Lessons from our friends in the North

The secrets of the Nordic model that has appeared immune to the crisis engulfing the rest of Europe

By Alyson JK Bailes

The European Union’s southern member states – Greece, Italy, Spain and Portugal – have become the sick men of Europe, helping to turn the EU into one of the sicker regions of the world. In contrast, Denmark, Finland, Norway and Sweden have stood out by keeping much of their reputation and self-confidence intact, as well as retaining decent growth figures.

This has been achieved without swingeing budget cuts or reneging on social obligations. These countries still exhibit the combination of efficient production, high tax and high living standards that has been called a ‘third way’ or ‘Nordic model’ in the past, and which is now seizing attention again for its apparent crisis-busting properties.

The misfortunes of Iceland – the smallest Nordic country – arguably prove the rule. Under a series of centre-right governments it privatized most strategic sectors and let the banking industry expand practically free of regulation. These were deviations from the supposed Nordic model even if Icelandic social policies remained generous. In addition, Iceland’s adversarial political culture was and remains more American or British than Scandinavian in spirit: aggravating the risk of special interest groups manipulating policy, but also making it harder for the country to pull together in a crisis. 

Iceland aside, there is reason to ask what the Nordics may be doing right that the southern Europeans – and Irish – have got wrong. But how complete is this contrast? 

By their own reserved, consensus-loving standards, the Nordics have experienced major dramas since 2008. Denmark as well as Iceland saw landslides from Right to Left in post-crisis elections, producing governments that have struggled to maintain authority. In Sweden and Finland, new nationalist and anti-EU parties have achieved parliamentary representation. In Norway, the Breivik tragedy could hardly be blamed on the euro crisis, but it brought painful soul-searching over how a Norwegian could do such things and why the police responded so ineptly. 

In economic terms, too, the Nordics’ fast rebound after 2009 now shows signs of slowing. Swedish growth for instance fell from 5.7 per cent in 2010 to 4.2 per cent in 2011, while Finland and Denmark remained static. That Sweden became the first EU member to introduce a pro-growth budget in 2012 is noteworthy for the fact that its canny Finance Minister, Anders Borg, found it necessary.

Broken Promises

Pensions All Over America Are Being Savagely Cut Or Are Vanishing Completely

By Michael Snyder

How would you feel if you worked for a state or local government for 20 or 30 years only to have your pension slashed dramatically or taken away entirely?  Well, this exact scenario is playing out from coast to coast and in the years ahead millions of elderly Americans are going to be affected by broken promises and vanishing pensions. 

In the old days, things were much different. You would get hired by a big company or a government institution and you knew that the retirement benefits that they were promising you would be there when you retired in a few decades. Unfortunately, we have now arrived at a time when government institutions and big companies have promised far more than they are able to deliver, and "pension reform" has become one of the hot button issues all over the nation. 

Many Americans that have been basing their financial futures on their pensions are waking up one day and finding that their pensions are either gone or have been cut back dramatically.  According to Northwestern University Professor John Rauh, the latest estimate of the total amount of unfunded pension and healthcare obligations for state and local governments across the United States is 4.4 trillion dollars.  America is continually becoming a poorer nation and all of that money is simply not going to magically materialize somehow.  So where is that 4.4 trillion dollars going to come from?  Well, either pension benefits are going to have to be cut a lot more all over America or taxes will need to be raised dramatically.  Either way, we are all going to feel the pain of these broken promises.

A new 'Mad Max' sequel?

Fighting for scraps in the ruins of a higher civilization

Bu the OCR Editors

Californians increasingly may be on their own against criminals because of state and local budget problems. Two recent reports are scary.

KCBS wrote, "Burglaries are up a startling 43 percent in Oakland this year compared to last, part of an ever-growing crime problem in the city.... The city could be down to a little more than 600 [police] officers by February, which would be 200 fewer than in 2008."

