Where To From Here?

Floating currencies would disappear as suddenly as they appeared a little more the forty years ago

by Gerardo Coco

We face one of the deepest crises in history. A prognosis for the economic future requires a deepening of the concepts of inflation and deflation. Without understanding their dynamic relationship and their implications is difficult to predict how things might unfold. The economic future depends on the interplay of both these forces. From the point of view of their final effects, inflation and deflation are, respectively, the devaluation and revaluation of the currency unit. The quantity theory of money developed in 1912 by the American economist Irving Fisher asserts that an increase in the money supply, all other things been equal, results in a proportional increase in the price level [1]. If the circulation of money signifies the aggregate amount of its transfers against goods, its increase must result in a price increase of all the goods. The theory must be viewed through the lens of the law of supply and demand: if money is abundant and goods are scarce, their prices increase and currency depreciates. Inflation rises when the monetary aggregate expands faster than goods. Conversely, if money is scarce, prices fall and the opposite, deflation, occurs. In this case the monetary aggregate shrinks faster than goods and as prices decrease money appreciates.

Inflation is a political phenomenon because monetary aggregates are not determined by market forces but are planned by central banks in agreement with governments. It is in fact connected with the monetary expansion to fund their deficits. Inflation raises the demand for goods and decreases the demand for money; it increases aggregate spending and money velocity as the ratio between GDP and the amount of money in circulation which expresses the rapidity with which the monetary unit is spent and respent until it remains in existence.

There is no such things as demand-pull inflation or cost-push inflation. Provided that the quantity of money does not increase, if cost or demand for some goods changes, demand for other goods must necessarily adjust, leaving unchanged the amount of spending and the money aggregate in the economic system. If some people spend more, others have to spend less, thus leaving the purchasing power unaltered. The cause of inflation is nothing but money manipulation.

Architect of ObamaCare Jumps Ship To Johnson & Johnson

Meet Ms Liz Fowler

By Mike Krieger

Following the passage of ObamaCare, several of the smartest people I know claimed that the bill was actually written by and for the drug and insurance companies rather than “the people” as Obama had claimed.  My friend and orthopedic surgeon Dave Janda wrote an excellent piece that I published titled: Thoughts on Obamacare from a Surgeon and Friend.

In recent days it has emerged that Liz Fowler, who is said to have been one of the key architects of ObamaCare, is doing what any good revolving door crony capitalist would do.  She is moving to the private sector to receive her payoff.  Trudy Lieberman of the Columbia Journal Review explains that:

Herewith is a brief Fowler curriculum vitae: In 2001 she had a plum job as chief counsel for the Senate Finance Committee, which deals with healthcare bills. As Greenwald’s old Salon post notes, her biography says she “played a key role” in the 2003 Medicare prescription drug law that created a new senior drug benefit—a benefit provided via private insurers, not the government, as is the case for other Medicare benefits. A few years later she landed a position at WellPoint as a vice president overseeing the giant insurer’s lobbying activities.

ICTY: a common enterprise against the Serbs

The international court trying cases from the former Yugoslavia is there to heap blame on just one side

by Tara McCormack 

This week, the International Criminal Tribunal for the Former Yugoslavia (ICTY) found the former prime minister of Kosovo, Ramush Haradinaj, not guilty of all charges against him. Haradinaj had been a commander of the Kosovo Liberation Army (KLA) during the 1999 war in which the majority Albanian area of Kosovo sought to secede from Serbia. The previous week, two Croatian generals, Gotovina and Markac, were acquitted on appeal for charges brought over their role in Operation Storm in 1995. After the verdict of Haradinaj, Serbian president Tomislav Nikolic gave a statement that the ICTY was formed to try the Serbian people. He has a point.

The ICTY was established by the UN Security Council in 1993 during the civil wars that accompanied the break-up of Yugoslavia. The ICTY was specifically set up to try so-called war crimes committed by the warring parties in the former Yugoslavia – for example, breaches of international humanitarian law and the Geneva Conventions. It was the first international criminal tribunal set up since Nuremburg, but it was swiftly followed by several more based on the same model, like the ICT for Rwanda and the Special Panel for Serious Crimes in East Timor. In 2002, a permanent court was established, the International Criminal Court (ICC), to take over the job of the ad-hoc tribunals.

