The dirty little secret of Canadian Banking

Canadian debt and the prospects for an upcoming banking crisis

By Redmond Weissenberger

The propaganda you hear about the Canadian banking sector is just that – propaganda. Canadian banks are as leveraged up as there international counterparts – if not more: in fact Canadian banks have no reserve requirement whatsoever, zero. Of course you needn’t worry about your deposits in the event of a banking crisis, deposits of up to $100 000 insured by the Canadian Deposit Insurance Corporation. The CDIC doesn’t hold enough cash on hand to actually pay out the potential claims, but it does have the Bank of Canada ready to print the money up out of thin air to make you whole – with your own money. How do we know that the BoC would pony up the fiat currency? We come to the dirty little secret of Canadian Banking – the big five were bailed out just like every other bank in the world. The report in question was prepared by a left wing think tank, so we can question their motives, but the reality is that Canadian bank sector is subject to the same problems of fractional reserve banking as the rest of the western banking system.

Now what could lead to a Canadian banking crisis? Simple: exactly the same factors that led to the housing crisis in the US and Europe, namely artificially low interest rates leading to a bubble in real estate prices and unsustainable consumer debt.

The factory is closing

U.S. birthrate plummets to its lowest level since 1920

By Tara Bahrampour

The U.S. birthrate plunged last year to a record low, with the decline being led by immigrant women hit hard by the recession, according to a study released Thursday by the Pew Research Center.

The overall birthrate decreased by 8 percent between 2007 and 2010, with a much bigger drop of 14 percent among foreign-born women. The overall birthrate is at its lowest since 1920, the earliest year with reliable records. The 2011 figures don’t have breakdowns for immigrants yet, but the preliminary findings indicate that they will follow the same trend.

The decline could have far-reaching implications for U.S. economic and social policy. A continuing decrease could challenge long-held assumptions that births to immigrants will help maintain the U.S. population and create the taxpaying workforce needed to support the aging baby-boom generation.

The U.S. birthrate — 63.2 births per 1,000 women of childbearing age — has fallen to a little more than half of its peak, which was in 1957. The rate among foreign-born women, who have tended to have bigger families, has also been declining in recent decades, although more slowly, according to the report.

But after 2007, as the worst recession in decades dried up jobs and economic prospects across the nation, the birthrate for immigrant women plunged. One of the most dramatic drops was among Mexican immigrants — 23 percent.

Next comes mob rule

Colleges have free speech on the run

By George F. Will

In 2007, Keith John Sampson, a middle-aged student working his way through Indiana University-Purdue University Indianapolis as a janitor, was declared guilty of racial harassment. Without granting Sampson a hearing, the university administration — acting as prosecutor, judge and jury — convicted him of “openly reading [a] book related to a historically and racially abhorrent subject.”

“Openly.” “Related to.” Good grief.

The book, “Notre Dame vs. the Klan,” celebrated the 1924 defeat of the Ku Klux Klan in a fight with Notre Dame students. But some of Sampson’s co-workers disliked the book’s cover, which featured a black-and-white photograph of a Klan rally. Someone was offended, therefore someone else must be guilty of harassment.

This non sequitur reflects the right never to be annoyed, a new campus entitlement. Legions of administrators, who now outnumber full-time faculty, are kept busy making students mind their manners, with good manners understood as conformity to liberal politics.

Liberals are most concentrated and untrammeled on campuses, so look there for evidence of what, given the opportunity, they would do to America. Ample evidence is in “Unlearning Liberty: Campus Censorship and the End of American Debate” by Greg Lukianoff, 38, a graduate of Stanford Law School who describes himself as a liberal, pro-choice, pro-gay rights, lifelong Democrat who belongs to “the notoriously politically correct Park Slope Food Co-Op in Brooklyn” and has never voted for a Republican “nor do I plan to.” But as president of the Foundation for Individual Rights in Education (FIRE), he knows that the most common justifications for liberal censorship are “sensitivity” about “diversity” and “multiculturalism,” as academic liberals understand those things.