In San Bernardino, according to CBS News, "[City Attorney Jim] Penman said the city is dealing with bankruptcy, which has forced officials to cut its police force by about 80 officers." Consequently, there's been growing criticism about the police department's response time.

"Let's be honest, we don't have enough police officers. We have too many criminals living in this city. We have had 45 murders this year ... that's far too high for a city of this size," Penman said.

Talking to a local group, Mr. Penman also said, "Go home, lock your doors and load your gun."

"Penman was stating the obvious in what is happening throughout the state," Sam Paredes told us; he's the executive director of Gun Owners of California, a gun rights group. "Law-abiding citizens are buying more guns than ever." He estimated that 1 million guns will be sold in the state this year. "With all the stories and articles about prison realignment," in which state prisoners have been released, or sent to local jails, "people are realizing that their primary means of defense is themselves."

Greece Shows What Happens When The Welfare Ponzi Ends

When no more money flows in, to fund outflows, then the jig is up for the pension fund ponzi

This, as evidenced by the 'punching, kicking, and tearing at clothes' that a Greek pension fund manager endured recently, is exactly what has begun in Greece. As Reuters reports, the fund manager "enraged" here audience when she asked the Greek journalists to 'double their contributions' to their social security fund, and spent the night in hospital for her efforts to keep the ponzi alive. It was a brutal sign of the fury many Greeks feel at the way the country's debt crisis has dashed hopes of a comfortable old age. As New Democracy's leader noted: 

"From July 2010 it was obvious that a debt restructuring would be inevitable. While foreign banks were unloading their Greek government bonds, no one moved to tell Greek pension funds to do something, that a haircut was coming." 

Under a law passed in 1997 and refined in 2007,pension funds have to place 77% of any surplus cash in a pool of 'common capital' which must be invested only in Greek government bonds or Treasury bills (T-bills). So the PSI saved German and French banks but crushed Greek pensioners...

Via Reuters:

...  For hours the leader of the Greek journalists' social security fund had been chairing a meeting about disastrous losses on retirement savings caused by the country's economic collapse. "She tried to present herself as the fund's savior and asked (members) to double contributions to 6 percent of salaries," said one of those present that night at the Titania hotel. Spanopoulou, 58, did not succeed.

When she rose to leave around midnight, enraged fund members first swore, then waded in punching, kicking and tearing at her clothes, according to witnesses. A bodyguard managed to bustle her out of the room, but another group caught her just outside the hotel and gave her a second beating. She spent the night in hospital.

Government Employees, Unions, And Bankruptcy

The salad days of the government employee are coming to an end, as they have already in Greece, Italy and Spain

by James E. Miller

During an economic boom, exuberance finds itself lodged in all types of industries.  When profits soar, so does the public’s disregard for prudence.  And as tax revenues rise, politicians can’t help but give in to their bread and butter of buying votes.  Periods of accelerated economic growth typically come in two different forms.  If capital is drawn from a pool of real savings to finance investment in more efficient forms of production, the boost in wages and income will be sustainable as long as consumers remain willing to purchase whatever is being produced in greater amounts.  In the case of a credit-expansion boom fueled primarily by fractional reserve banking and interest rate manipulation through a central bank, the boom conditions are destined toward bust.  Liquidation then becomes necessary as the bust gets underway and malinvestments come to light.

For private industry it means slashing costs, laying off workers, and possible bankruptcy to discharge debt.  For government, it typically means shoring up the lost revenue due to unemployment by raising taxes and promising to cut spending by some significant amount.  Usually those promised cuts never come to fruition.  Political reelection hinges too much upon filling the pockets of voter blocs.   When private enterprise tightens its belt, the state hardly bats an eye since its revenue is dependent on how much it decides to fleece from taxpayers in any given year.

