waddoups pre-empted any concerns the freshman might have had about his new responsibilities: "Don't worry," Waddoups said, "nothing ever happens on the retirement committee."

But then, in the early months of 2009, the stock market went into free fall. Worried about the effects the market crash would have on Utah's public-employee pension plan — which, like most states', is invested heavily in equities — Liljenquist asked the plan's actuaries to project how much taxpayers would have to pay into the pension fund in order to compensate for the stock-market losses. The figures that came back were alarming: Utah was about to drown in red ink. Without reform, the state would see its contributions to government workers' pensions rise by about $420 million a year — an amount equivalent to roughly 10% of Utah's spending from its general and education funds. Moreover, those astronomical pension expenses would continue to grow at 4% a year for the next 25 years, just to pay off the losses the fund had incurred in the stock market.

This scenario alarmed lawmakers, and for good reason. It also alarmed public employees, who feared that rising pension costs would limit the state's ability to pay higher wages. Tapping into these concerns during the 2010 legislative session, Liljenquist built consensus around a cost-saving reform plan: Utah will now require all state employees hired after June 2011 to choose one of two retirement options — either a 401(k)-style benefit plan, or a sharply modified pension plan with costs to taxpayers capped in advance. The reform isn't perfect, of course, but it will be significantly less expensive for Utah's taxpayers, and will leave more room in the state budget for the real business of government.

Utah, it seems, has thus narrowly escaped catastrophe. But what about the other 49 states? The pension-cost explosion is hitting nearly every one of them, too. And unlike Utah's, these states' efforts at pension reform are not being overseen by management consultants. Rather, in most places, state legislators are overmatched by savvy public-employees' unions and by pension-fund managers wedded to the status quo. Their influence explains why, though 18 states enacted some sort of pension reform in 2010, very few will offer real, long-term relief to taxpayers.

The Passing of an Illusion

Beyond the Welfare State

by YUVAL LEVIN

It is becoming increasingly clear that we in America are living through a period of transition. One chapter of our national life is closing, and another is about to begin. We can sense this in the tense volatility of our electoral politics, as dramatic "change elections" follow closely upon one another. We can feel it in the unseemly mood of decline that has infected our public life — leaving our usually cheerful nation fretful about global competition and unsure if the next generation will be able to live as well as the present one. Perhaps above all, we can discern it in an overwhelming sense of exhaustion emanating from many of our public institutions — our creaking mid-century transportation infrastructure, our overburdened regulatory agencies struggling to keep pace with a dynamic economy, our massive entitlement system edging toward insolvency.

But these are mostly symptoms of our mounting unease. The most significant cause runs deeper. We have the feeling that profound and unsettling change is afoot because the vision that has dominated our political imagination for a century — the vision of the social-democratic welfare state — is drained and growing bankrupt, and it is not yet clear just what will take its place.

The Economics Of Breaking Bad

Who protects the drug cartels?

by John Aziz

Breaking Bad is the story of Walter White, a cash-strapped, suburban 50-year old high school chemistry teacher, who following a life-changing cancer diagnosis hooks up with his drug-dealing former student, Jesse Pinkman, to cook and sell crystal methamphetamine. Immediately thrown in at the deep end, White undergoes a vast personality change; from mild-mannered Father into the lying, murderous gangland drug lord Heisenberg;  first cooking methamphetamine wearing an apron in a winnebago, then working in a high-tech underground laboratory for the Chilean gangland kingpin Gustavo Fring — who White eventually kills — and finally amassing a multi-hundred-million-dollar pile of cash.

A key dynamic in the show is White’s relationship with his brother-in-law, DEA agent Hank Schrader. It is Schrader who first introduces White to the idea that selling methamphetamine can pay — boasting of multi-hundred-thousand-dollar drug hauls, and even taking White out on a DEA raid of meth lab, where White first encounters his former student Pinkman. As White’s famously pure blue methamphetamine grows in popularity, Schrader becomes increasingly obsessed with its influx, yet spends the course of almost the entire series unaware that its source is his own brother-in-law.

Who Will Determine Greece's European Future?

Greeks ?

By El-Erian

Many feel that Greece's fate, including its continued membership of the eurozone, rests in the hands of the Troika - officials from the European Commission, European Central Bank and the International Monetary Fund charged with evaluating Greek's reform efforts, its financing needs and how they should be met. But this is not the entire story by any means.