For many critics of the ICTY, it is a tool of Western interests. For supporters, the ICTY heralds a brave new post-Cold War world of international justice, in which those committing war crimes or crimes against humanity can no longer hide behind the barrier of state sovereignty. In fact, both critics and detractors are correct to a point and the contested principle of Joint Criminal Enterprise (JCE) illustrates the way these two aspects of the ICTY meet and are worked out.

Obama's Energy Dilemma

Back Energy fueled Growth or Please Rent Seeking Green Lobby

by Joel Kotkin

Talk all you want about the fiscal cliff, but more important still will be how the Obama administration deals with a potential growth-inducing energy boom. With America about to join the ranks of major natural gas exporters and with the nation’s rising oil production reducing imports, the energy boom seems poised to both  boost our global competitiveness and drive economic growth well above today’s paltry levels.

This puts President Obama in a dilemma. To please his core green constituency, he can strangle the incipient energy-led boom in its cradle through dictates of federal regulators. On the other hand, he can choose to take credit for an economic expansion that could not only improve the lives of millions of middle- and working-class Americans, but also could assure Democratic political dominance for a decade or more.

Stronger economic growth remains the only way to solve our nation’s fundamental fiscal problems other than either huge tax hikes or crippling austerity. As economist Bret Swanson has pointed out, the best way to raise revenues and reduce expenditures, particularly for such things as welfare and unemployment, would be to increase overall growth from the current pathetic 2 percent rate to something closer to 3 or 4 percent.

Swanson suggests in a few simple charts (PDF) that a 4 percent growth rate would drive output to levels that would cover even our current projected spending levels. Even at 3 percent, the additional revenue would be enough, for example, to fill in Medicare’s looming $24.6 billion liability that is projected to 2050. The effects of higher growth are likely far greater than either any anticipated bonanza by raising taxes on the “rich” or enacting the most extreme austerity.

The energy revolution presents Obama with the clearest path to drive this critical boost to greater economic growth. New technologies for finding and tapping resources, such as fracking and other new technologies to tap older oil fields, could make America potentially the largest oil and gas producer by 2020, according to the International Energy Agency.

Assad faces life or death choice

The Syrian leader appears to have his back against a wall

By Victor Kotsev 
Amid significant rebel advances and indications that a partition of Syria might happen in the next months, the government army reportedly readied chemical weapons for use last week. The United States and the North Atlantic Treaty Organization (NATO) alliance responded with harsh warnings and by approving the move of multiple Patriot missile batteries to southern Turkey, something that could further tip the balance in the country. The Syrian civil war seems to have entered a critical phase, with President Bashar al-Assad facing the choice of either stepping down or fighting to the end, by all means available. 
To be fair, there are no specific indications that the Syrian government intends to use weapons of mass destruction against its own citizens, and its spokespeople vehemently denied on Monday any such possibility. These weapons could play different roles in several scenarios, including as a bargaining chip for Assad on his way out of the country, a deterrent against foreign intervention, or a way to cover his potential withdrawal to a rump state centered around territories inhabited by his Alawite sect. 
Some reports claim that Assad is exploring the possibility of seeking political asylum in Latin American countries such as Cuba, Venezuela or Ecuador. Though the Syrian president has denied any such intention and has vowed to "live and die in Syria", his recent military and diplomatic fortunes have turned more toward dying, and he could be expected to reconsider. 
The threat of chemical weapons, on the other hand, could win him a measure of immunity and an offer of more favorable conditions for an exit (of course, only as long as he doesn't use them). 

Patients Misused as Guinea Pigs in East Germany

Western Pharmaceutical Trials

By Nicola Kuhrt

Prior to the fall of the Berlin Wall, East Germany sold patients as unwitting guinea pigs in drug trials conducted on behalf of Western pharmaceutical companies, according to a TV documentary. Journalists have spoken to former patients and their relatives and unearthed official documents proving secret collusion between the East and West.

It was as though Gerhard Lehrer suspected that something was amiss. He was being treated in an East German hospital in Dresden after suffering a heart attack in May 1989, and he decided not to hand back the box of drugs he had been given.