Some levels of government aren’t so lucky however.  Without ready access to a printing press or eager creditors, local municipalities in the U.S. are facing tough choices as the Great Recession drags on.  Unable to cope with the rising cost of providing public services, many cities are taking drastic action.  Three major cities in California have recenlty declared bankruptcy; including San Bernardino which is the second largest city to do so in recent history.  The city council of Detroit, which is facing about $12 billion in pension and benefit obligations, has voted to allow a state advisory board to assist the former manufacturing powerhouse grapple with a fiscal future that is anything but promising.  North Las Vegas, Nevada is facing the same kind of hurdle with a gaping $30 million budget deficit.  According to Mayor Sharon Buck, “We’ve balanced our budget, we’ve paid all of our bills [and] all of our bonds are paid…Our biggest issue is salaries and compensation and benefits. And they’re very unsustainable.”  Most recently, the mayor of Scranton, Pennsylvania cut the wages of city workers to the state’s minimum wage of $7.25 an hour.  The unions which represent the city’s firefighters, police officers, and other public workers are taking the issue to court.

Go West Young Man, To The "New Normal" Dream Job

California State Workers Earning $822,000

By Tyler Drusden

There was a time when working on Wall Street, either on the sell or buy side,  was the dream of every able-bodied worker who could do simple addition in their head and wasn't afraid to cut the occasional corner in exchange for a bottle of Bollinger and a sizable year end bonus. That, however, was so 2006 and with the long overdue conversion of the banking sector into a utility the stratospheric compensation payments from the peak of the credit bubble are long gone. So what is the New Normal dream job? Become a California state worker, preferably one who deals with neurotic and/or crazy people (i.e., a psychiatrist), and rake it in. The following chart from Bloomberg shows just how generous the otherwise insolvent state of California is when it comes to paying its public servants, and the 100%+ increase in California employee state pay since 2005. Needless to say, this is a rate of increase in compensation that 99% of workers in the private sector would die for.

Some other stunning observations from Bloomberg on the best job taxpayer money can buy. The best paid job: psychiatrist. At this pace, they will have lots and lots of patients.

Psychiatrists were among the highest-paid employees in Pennsylvania, Ohio, Michigan and New Jersey, with total compensation $270,000 to $327,000 for top earners. State police officers in Pennsylvania collected checks as big as $190,000 for unused vacation and personal leave as they retired young enough to start second careers, while Virginia paid active officers as much as $109,000 in overtime alone, the data show.

The numbers are even larger in California, where a state psychiatrist was paid $822,000, a highway patrol officer collected $484,000 in pay and pension benefits and 17 employees got checks of more than $200,000 for unused vacation and leave. The best-paid staff in other states earned far less for the same work, according to the data. ...

Popcorn As Political Pork

Why isn't the public popping mad?

by Richard B. McKenzie

Our Washington political leaders seem to be running like lemmings toward a fiscal Armageddon that Greece has recently reached. According to the Congressional Budget Office, the federal deficit was $1.1 trillion for fiscal year 2012, down from $1.3 trillion in 2011.1 At the end of fiscal 2012, the gross federal debt was 105 percent of gross domestic product for the year and is expected to rise to above 107 percent in the current fiscal year.2 No one should be sanguine that the CBO's projected lower federal deficits for the rest of the 2010s will be realized.

Nevertheless, virtually all members of Congress continue to pack "political pork" into the federal budget, in the form of both earmarks and expansions of their favorite transfer programs.3 Each member can correctly reason that his (or her) preferred package of pork, alone, will not significantly affect federal deficits and, therefore, the fiscal fate of the country. Such thinking derives from "the logic of collective action" that the late economist Mancur Olson laid out nearly a half century ago.4 As Olson pointed out, each person (or lobby) has an incentive to seek his (or its) special program because, while everyone bears the costs, only that person or group reaps the benefits. For that reason, the prospect of a fiscal doomsday is growing.

One recent example of this collective logic at work is the new subsidies Congress has included in the current farm "reform" bill for—are you ready?—popcorn. At this writing, the farm bill of 2012 has not passed Congress, with the delay perhaps due, in part, to the recent national election in early November.