A Nation of Singles

The most politically potent demographic trend is not the one everyone talked about after the election

By Jonathan V. Last

For a brief moment last month​—​roughly a 72-hour span beginning at 11:00 p.m. on November 6 and concluding late in the evening of November 9​—​everyone in America was interested in demographics. That’s because, in addition to rewarding the just, punishing the wicked, and certifying that America was (for the moment) not racist, President Barack Obama’s victory over Mitt Romney pointed to two ineluctable demographic truths. The first was expected: that the growth of the Hispanic-American cohort is irresistible and will radically transform our country’s ethnic future. The second caught people by surprise: that the proportion of unmarried Americans was suddenly at an all-time high.

Unfortunately, by the time the window closed on the public’s demographic curiosity no one really understood either of these shifts. Or where they came from. Or whether they were even particularly true. As is often the case, people tended to fixate on a relatively small, contingent part of America’s changing demographic makeup and look past the bigger, more consequential part of the story.

So let’s begin by asking the obvious question: Hispanics are America’s demographic future​—​true or false? The answer is, both. Sort of.

Start with what we know. As of the 2010 census, there were 308.7 million people in America, 50.5 million of whom (16 percent) were classified as being of “Hispanic origin.” Of that 50 million, about half are foreign-born legal immigrants. Another 11 million or so are illegal immigrants. A few other facts, just to give you some texture: 63 percent of American Hispanics trace their origins to Mexico, 9.2 percent to Puerto Rico, and 3.5 percent to Cuba. And more than half of the 50 million live in just three states, California, Texas, and Florida.

Corn-Pone Opinions

Association and sympathy vs reasoning and examination

by Mark Twain

Fifty years ago, when I was a boy of fifteen and helping to inhabit a Missourian village on the banks of the Mississippi, I had a friend whose society was very dear to me because I was forbidden by my mother to partake of it. He was a gay and impudent and satirical and delightful young black man – a slave – who daily preached sermons from the top of his master's woodpile, with me for sole audience. He imitated the pulpit style of the several clergymen of the village, and did it well, and with fine passion and energy. To me he was a wonder. I believed he was the greatest orator in the United States and would some day be heard from. But it did not happen; in the distribution of rewards he was overlooked. It is the way, in this world.

He interrupted his preaching, now and then, to saw a stick of wood; but the sawing was a pretense – he did it with his mouth; exactly imitating the sound the bucksaw makes in shrieking its way through the wood. But it served its purpose; it kept his master from coming out to see how the work was getting along. I listened to the sermons from the open window of a lumber room at the back of the house. One of his texts was this:

"You tell me whar a man gits his corn pone, en I'll tell you what his 'pinions is."

Machiavelli and State Power

The principle that the end justifies the means is in individualist ethics regarded as the denial of all morals

by Llewellyn H. Rockwell, Jr.

As libertarianism has acquired a higher profile in American life over the past several years, the attacks on and caricatures of libertarians have grown almost as rapidly. Libertarians, we read, are antisocial, and prefer isolation over interaction with others. They are greedy, and are unmoved if the poor should starve. They are naive about our dangerous enemies, and refuse their patriotic duty to support the government’s wars.

These caricatures and misconceptions can be put to rest by simply defining what libertarianism is. The libertarian idea is based on a fundamental moral principle: nonaggression. No one may initiate physical force against anyone else.

There is nothing antisocial about that. To the contrary, it is the denial of this principle that is antisocial, for it is peaceful interaction that lies at the heart of civilized society.

At first glance, hardly anyone can object to the nonaggression principle. Few people openly support acts of aggression against peaceful parties. But libertarians apply this principle across the board, to all actors, public and private. Our view goes well beyond merely suggesting that the State may not engage in gross violations of the moral law. We contend that the State may not perform any action that would be forbidden to an individual. Moral norms either exist or they do not.

Thus we cannot abide State kidnapping, just because they call it the draft. We cannot abide the incarceration of people who ingest the wrong substances, just because they call it the war on drugs. We cannot abide theft just because they call it taxation. And we cannot abide mass murder just because they call it foreign policy.