Three weeks after he was discharged, he was feeling increasingly ill. The clinic told him to stop taking the mystery drug immediately and to return all the pills he had left. But Lehrer disobeyed. "Keep hold of them, you may need them one day," he told his wife. He died a year later.

His widow Anneliese Lehrer kept the red packet. It was strange, she recalls, how the doctor praised the red-and-white capsules when her husband was taken to the hospital. "You can only get them with me," he said. When she later saw a television documentary about risky drug tests in East German clinics, she rang up broadcaster MDR.

German Gold

Total collapse is a real possibility

by Godfrey Bloom and Patrick Barron

The greatest threat to worldwide prosperity is the collapse of what remains of free-market capitalism. Not depletion of scarce natural resources. Not environmental degradation. Not global warming (or is it "climate change" now?) No, the greatest threat to worldwide prosperity is the complete collapse of what little remains of free-market capitalism. Throughout the world, and not just in totalitarian countries, the state has been advancing at the expense of economic liberty. The indispensible tool that enables the modern state to usurp our liberties is its access to unlimited amounts of fiat money controlled by central banks — i.e., the unholy alliance of the state with the central bank.

Fiat-money expansion has made the advance of statism possible through its ability to thwart the wishes of the people as the final arbiters of state spending. The state can obtain an almost limitless amount of fiat money from its central bank. It need not increase taxes or borrow honestly in the bond market, so it need not fear a tax revolt or high interest rates respectively. All it needs to do is convince the central bank to buy its debt. The state then takes control over more and more resources, squandering them on war and welfare, depriving the free-market economy of its capital base. Once the capital base has been depleted, the economy will go into a steady decline.

For the past forty years, Israel knew no active state-to-state attack on any of its borders

The region is defined by the twin threats of Iranian hegemonic ambitions and the spread of radical Sunni extremism

By Robert Satloff

Even before Gaza fell silent the other week, the blogosphere was full of lists of "winners and losers" of the mini-war that helpfully came to a halt before ruining Thanksgiving dinner. In one article after another, the big winner was Egypt's President Muhammad Morsi, followed by the leaders of Hamas, and maybe Israeli Prime Minister Benjamin Netanyahu; the big loser was Palestinian Authority president Mahmoud Abbas, followed by Turkish Prime Minister Recep Tayyip Erdogan, and maybe Netanyahu.

Titillating though it may be, this focus on personality politics missed the larger significance of the Gaza conflict as the beginning of a new era in the Middle East -- one defined by the end of the region's forty-year peace.

Don't blame yourself if you didn't realize that the Middle East has enjoyed four decades of peace. But that is precisely what has transpired between Israel and Arab states since the Yom Kippur War of 1973. In its first twenty-five years of independence, Israel was characterized by multi-state war with intermittent bouts of unsuccessful diplomacy. Six Arab armies invaded Israel in 1948; Israel fought four Arab armies in June 1967; twelve Arab armies participated in the 1973 war. In the forty years since, Israel has fought no wars against an Arab state, and its history has been characterized by frequently successful diplomacy with intermittent bouts of terrorism and asymmetric war against non-state actors.

The difference between these two realities may not be great to the grieving mother, the widowed wife, or the orphaned child, but the difference is profound in strategic terms. For the past forty years, Israel knew no active state-to-state attack on any of its borders; its main local threats came from a guerilla organization, Hezbollah, and from the intra-state challenge of rebellion, terrorism and insurrection known as the first and second uprisings (popularly known as "intifadas").

“La Ville Lumiere”, No More

The Age of “Sobriety” Begins

by Pater Tenebrarum

It is incredible how a bearish social mood often leads to actions that will only tend to make it even worse and are likely to result in a plethora of usually very costly unintended consequences.

The French government has now decided that it is time to begin with what one might refer to as the “age of sobriety”. It is going to be celebrated by simply switching off the lights – almost all of them. Parisian merchants are not surprisingly rather distressed over this latest nanny state edict, which is coming on top of a series of other bans that have severely hampered the shopping experience in Paris for a long time.

Bloomberg reports:

“Paris’s legendary label as the “City of Light” may soon lose some of its luster.

The French minister for energy and environment unveiled last week a proposal for lights in and outside shops, offices, and public buildings — including the flagship Louis Vuitton store and the Lido cabaret house on Paris’s Avenue des Champs Elysees — to be turned off between 1 a.m. and 7 a.m. starting in July. The plan, to be applied across French cities, towns and villages, is aimed at saving energy and money and showing “sobriety,” Minister Delphine Batho said.