The Pork in Popcorn

If the bill passes, popcorn growers will now join a long list of grain farmers (growers of wheat, corn, grain sorghum, barley, oats, long-grain rice, medium-grain rice, pulse crops, soybeans, other oil seeds, and peanuts) whose wallets have been padded by American taxpayers in a variety of forms—including payments for non-production—over the past century. The new subsidies would be in the form of government coverage of a sizable portion of popcorn farmers' crop insurance and export promotions. This benefit would be no less a subsidy than direct payments to farmers for not planting crops. A subsidy for export promotion would drive up the price of domestic popcorn and, hence, increase popcorn growers' revenues and profits at the expense of American consumers and taxpayers. Subsidized crop insurance for popcorn growers could dampen price increases but, as with the export promotions subsidies, American taxpayers would foot the bill.

Peak Oil or Peak Energy? – A Happy Solution

Let’s turn free markets loose!

By John Mauldi

A consistent theme in this letter has been the connections between items that may seem to be far removed from each other but are actually linked at the very core. If you push on one end you get a reaction in what would seem to be the most unlikely spots. Today we explore the connection between the fiscal deficit and energy policy. Everyone in Washington is starting to “get religion” about wanting to fix the deficit, with serious thinkers on all sides acknowledging that there must be reform and a path to a balanced budget. Burgeoning healthcare and Social Security costs are rightly pointed to as the problem, and entitlement reform will soon be front and center.

But the fiscal (government) deficit in the US cannot go away unless we also deal with the trade deficit. As we will see, it is a simple accounting issue, and one based on 400 years of accepted accounting principles. And dealing with the trade deficit in the US means working with our energy policy.

The trade imbalances among the partners in the eurozone are at the heart of the problems there as well. And while we will get back to Europe in a few weeks (remember when we seemed to be focused on Europe and Greece for months on end?), today we will explore the trade problem from a US perspective. Happily, this problem, while serious, does have a workable solution. And it might even happen in spite of government policy, though if a proactive energy policy were developed, it could ignite a true economic renaissance.

I have been wanting to explore the implications of the shale oil revolution. Old oil fields are wearing out, as peak oil advocates point out. Where can we find the huge and cheap-to-exploit oil fields to replace them? Hasn’t all the easy oil already been found? We will start in the Texas of my youth, journey to North Dakota where I was last week, and then think about the implications of that journey. There are many connections and interesting paths to explore. The letter will print a little long, as there are a lot of charts.

It Takes an Entrepreneur

First though, I have to take you back to Wise County, Texas, about 60 miles west of Fort Worth. A Greek goat herder named Savas Paraskivoupolis (who changed his name to Mitchell) came to Galveston in 1905. His son George Mitchell worked his way through Texas A&M and got a degree in petroleum engineering. After the war, George teamed up with his brother Johnnie and Merlyn Christie. They drilled their first well in 1952, in what became known as the Boonesville Field in Wise County, near Bridgeport where I grew up. They went on to drill hundreds of gas wells but had to shut them down because they had no way to deliver the natural gas they found in abundance. The work was done at serious financial risk, but they just kept drilling and plugging those wells. Finally a contract for a pipeline was financed by an Illinois utility, and those wells went into production.

What started as Christie, Mitchell and Mitchell soon became a major employer in my little hometown and a powerful spur to the local economy. The future father-in-law of my childhood best friend was first permanent North Texas employee, back in the early 1950s, and he was eventually joined by the fathers of many of my friends.

Over the coming years Mitchell would drill over 10,000 wells, with over 1000 of them being wildcat or exploratory wells. He is a legend. His story is reminiscent of that of Walt Disney, who also lived constantly on the edge of crisis in the early days of his business. In the late ’80s and early ’90s Mitchell pioneered a new drilling method called horizontal drilling. It is still hard for me to imagine, that there is a small amount of flexibility in what seems like rigid steel pipe. Over hundreds of feet of drilling, they can turn a pipe inch by inch until it describes a 90° arc.