The country's fate is also closely linked to what happens in Italy and Spain, and in a manner that is yet to be sufficiently understood by many. (Read More: Can Spain Avoid Greece’s Vicious Circle?)

Domestic political stability and economic reforms are clearly critical for Greece's continued membership of the eurozone. Many are thus interested in how the Troika, acting on behalf of official creditors, will react to the government's request to stretch out the budgetary adjustment over an extra couple of years.

Will they agree? If they do, how will the accompanied structural reforms be tweaked? And who will pony up the additional financing, either explicitly or through indirect methods (such as the refinancing undertaken recently by the ECB ?

Important as they are, these questions are just part of the required analysis. You see, Greece's triple problem - of way too little growth, much too much debt, and a political elite that has lost popular credibility and legitimacy - cannot be solved by adding a couple of years to the adjustment program and finding a bit more money.

A sustainable solution requires a major reset of the country's parameters - economic, financial political, and social.

The real fiscal cliff

Low interest rates will rise

By Peter Schiff

As we head toward the end of the year, the media’s fixation with the congressionally imposed “fiscal cliff” will reach a fever pitch and no doubt become a major factor in the presidential campaign. The danger is supposed to arise from the simultaneous implementation of $2 trillion in automatic spending “cuts” (in reality, just reductions in the rate by which federal spending increases) and the expiration of the George W. Bush-era tax rates. Most economists fear that higher taxes and slower increases in federal spending will combine to send us back into recession. Despite the hand-wringing, it is certain that the lame-duck Congress will slap together a late-December, last-minute, can-kicking compromise that will buy time at the expense of long-term solvency. Any success in wriggling out of this particular budgetary straitjacket will just make it more certain that we head straight for another, larger, fiscal cliff that is hiding in plain sight.

As it is constructed currently, the U.S. budget will be completely and thoroughly upended when interest rates approach levels that would be considered normal by historical standards. A mere 5 percent rate portends a clear and present danger to the budgetary priories of the United States.

The current national debt is about $16 trillion. This is just the funded portion — the unfunded liabilities of the Treasury, such as Social Security and Medicare, and off-budget items, such as guaranteed mortgages and student loans, loom much larger. Our recent era of unprecedented fiscal irresponsibility means we are throwing an additional $1 trillion or more on the pile every year. The only reason this staggering debt load hasn’t crushed us already is that the Treasury has been able to service it through historically low interest rates (now below 2 percent). These easy terms keep debt-service payments to a relatively manageable $300 billion per year.

The Fed’s Dirty Easy Money

While the GOP met in Tampa, titans of finance flew to Wyoming

By Niall Ferguson

Which mattered more to you last week: the Republican National Convention in Tampa, or the Federal Reserve’s annual economic-policy symposium in Jackson Hole, Wyo.?

If you’re just managing to get by, then it was the former. In his barnstorming speech, Paul Ryan nailed it again: “The issue is not the economy that Barack Obama inherited ... but this economy that we are living. College graduates should not have to live out their 20s in their childhood bedrooms, staring up at fading Obama posters and wondering when they can move out and get going with life.”

Direct hit.

But if you’re one of the fortunate few who manages anything above $100 million in financial assets, it was Jackson Hole you were watching, for any sign of fresh monetary stimulus from Fed Chairman Ben Bernanke.

Everyone knows about the fiscal cliff of spending cuts and tax hikes that the United States is going to hit at the end of this year, barring some miraculous bipartisan agreement. But could there also be a monetary cliff?

The Fed has thrown a lot at our ailing economy. It has slashed interest rates to near zero—and promised to keep them there until 2014. In the wake of the Lehman Brothers bankruptcy, it bought all kinds of toxic assets to avert a chain reaction of bank failures. “Quantitative Easing 1” was followed by QE2 (purchases of Treasury securities), resulting in a cumulative threefold increase in the monetary base. Bernanke’s most recent gambit was “Operation Twist” (exchanging short-term for long-term Treasuries).

If the Fed’s mandate were to juice the stock market, Ben Bernanke would get an A. Since the last Jackson Hole meeting a year ago, the S&P 500 is up nearly 22 percent. But since the Fed’s mandate is to achieve price stability and full employment, the grade is B- at best. True, inflation is—officially at least—around 2 percent. But unemployment is stuck at 8.3 percent. If I’d bought assets worth nearly $2 trillion, I’d be a tad disappointed by that.