The move has provoked an outcry from merchants, who say the government is being insensitive to France’s image as the world’s No. 1 tourist destination. They say the rule, on top of existing bans on Sunday store openings and night shopping, will hurt business at a time when the French economy has barely grown for a year and unemployment is at a 14-year high.

Is it time to write off Europe for the next decade?

Most of us still think we're just spectators

By Raoul Ilargi

The EU is a morally bankrupt blind behemoth that, in a doomed attempt to survive, destroys everything around it just to keep itself standing. In that, it is hardly different from several incarnations of the 20th century politburos in Russia and China - and those are by no means the darkest comparisons that could spring to mind.

There are tons of people working in and for the EU, some of whom are smart while others are not, some who are honest and some who are just self-centred , but the apparatus has become a vortex that sucks in all of them. There many be just a small window left for Europeans to retain a grip on democracy. There's not much left. Stock markets may give the impression that things are going fine, but that is possible only because increasingly severe austerity measures are spreading rapidly, and have now reached the core, not just Greece and Spain. The EU induced illusions will keep coming fast and furious, however, until they don't. And then it will be too late for democracy.

It's all in a terribly shaky state already though. Ironically, maybe that's the people's best hope, that it will collapse before the power games are solved with the bureacrats as winners. Today, Italian PM Mario Monti lost his majority in the Senate; he could be gone within days. Only to bring back Silvio Berlusconi. Also today British Chancellor of the Exchequer George Osborne announced that UK austerity will last till 2018 and that he needs to borrow another £100 billion to soothe the deficit. Which led Fitch to threaten a UK downgrade. Mario Draghi, however, claimed that the Eurozone will swing back to growth in 2014. And no matter how hard you may find that to believe, remember: he can't be voted out of office. Draghi doesn't care about his credibility with voters, he wants credibility in the financial world. And he has it, because he delivers.

The next step in the elaborate European centralization plan was announced today by EU President Van Rompuy.

EU President Calls for Central Fund to Wind Down Failing Banks

European leaders proposed an industry-financed fund to cover costs of winding down failing euro-area banks, seeking to deepen the bloc’s integration and limit fallout from future financial crises.

Nations in the currency bloc should back the creation of a centrally managed "European Resolution Fund," according to a report prepared by European Union President Herman Van Rompuy. The fund would be financed by levies on banks and could have a credit-line to the euro area’s firewall fund for sovereigns, according to the report.

How the Rich Rule

The state is indeed the executive committee of the ruling class

By SHELDON RICHMAN

ERNEST HEMINGWAY: I am getting to know the rich.

MARY COLUM: I think you’ll find the only difference between the rich and other people is that the rich have more money.

Irish literary critic Mary Colum was mistaken. Greater net worth is not the only way the rich differ from the rest of us—at least not in a corporatist economy. More important is influence and access to power, the ability to subordinate regular people to larger-than-human-scale organizations, political and corporate, beyond their control.

To be sure, money can buy that access, but only in certain institutional settings. In a society where state and economy were separate (assuming that’s even conceptually possible), or better yet in a stateless society, wealth would not pose the sort of threat it poses in our corporatist (as opposed to a decentralized free-market) system.

Adam Smith famously wrote in The Wealth of Nations that “[p]eople of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” Much less famously, he continued: “It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty or justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary.”

The fact is, in the corporate state government indeed facilitates “conspiracies” against the public that could not otherwise take place. What’s more, because of this facilitation, it is reasonable to think the disparity in incomes that naturally arises by virtue of differences among human beings is dramatically exaggerated. We can identify several sources of this unnatural wealth accumulation.

The Court Predator

Being a contemporary celebrity in an infantilized culture was the perfect cover

By mark steyn

Jimmy Savile is entirely unknown to Americans. Which is as it should be. He was a British disc jockey and children's-TV host, but, even by the debased standards of those callings, he didn't appear to have any particular talent. Yet, for half a century, until his death a year ago, he was one of the BBC's biggest stars: He hosted the first edition of Top of the Pops on TV in 1964, and he was there for the last in 2006. He had no discernible interest in pop music, but for millions of Britons his radio show was the accompaniment to roast-beef-and-Yorkshire-pud every Sunday lunchtime. He had, it was widely reported, an active dislike of children, but his Jim'll Fix It was a fixture on the telly for two decades. And throughout this time he was also a serial pedophile, as his many fans belatedly discovered only last month.