Murray Rothbard, who earned his Ph.D. from this very institution in 1956 and went on to become known as Mr. Libertarian, said that you could discover the libertarian position on any issue by imagining a criminal gang carrying out the action in question.

In other words, libertarianism takes certain moral and political insights shared by a great many people, and simply applies them consistently.

Collecting Disability Becomes A Career Choice For Men

It's a Job

By Michael Barone

Americans are very generous to people with disabilities. Since passage of the Americans With Disabilities Act in 1990, millions of public and private dollars have been spent on curb cuts, bus lifts and special elevators.

The idea has been to enable people with disabilities to live and work with the same ease as others, as they make their way forward in life. I feel sure the large majority of Americans are pleased that we are doing this.

But there is another federal program for people with disabilities that has had an unhappier effect. This is the disability insurance (DI) program, which is part of Social Security.

The idea is to provide income for those whose health makes them unable to work. For many years, it was a small and inexpensive program that few people or politicians paid much attention to.

In his recent book, "A Nation of Takers: America"s Entitlement Epidemic," my American Enterprise Institute colleague Nicholas Eberstadt has shown how DI has grown in recent years.

In 1960, some 455,000 workers were receiving disability payments. In 2011, the number was 8,600,000. In 1960, the percentage of the economically active 18-to-64 population receiving disability benefits was 0.65%. In 2010, it was 5.6%.

Some four decades ago, when I was a law clerk to a federal judge, I had occasion to read briefs in cases appealing denial of disability benefits. The Social Security Administration then seemed pretty strict in denying benefits in dubious cases. The courts were not much more openhanded.

Things have changed. Americans have grown healthier, and significantly lower numbers die before 65 than was the case a half-century ago. Nevertheless, the disability rolls have ballooned.

Unlearning liberty

The dire state of free speech on US campuses, and how censorship is teaching people to be dumb

by Tim Black 

‘At Stanford, I took every human rights class that was offered, every First Amendment class, and in addition to that, for six additional credits, I did an independent study on the origins of the prior restraint doctrine of Henry VIII and Queen Elizabeth I. That’s how much of a nerd I am about this stuff.’ Greg Lukianoff lets out a big hearty laugh, before adding, ‘And I really enjoyed that last one’.

There is no doubting Lukianoff’s passion for the principles of liberty. In 2006, he was made president of the Foundation for Individual Rights in Education (FIRE), a campaign group established at the end of the 1990s (by civil-rights lawyer Harvey Silverglate and history professor Alan Charles Kors) to fight against the distinctly illiberal, speech code-obsessed turn in the American academy. FIRE has had considerable success, shaming offending institutions through articles in the media, and if that fails, defeating them in the courts; it seems the First Amendment continues to provide a precious bulwark against the censor-happy impulse abroad on US campuses.

And now, after 10 years at the frontline of the battle for freedom of speech on campus, Lukianoff has taken stock of his experience in his new book, Unlearning Liberty: Campus Censorship and the End of American Debate. As a window on the cowed conformism of America’s higher-education institutions, places in which freedom of speech is now held in historically low esteem,Unlearning Liberty is indispensable. But it is also valuable as a critique of the shrill, ‘hyperpolarised’ condition of America’s national discourse. As Lukianoff writes: ‘To put it bluntly, I believe that three decades of campus censorship has made us all just a little bit dumber.’

Money for nothing and chicks for free

It's Me Baby, With Your Wake-Up Call

By Mark J. Grant

Alarm clock starts ringingWho could that be singingIt’s me baby,With your wake-up call!