Collective Choice at Work

The trimming of collective choice could lead to the re-discovery of the freedom of contract

By Anthony de Jasay

At one time or another, most of you have seen in the street the warning sign "Danger: Men at Work." None of you have seen a danger sign warning "Danger: Collective Choice at Work." This is probably a great mistake, for collective choice has an immense destructive potential, ranging from corrosion to explosion, and the fiction that the social contract makes it all right and all benign is at best a half truth and at least a half lie. The present article looks at what tends to happen when collective choice is at work where men are at work and are paid wages for it.

The knee jerk understanding of collective choice is "democracy," where its rough-and-ready meaning is one-man, one-vote majority rule circumscribed by constitutional limits on what the majority may and may not do, with these limits being fixed by the majority itself in some higher, constitutional incarnation. The gaps between this ideal and the ways it works out in practice are well known.1 In any case, the democratic ideal is only a very special case of the form collective choice may take. In its general form, it is the solution of a "game" by which the decisions of some members of society are accepted by most or all as binding. The former rule and gain the outcomes they seek, the latter are ruled by habit, passive acquiescence, the threat of raw power or, at the limit, because of defeat in war or insurrection. Each of these "games" may be formalized, and its solution reached at the lowest cost, for society is persuaded to adopt a rule of choice-making (e.g. "the dictator's word shall have the force of law," or "majority vote by secret ballot shall be decisive").

Farming in the sky in Singapore

Singapore leads in the development of 'vegetable factories'

By Kalinga Seneviratne 
With a population of five million crammed on a landmass of just 715 square kilometers, the tiny republic of Singapore has been forced to expand upwards, building high-rise residential complexes to house the country's many inhabitants. 

Now, Singapore is applying the vertical model to urban agriculture, experimenting with rooftop gardens and vertical farms in order to feed its many residents. 

Currently only 7% of Singapore's food is grown locally. The country imports most of its fresh vegetables and fruits daily from neighboring countries such as Malaysia, Thailand and the Philippines, as well as from more distant trading partners like Australia, New Zealand, Israel and Chile. 

An influx of immigrants has resulted in a rapid crowding of Singapore's skyline, as more and more towering apartment buildings shoot up. And meanwhile, what little land was available for farming is disappearing fast. 

The solution to the problem came in the form of a public-private partnership, with the launch of what has been hailed as the "world's first low carbon, water-driven rotating vertical farm" for growing tropical vegetables in an urban environment. 

A Coriolanus in Our Future?

A side of Shakespeare the classroom never prepared us for

By Joe Sobran

A little tired of politics? Of course you are. We all are. Well, I have a treat for you: Shakespeare’s least-known great play, Coriolanus, the story of a brave and honest (though not always amiable) man who hates politics with all his heart. It’s a tragedy fraught with magnetic eloquence and unexpected lessons for our own time.
I discovered it in 1962, when I was 16, through Richard Burton’s thrilling recording of it. Long before he became famous for, well, other stuff, Burton had made the role his own on the stage, and this recording is still the gem of my large collection. Vocally, nobody, not even the great Olivier, could have topped Burton’s astoundingly resonant performance (which Olivier himself saluted as “definitive”). Listen to it once, and I guarantee you’ll never forget it. The play reveals a side of Shakespeare the classroom never prepared us for. Sweetest Shakespeare, fancy’s child? Warbling his native woodnotes wild? Not hardly.

Molded by his inhuman mother, Volumnia, who makes Lady Macbeth seem like a soft touch, Caius Martius is a proud Roman patrician and matchless warrior, surnamed Coriolanus for his virtually single-handed conquest of the Volscian city of Corioli. He becomes the most popular man in Rome, but popularity means absolutely nothing to him, except baseness. He can seldom speak in public without causing a riot.