In American terms, he was a combination of Dick Clark, Mr. Rogers, and Jerry Lewis in telethon mode. But that doesn't quite do justice to the freakishness of his personality and its equally bizarre indulgence by Britain's establishment. The other day, while researching a bit of post-Thatcher Brit trivia, I chanced upon this sentence from the wife of the former prime minister John Major, which could stand for a thousand similar asides in a thousand political memoirs: "We had been shown around the Spinal Injuries Unit by its most celebrated and dedicated fundraiser, Sir James (Jimmy) Savile wearing an unforgettable gold lamé tracksuit."

Off with Their Heads

Has Vladimir Putin lost control of his “corruption crackdown”?

BY SIMON SHUSTER

Over the past month, a surreal new element has come to dominate Russia's nightly news. At times it feels like some sort of hybrid reality show, as if the Kremlin's propaganda men have started splicing episodes of MTV Cribs with episodes of COPS. The entrancing new genre was born from the purge that President Vladimir Putin launched in October -- the first anti-corruption campaign he has ever attempted -- and it has made for excellent television.

Viewers have been treated to commando raids on posh apartments, seized boxes of diamonds and gold, stacks of bribe money being fed by police into counting machines that look about ready to burst. Perhaps most satisfying of all, for the millions of workaday Russians watching at home, has been the sight of once-mighty bureaucrats groveling for sympathy, clemency, or bail. That schadenfreude is part of the point. Purges are meant to be popular.

But six weeks into this one, its initiator has found himself in the bind of his career. By allowing state TV to cover all the gory details of the bureaucratic bloodletting, Putin's government seems to have only reminded Russians just how shameless and pervasive corruption has become. In one case, police claim to have found an obscure military bureaucrat, Alexander Yelkin, in possession of around $9 million in cash and four Breguet watches. Had he not been arrested on Nov. 16, he was reportedlyplanning tocelebrate his birthday the following night with a private concert by Jennifer Lopez. Judging by the latest polls, such tales of profligacy have begun to reflect badly on the entire government -- Putin included. But satisfying the public's piqued desire for justice is hardly an option at this point. Bureaucrats at every level are already spooked by the spate of arrests, and if the lifestyle to which they have become accustomed becomes threatened, they could start to turn on Putin. And that raises the risk of a palace coup.

"He has to strike a very delicate balance," says Alexander Rahr, a member of the Valdai Club, a forum of Russia experts that meets with Putin once a year. "He is too dependent on the boyars [feudal lords] to go chopping off their heads, but that is what the people are now demanding."

The Debtor Prisoner’s Dilemma

Those who cannot forget the past are condemned to inflate it

By Harold James

Any economic slowdown increases debt burdens, whether for households or for states. Today, both are looking for ways to reduce the weight of debt – and some would prefer to escape it.

Deeply frustrated and angry people – especially in southern Europe – frequently hold up Argentina’s defiance of the international community in 2001 as a model. Argentina then used a mixture of coercion and negotiation to get out from under the mountain of debt that it incurred in the 1990’s, effectively expropriating foreign creditors, who were viewed as dangerous and malign.

In the 1990’s, Argentina tied its hands with a dollar-pegged currency in order to enhance its credibility as a borrower. The strategy worked too well: the large credit inflows that it attracted triggered an inflationary boom that reduced the country’s competitiveness. By 2001, a combination of devaluation (exit from the currency straitjacket) and partial default was inevitable. Default was followed by nominally voluntary restructurings in which creditors were invited to take some losses.

Up to now, the Argentine model has seemed successful, yielding substantial economic growth for the country since 2001. That is what has made the model so appealing to debt-burdened southern Europeans.

But a recent New York court ruling against Argentina in a case brought by a holdout hedge-fund creditor has dramatically raised the stakes of sovereign default and bankruptcy. When holdouts are rewarded by court decisions, and the rights of recalcitrant creditors are recognized in other jurisdictions, efforts at “voluntary” restructuring become unsustainable. More and more parties will resist writing down some debt in favor of trying to seize whatever assets they can.