                  - Toby Keith, How Do You Like Me Now

A great friend of mine and one of the best bond traders on Wall Street said this recently:  “Get ready for The Great Bond Shortage in North America.  If it has a cusip and it is rated, it is going higher/tighter.” I am down with his observation. The compression in bond spreads since the Fed started all of their “made-up/newly printed money for free” antics is the root of all of this and I do not expect a change anytime soon. There are various estimations for the 2013 net new issue supply in all sectors of Fixed Income but I peg it around $400 billion.  Around $800 billion will be paid to bond holders during the year in coupon payments and, if reinvested, will cause a supply deficit of about $400 billion for the year.  Exacerbating all of this is the Fed, who will buy around $500 billion in MBS this year and perhaps the same amount in Treasuries which could take $1 trillion out of the market all by itself. Consequently we face a lack of bonds denominated somewhere between $900 billion and $1.4 trillion, depending upon the Fed, which will increase the rolling train of compression, lower interest rates further in all likelihood and cause great angst for investors who will find very little of value left in the Fixed Income markets. Safety; yes but yield; no.

An Austrian Defense of the Euro

We stand at a historic crossroad

by Jesus Huerta de Soto

1. Introduction: The Ideal Monetary System

Theorists of the Austrian School have focused considerable effort on elucidating the ideal monetary system for a market economy. On a theoretical level, they have developed an entire theory of the business cycle that explains how credit expansion unbacked by real saving and orchestrated by central banks via a fractional-reserve-banking system repetitively generates economic cycles. On a historical level, they have described the spontaneous evolution of money and how coercive state intervention encouraged by powerful interest groups has distanced from the market and corrupted the natural evolution of banking institutions. On an ethical level, they have revealed the general legal requirements and principles of property rights with respect to banking contracts, principles that arise from the market economy itself and that, in turn, are essential to its proper functioning.[1]

All of the above theoretical analysis yields the conclusion that the current monetary and banking system is incompatible with a true free-enterprise economy, that it contains all of the defects identified by the theorem of the impossibility of socialism, and that it is a continual source of financial instability and economic disturbances. Hence, it becomes indispensable to profoundly redesign the world financial and monetary system, to get to the root of the problems that beset us and to solve them. This undertaking should rest on the following three reforms:

1.     the reestablishment of a 100 percent reserve requirement as an essential principle of private-property rights with respect to every demand deposit of money and its equivalents;

2.     the abolition of all central banks (which become unnecessary as lenders of last resort if reform 1 above is implemented, and which as true financial central-planning agencies are a constant source of instability) and the revocation of legal-tender laws and the always-changing tangle of government regulations that derive from them; and

3.     a return to a classic gold standard, as the only world monetary standard that would provide a money supply that public authorities could not manipulate and that could restrict and discipline the inflationary yearnings of the different economic agents.[2]

Workers Of The World, Unite!... But First Consider This

As fury at corporations rises, don't forget to save some where it belongs: theFederal Government and the FED

by Tyler Durden
The conflict between labor and capital is a long and illustrious one, and one in which ideology and politics have played a far greater role than simple economics and math.

And while labor enjoyed a brief period of growth in the the past 100 years first due to the anti-trust and anti-monopoly, and pro-union laws and regulations taking place in the early 20th century US, and subsequently due to the era of "Great Moderation"-driven "trickling down" abnormal growth in the developed world, it is precisely the unwind of this latest period of prosperity, loosely known as "The New Normal", and in which economic growth will persist at well sub-optimal (<2%) rates for the foreseeable future, that is pushing the precarious balance between labor and capital costs - in their purest economic sense, and stripped of all ethics and ideology - to a point in which labor will likely find itself at a persistent disadvantage, leading to the same social upheaval that ushered in pure Marxist ideology in the late 19th century.

Only this time there will be a peculiar twist, because while in relative terms labor costs as a percentage of all operating expenses are declining around the world, when accounting for benefits, and entitlement funding, labor costs are rising in absolute terms if at uneven rates (a particularly touchy topic in the Eurozone where lack of labor competitiveness for the periphery is probably the single thorniest issue for the European Disunion) and are now at record highs.

Which sets the stage for what may probably be the biggest push-pull tension of the 21st century for the simple worker: declining relative wages, which however are increasing in absolute terms when factoring in the self-funded components paid into an insolvent welfare system.

French Unemployment Highest in 14 Years ...