Despite his heroism, Coriolanus hates and despises the common people so bitterly that when he agrees, reluctantly, to seek the consulship, Rome’s highest office, he refuses to show the voters his wounds — he even hates being praised himself — and he insults them: he can’t bear to seek their favor. It’s too humiliating. He says he deserves to be consul, whether they like it or not, and especially if they don’t. “Who deserves greatness Deserves your hate.”

How we’re all being seduced by the state

Neither Osborne nor his critics are recognize that the state is strangling both individual and capitalist initiative

by Rob Lyons 

The UK chancellor of the exchequer, George Osborne, presented his annual autumn statement last Wednesday. Most attention was paid to the fact that Britain’s public-spending deficit is forecast to fall in this financial year - just. Osborne’s target for getting rid of the deficit - and thus being in a position to start paying off the accumulated national debt - has been pushed back again. The five-year plan he set out in 2010 to get government finances in order has now become a seven-year plan.

Things could have been even more embarrassing for Osborne. Were it not for the estimated £3.5 billion proceeds from the auction of 4G spectrum - that is, new frequencies being made available for superfast mobile internet connections - the deficit would actually have risen in this financial year. As it was, Osborne could claim, against all expectations, that progress on the deficit was still being made - a fact which seemed to leave his opposite number, Labour’s Ed Balls, stumbling in the House of Commons.

But no one should be under any illusions: Britain’s economic situation is still far from rosy. The economy is forecast to have shrunk slightly over the course of 2012, at a time when economies coming out of recession are usually starting to grow relatively strongly. Future growth forecasts have been downgraded, too. The government is forecast to need to borrow £121 billion in 2012-13.

The Heart of Financialization: Counterfeiting Risk-Free Assets

Greece is merely prelude; the global chain of risk recognition lies just ahead

By Charles Smith

Think about what is totally dependent on the counterfeiting of risk-free assets: 

1. The mortgage market and thus the housing market 

2. The derivatives market and thus the entire hedging-risk mechanism of the global financial market 

3. The sovereign debt market, i.e. government bonds that support deficit spending on a massive scale

Think about what happens in each of those markets when the real risk is recognized.

Consider housing. The housing bubble was predicated on the fabrication/ counterfeiting of risk-free assets and debt based on the phantom collateral of those assets. 

For example: a no-down payment, no-document "liar loan" mortgage is issued to an unqualified buyer for a house with an inflated appraisal--i.e. phantom collateral. The buyer's level of risk is masked, as is the collateral's inflated value. 

Given that the buyer cannot actually afford the house without a heavily gamed mortgage (interest only, etc.), the mortgage is toxic, i.e. doomed to default from its origination. 

The lender takes this high-risk mortgage and bundles it in with higher quality mortgages and then sells them as a AAA-rated, essentially no-risk mortgage-backed security (MBS). 

This risk-free asset is entirely counterfeit.

Bad Choices

The USA is in now in year three of what will prove to be a twenty-year mega-trend of an aging population

by Bruce Krasting

If two people are dying from liver disease, one 25, the other 65, and there’s only one liver available for transplant, the old one dies.

There’s one economic variable that’s highly predictable; demographics. In all of the industrial countries the aging population is now weighing on the economic outcome. Japan was the first country to go down the tubes from this phenomenon. Europe is behind Japan, but rapidly catching up.

The US has a huge headache with an aging population. The number of oldsters is big, and rapidly rising. Add to the size of the aging US population the fact that the promises made to these people are enormous. Other countries, like Canada, Russia and even China are struggling with the problem.

The USA is in now in year three of what will prove to be a twenty-year mega-trend of an aging population. These facts have been known for a long time, I’m amazed that the US has been so slow to come to grips with the implications of what is clearly in our future. Thanks to the Fiscal Cliff debate, the financial implications of the graying of America are now being discussed, and Washington is talking about “solutions”.

So what are the solutions that the deciders are zeroing in on? Simple. The proposals (and what we will get) are extensions of the ages that benefits become available. Both sides have suggested that pushing out the age for Medicare and Social Security benefits for an additional two years is appropriate. The Administration has said it would be willing to do this; John Boehner (and other big Republicans) has flat-out insisted that it happen.