For Argentina, the writing is now on the wall.

Kill the human rights commissions

Before they kill our freedoms

By George Jonas

Canada’s commissars for “human rights” are making the front pages again, this time by offering to balance “conflicting human rights.” At least, that’s what they’re selling, and some headline writers are buying it.

The National Post headline that went with Sarah Boesveld’s report last Saturday, for instance, read: “Gender vs. religion: Woman refused haircut by Muslim barber highlights problem of colliding rights.”

No, it doesn’t, actually. What it highlights is the coercive state’s ongoing attempt to deny the human rights it constitutionally guarantees, if they conflict with human ambitions it promotes or protects: In this instance, some matriarchal quest to empower women to have their hair cut by men of their choice, whether they like it or not.

The case itself is too silly for words. Unless there’s an Alice-in-Wonderland edition, the Charter’s guarantee of gender equality doesn’t authorize women to conscript barbers as their hairdressers. For barbers who refuse, invoking religion is, to put it mildly, overkill. “Sorry, I don’t do ladies’ hair” is all that need be said by anyone who finds it more congenial or lucrative to shave male customers.

For matriarchy’s martinets, however, hauling a citizen into an office on a frivolous complaint is all in a day’s work. Even if it goes no further, for the state to compel attendance in a matter so far beyond its competence — hair salons aren’t unisex by law, are they? — is scandalous. It calls for an apology and full restitution of the barber’s legal expenses.

It also calls for questions in the legislature.

There may not always be an England

John Bull was once a canny and tough old fellow

BY J.E. DYER

Q.  When does the British government subsidize a TV channel that carries the rants of anti-gay religious fanatics?

A.  When the TV channel is run by Islamist extremists.

OK, that one was a softball.  But it’s worth pointing out a telling contrast in the British government’s stance on people’s right to think unapproved thoughts about homosexuality.

Here is what Mr. Abdullah Hakim Quick, a speaker who has been featured on Britain’s Ramadan TV, has to say about gays:

Abdullah Hakim Quick … has been condemned by New Zealand’s broadcasting authority for his anti-gay tirades, which state that homosexuals must be killed, that they are “sick” and “not natural”, and that “Muslims are going to have to take a stand [against homosexuals] and it’s not enough to call names.” He continues to hold this position: “They said ‘what is the Islamic position [on homosexuality]?’ And I told them. Put my name in the paper. The punishment is death. And I’m not going to change this religion.”

The National Health Service’s North East London & the City agency responded to this editorial posture by subsidizing Ramadan TV to the tune of £3,200.  Sam Westrop at the Gatestone Institute (first link) gives other examples of bloodthirsty extremism from the talking heads on Ramadan TV.  Homosexuality, however, is the topic that highlights the unequal treatment now being accorded to citizens of the UK.

'Europe Hasn't Learned Lessons from Greece Crisis'

A debt cut is necessary, and not just for Greece

For the third time, European finance ministers this week have put together a package of aid measures for Greece and assured Europeans that the country is now back on track to financial health. But is it really? German commentators certainly don't think so.

By Spiegel

Hedge fund managers, at least, are pleased. The deal struck late on Monday night between euro-zone finance ministers and the International Monetary Fund to reduce Greece's overall debt load includes a measure stipulating an Athens buyback of its own debt. Investors that bought Greek bonds for as low as 17 cents on the euro can now expect to sell them back to Athens for around 35 cents on the euro -- a tidy little profit.

Elsewhere, however, investors would appear to be unimpressed by the deal. Markets across the world were down on Wednesday and the euro lost value early against the dollar, with Greece cited -- along with US debt troubles -- as one of the reasons for the uncertainty. Investors, it would seem, see the Greece deal as yet another attempt by European leaders to muddle through the crisis rather than take steps toward a lasting solution.

"There remains the potential for this deal to fall apart in the medium term as there are a lot of moving parts and it is a long way away from the permanent fix that the IMF had been insisting upon," Gary Jenkins, managing director of Swordfish Research, which focuses on international bond markets, told the Associated Press. "It is just one more big kick of the can down the road."