And It's Going to Get Much Worse

By Mike Shedlock

According to Google translation from Le Monde, October marks the 18th consecutive month of rising unemployment. A second article from Le Monde discusses the Rise in Unemployment for October.

 Unemployment has risen sharply again in October. According to statistics released Wednesday, November 27 by employment center and the Ministry of Labour, the number of applicants for employment who had no activity during the month (Class A) increased by 46,500 people, including DOM. In September, he had jumped nearly 47 000 people. Worse, counting the unemployed reduced activity (category B and C), the increase reached 73,600 people!

Such explosion had not been seen since March 2009. With 4,870,800 people registered at employment center, the number of job seekers Class A, B and C reached a level never seen before, as far back as statistics. For those in category A, the level was not as high for fourteen years, in May 1998. Since the accession of François Hollande at the Elysee Palace, very bad numbers keep on coming: nearly 230,000 people have registered at employment center and since May.

In detail, it is over 50 years old who suffer most from the increase in October, with nearly 2% increase in a month for this category. Rising long-term unemployment is still very high, with nearly 11.5% of registered job seekers concerned about one year.

French Unemployment vs. US Unemployment
Those outside France need a bit of perspective on various classes of unemployment cited above. This is my understanding, pieced together from two different sources.

·        Class A: Jobless people that have had no activity at all during the past month.

·        Class B: Jobless people having worked less than 78 hours during the past month ("short reduced activity")

·        Class C: Jobless people having worked more than 78 hours during the past month ("long reduced activity").

·        Class D: Looking for a job, but currently sick, or in internship, or in state-sponsored "professional development" courses, etc

·        Class E: Those in state-sponsored low-pay "community service" jobs

The official unemployment rate only comes out quarterly.

Greek Debt Buyback Update

It's All 'Voluntary', Honest Injun!

by Pater Tenebrarum

We recently discussed that the mooted Greek debt buyback was getting more expensive as hedge funds flock into the debt to make hay from this latest desperate ploy. This has resulted in the truly bizarre spectacle of eurocrats trying to talk the value of the bonds of a peripheral country in trouble down. Pity there's no ratings agency around willing to deliver a downgrade right now.

Now come reports that the Greek government has magnanimously decided to keep participation in the buyback 'voluntary' for now.

We hadn't been aware hitherto that a plan to steal money from the bond holders outright was actually even considered, but apparently that is actually the case – why would they otherwise stress that it's all 'voluntary'? As soon as the buyback is no longer 'voluntary', there is absolutely no way anymore for bondholders to ever get their money back at par of course. 

Reuters reports:

“Greece has hired Deutsche Bank and Morgan Stanley to conduct a voluntary buy back of its debt, a senior finance ministry official told Reuters on Wednesday.

Eurogroup finance ministers and the International Monetary Fund (IMF) agreed earlier this week to conduct the buy back by mid-December, as part of measures to make Greece's debt sustainable.

Egypt Constitution Sparks Outrage

Draft Is Illegitimate, Critics Say; Islamists Plan Rival Protest

By SAM DAGHER

Critics of Egyptian President Mohammed Morsi slammed the country's draft constitution after it emerged from a hasty all-night session, with opponents charging the document was a jumbled attempt to impose Islamic law produced by what they called an unrepresentative body dominated by Islamists.

The draft charter, which the president has vowed to put to a national vote soon, emerged a week after Mr. Morsi issued a decree broadly expanding his powers, spurring violent rallies against the president in the worst crisis of his five-month term. The battle is expected to play out in coming days both in Egypt's courts, where judges will hear challenges to Mr. Morsi's decree, and in the streets, where supporters and opponents have been laying plans for large rallies.

The draft constitution was finished early Friday by Egypt's 100-member Constituent Assembly, a body that had been conceived as representing Egyptians broadly. The group became dominated by Islamist politicians, however, after it was boycotted by Christian and secular members who had made up more than one-quarter of it. The assembly, bolstered with replacement members, sprinted to complete the draft ahead of a scheduled hearing Sunday in the country's top court, where the assembly itself faces a challenge as unrepresentative and unconstitutional.