There's a Hole in the Budget...

What the Greece Deal Means for German Finances

Finance Minister Wolfgang Schäuble insisted on Tuesday that the new deal aimed at slashing Greece's debt load won't cost German taxpayers. It will, however, deny Germany billions in expected revenues. And the feared debt cut may be just around a not-too-distant corner.

By Spiegel

German Finance Minister Wolfgang Schäuble is a clever orator. In comments to the press on Tuesday, he first made sure to praise Greek reform efforts before turning to the most recent measures passed to prop up the heavily indebted country. Then he said that the new aid package, aimed at reducing Greece's overall debt load and giving the country two extra years to meet its budget deficit reduction targets, won't cost German taxpayers a penny.

It is a bold statement. And one that leaves plenty of room for interpretation. Particularly given Schäuble's follow up. Berlin, he said, will suffer a "reduction of revenues."

It is a typical Schäuble formulation: a bit ambiguous and slightly misleading. But the numbers are clear enough. Germany will forego some €730 million ($944 million) in revenues in 2013 as part of the deal hashed out on Monday night in Brussels between euro-zone finance ministers and the International Monetary Fund. It is a compromise that avoids, for now, the kind of debt haircut that Berlin had been so opposed to. But it marks the first time that the crisis in Greece will have a direct effect on the German budget.

China Doesn't Own the U.S., Japan Does

Why China May No Longer Be America’s No. 1 Debt Buyer

As Beijing rejiggers its economic strategy and lets its currency weaken, Japan is likely about to become to the top foreign holder of U.S. Treasuries. What does this mean?

by Daniel Gross  

You hear it all of the time. The problem is that the government is borrowing from China to fund our stupid spending programs, or popular subsidies, or tax cuts. Mitt Romney (remember him?), in a presidential debate, defined his criterion for deciding whether spending is worthwhile thusly: “Is the program so critical it’s worth borrowing from China to pay for it?” Big Bird famously didn’t meet that test. In the vice-presidential debate, Paul Ryan criticized subsidies for electric cars, and wondered“Was it a good idea to borrow all this money from countries like China and spend it on all these various different interest groups?” Democrats do it, too. Pollster Mark Mellman, writing in The Hill, described how he used the “borrowing from China” line in a recent poll.

Subtle, this isn’t. Politicians of all stripes warn that it’s a bad idea for Americans to borrow from a rival, a potential enemy, a country with a fundamentally different and authoritarian political system. Relying on China as a lender will reduce our freedom of movement, harm our values, and diminish the country. And in recent years, our massive trade deficit has led to ever-increasing Chinese purchases of U.S. government debt. For much of the past two decades, China’s central bank has hoovered up all the dollars we sent to purchase plastic stuff and clothes, and then used it to buy dollar-denominated assets, the better to keep its currency weak against the dollar. A year ago, China was far and away the largest foreign owner of U.S. debt; it sat on a $1.27 trillion stockpile.

But the global economy is a dynamic place. Things change. And today, it’s highly likely that the biggest foreign holder of U.S. debt isn’t the snarling Asian tiger of China. Rather, it’s the wounded, unthreatening kitty cat of Japan.

Why a Falling Birth Rate Is a Big Problem

A few more babies would be good for business

By RICK NEWMAN

It sounds like one of those stories you can safely ignore: The U.S. birth rate has hit a record low, led by a big drop in the portion of immigrant women having babies.

This development doesn't directly affect anybody, since it's one of those long-term societal trends that occurs in small increments and doesn't change the unemployment rate, the price of gas, the direction of the stock market or any of the big economic forces that make our lives better or worse today. And since the trend is strongest among immigrants, it sounds like maybe this is something happening in a shadowy part of the economy that doesn't matter all that much.

But it does matter, and if the trend persists, it could mean lower living standards for most Americans in the future.

It may seem intuitively obvious that a slower-growing or declining population is good for the economy, especially when you think about starving children in poor parts of the world where there's not enough food for everybody. In places where resources are severely limited—and economic policies are dysfunctional—it may be true that a growing population is a bad thing.

But that's usually because such economies are static, and instead of creating wealth they typically just divide up what's already there. That's not the situation in America, which has a dynamic economy that creates wealth and more than enough resources for all of its citizens.