Assembly chairman Hossam El Gheriany said early Friday that he and 85 members would hand-deliver the document on Saturday to President Morsi, who would then announce the date for a national referendum. The vote would be held by mid-December, several government officials and members of the panel said.

The Palestine Mirage

A futile U.N. gesture that violates the 1993 Oslo Accords

WSJ Editorial

It was no accident that Mahmoud Abbas chose November 29 to seek a United Nations General Assembly vote recognizing Palestine as a state, albeit as a non-member "observer" state at the U.N. November 29 is the 65th anniversary of the General Assembly's Resolution 181, which partitioned British-Mandated Palestine into Jewish and Palestinian states.

The Jews accepted the Resolution; Arabs unanimously rejected it. It passed by a vote of 33-13 with 10 abstentions. Had the Arab world voted for the plan, a Palestinian state would be as old as Israel is today, and within larger borders than the 1949 Armistice lines that the Palestinian President now claims for his new, notional, "state."

Yet if Mr. Abbas intended to acknowledge the Arab error in rejecting the creation of a Jewish homeland, it wasn't apparent Thursday. While he referred to Resolution 181 as "the birth certificate for Israel," he also spoke of the "unprecedented historical injustice inflicted on the Palestinian people since Al-Nakba [the catastrophe] of 1948." That would not have happened had the Arabs not sought to murder Israel in its crib by invading it.

America not paying its fair share

You cannot simultaneously enjoy American-sized taxes and European-sized government. One or the other has got to go.

By Mark Steyn

Previously on "The Perils of Pauline":

Last year, our plucky heroine, the wholesome apple-cheeked American republic, was trapped in an express elevator hurtling out of control toward the debt ceiling. Would she crash into it? Or would she make some miraculous escape?

Yes! At the very last minute of her white-knuckle thrill ride to her rendezvous with destiny, she was rescued by Congress' decision to set up... a Super Committee! Those who can, do. Those who can't, form a committee. Those who really can't, form a Super Committee – and then put John Kerry on it for good measure. The bipartisan Super Committee of Super Friends was supposed to find $1.2 trillion of deficit reduction by last Thanksgiving, or plucky little America would wind up trussed like a turkey and carved up by "automatic sequestration."

Sequestration sounds like castration, only more so: it would chop off everything in sight. It would be so savage in its dismemberment of poor helpless America that the Congressional Budget Office estimates that, over the course of a decade, the sequestration cuts would reduce the federal debt by $153 billion. Sorry, I meant to put on my Dr. Evil voice for that: ONE HUNDRED AND FIFTY THREE BILLION DOLLARS!!! Which is about what the United States government currently borrows every month. No sane person could willingly countenance brutally saving a month's worth of debt over the course of a decade.

US lurching toward Middle East quagmire

Running with the hare and hunting with the hound

By M K Bhadrakumar

Barack Obama’s second term as president hasn’t yet begun, but it is going to be a tumultuous one as far as his Middle East policy is concerned. Whether he could disengage the US from the Greater Middle East with the ease that was hoped for in order to “rebalance” in Asia seems increasingly doubtful. To be sure, Asian countries are also watching the Middle Eastern events and the quagmire the US is getting into. 

Hardly has the Gaza conflict been halted in an uncertain ceasefire that may or may not hold, Egypt’s president Mohamed Morsi has walked into the eye of a storm that has been brewing for some time, which pits the Muslim Brotherhood against the rest on the domestic political arena. 

And Morsi happened to be Obama’s main interlocutor during the Gaza crisis. The two statesmen apparently held several long, unpublicized telephone conversations and Obama has warmed up to the “moderate” Islamist leader. However, the Saudi establishment daily Asharq Alawsat has featured a sarcastic report on Obama’s dalliance with Morsi, which Riyadh thoroughly disapproves.

The Saudi apprehension is that Obama is going too far, too fast with the Muslim Brotherhood, whereas the ground reality is that the US is indeed unable to decide whether to back Morsi to the hilt in the present upheaval on Tahrir square or to dump him or to mark time and simply go by the “wind factor”. 

The Myth Of Austerity

Public austerity is a necessary condition for private flourishing and a rapid recovery

by Philipp Bagus

Many politicians and commentators such as Paul Krugman claim that Europe's problem is austerity, i.e., there is insufficient government spending. The common argument goes like this: Due to a reduction of government spending, there is insufficient demand in the economy leading to unemployment. The unemployment makes things even worse as aggregate demand falls even more, causing a fall in government revenues and an increase in government deficits. European governments pressured by Germany (which did not learn from the supposedly fateful policies of Chancellor Heinrich Brüning) then reduce government spending even further, lowering demand by laying off public employees and cutting back on government transfers. This reduces demand even more in a never ending downward spiral of misery. What can be done to break out of the spiral? The answer given by commentators is simply to end austerity, boost government spending and aggregate demand. Paul Krugman even argues in favor for a preparation against an alien invasion, which would induce government to spend more. So the story goes. But is it true?

First of all, is there really austerity in the eurozone? One would think that a person is austere when she saves, i.e., if she spends less than she earns. Well, there exists not one country in the eurozone that is austere. They all spend more than they receive in revenues.

In fact, government deficits are extremely high, at unsustainable levels, as can been seen in the following chart that portrays government deficits in percentage of GDP. Note that the figures for 2012 are what governments wish for.

The absolute figures of government deficits in billion euros are even more impressive.

Fiscal Cliff: Why Congress Might Have to Mess with the 401(k)

Everything is on the table

By Dan Kadlec

One of the earliest fears about tax-favored savings accounts like IRAs and 401(k) plans was that when this pool of savings grew large enough Congress would not be able to resist tapping it to help solve the nation’s debt problems. We’re about to find out if those fears—persistent for decades—have been justified.

Everything including the sacred mortgage deduction is on the table as lawmakers wrestle with the fiscal cliff, a year-end avalanche of scheduled spending cuts and tax increases. With a combined $10 trillion sitting in IRAs and 401(k) plans, retirement accounts make a juicy target. Some of this money has never been taxed, and under current law never will be.

To maintain this savings incentive the government “spends” $100 billion a year in the form of tax breaks to those who stash money in these kinds of accounts. Now, a new study suggests this tax incentive does little to change saving behavior. Some lawmakers, no doubt, are wondering: Why keep an expensive tax incentive that does not incent?

The study, reported in The New York Times, comes from Raj Chetty and John N. Friedman of Harvard, Soren Leth-Petersen and Tore Olsen of the University of Copenhagen, and Torben Heien Nielsen of the Danish National Center for Social Research. It looked at data from Denmark, where the pension system is similar to that in the U.S., and found that every dollar that government spent on tax breaks increased total savings by about one penny.

Nationalizations Take Off In France

Socialism, Step by Step

By Wolf Richter

The nationalization debate has been sizzling on France’s front burner since last week when Industry Minister Arnaud Montebourg lashed out at the world’s largest steelmaker, ArcelorMittal. He threatened to nationalize its plant in Florange where some old blast furnaces had been shut down for a year-and-a-half. At stake were 2,500 jobs. “We no longer want Mittal in France,” he told the Indian owners—though the company has 20,000 employees in France.

Breaking into a cold sweat, executives around France reevaluated their investment plans. Just then, unemployment hit a 14-year high. Creating jobs was needed more than anything. Scaring off investment was not. Whether his threat was a form of extortion or an announcement of a hostile takeover remains to be seen. But it opened the door for unions at another troubled company to demand nationalization, and the socialist government might not be able to resist.

The three unions—CFTC, Solidaires, and Force Ouvrière—that represent the workers at the shipyard Chantiers de l’Atlantique at Saint-Nazaire on the Atlantic coast demanded in a joint statement today that the government “must become totally involved  to guarantee the future of the shipyards” and must become “a majority shareholder.” Jean-Marc Perez, Deputy Secretary of the Force Ouvrière, clarified: “Nationalization is unavoidable.”