Trade, geography, and the unifying force of Islam

Islam is a prime example of how geography shapes a society’s institutional and societal arrangements

By Stelios Michalopoulos, Alireza Naghavi, Giovanni Prarolo

Islam spread remarkably quickly before the era of European colonialism. This column argues that an important economic factor in determining the geographic range was spatial inequality that necessitated a politically unifying force like Islam. Regions that harbored such economic inequality were especially ripe for a system like Islam that offered progressive re distributive tenets with centralized authority to enforce them.

Both the Arab Spring and the ongoing struggles in Syria are giving a new shape to the Muslim world. The power of the state is shifting from dictators to Islamic parties. Naturally, the international community is following this transition closely. Will centralized  religiously based political forces succeed in bringing together the heterogeneous population of the region? Will it put them on a path towards embracing adequate political and economic reforms?

What’s the impact of Islam on economics and politics?

Existing evidence regarding the impact of Islam on political and economic indicators is controversial. Some studies identify a negative relationship (cf. La Porta et al. 1997, Barro and McLeary 2003), whereas others show a positive or insignificant association (cf. Pryor 2007, Sala-i-Martin et al. 2004). Such correlations are interesting, but our understanding of the Muslim world will remain limited unless we identify the forces that gave rise to the adoption of Islam across as well as within countries. Our recent research provides a first step towards that goal (Michalopoulos, Naghavi and Prarolo 2012).

The role of 'geographic inequality' and trade in the adoption of Islam

Prominent Islamic historians and scholars (e.g. Ibn Khaldun 1377, Lapidus 2002, Berkey 2003, Lewis 1993) whose research focuses on where Islam was adopted emphasize the historical role of trade routes. Whether Islam was adopted can also be explained in part by geography. Building on this work, we provide a systematic exploration of the geographic factors that help explain its adherence within as well as across countries.

So Many Hoaxes; So Little Time

How do you spell massacre?

by Mark J. Grant

Greece - The Hoax

“Some people can read War and Peace and come away thinking it's a simple adventure story. Others can read the ingredients on a chewing gum wrapper and unlock the secrets of the universe.”
                                                             -Lex Luthor

Regardless of the officially manipulated news stories; the truth of the Greek re-financing is not what we are told. Greece only managed to get about $20.7 billion in real buybacks done. They were shooting for around $41 billion and so the program was actually a failure. They have now extended the offering period which has just one goal which is to get the Greek banks to put up the rest of their holdings which will cause a further loss for the Greek banks. This is all politically mandated of course by the Troika and so the deal will get done and perhaps Greece will get its next aid tranche but it is really just Peter robbing Paul. You see, after the deal is completed then the Greek banks will issue more bonds that will be guaranteed by the nation and then pledged at the ECB. 

This will not be announced of course and the Troika/Greeks will “welcome, herald and praise” the success of the program and turn around and utilize the scheme that I have explained and so increase the debt of the country one more time while making a valiant effort to fool anyone who will listen. The financial reality is that a restructuring was only done on $20.7 billion and so the goals of the Troika were not met at all but the long string of hoaxes will continue unabated. 

Medicare is unsustainable in current form

Fiscal cliff negotiations are a good place to start

By Diana Furchtgott-Roth

Entitlement reform is a major sticking point in fiscal cliff negotiations. Republican House Speaker John Boehner has proposed cutting $900 billion in entitlement spending over the next decade, and President Barack Obama’s plan doesn’t include entitlement reform.

My colleague Rex Nutting wrote earlier this week that “rushing into entitlement ‘reform’ would be particularly foolish,” although America needs to keep health care costs down by changing the way doctors and hospitals are paid, just as Obamacare is going to do.

Medicare is clearly unsustainable. Rather than Obamacare, which is criticized for its system of rationing care, and paying doctors on the basis of outcomes, we need to inject more choice into Medicare, turning it into a system of competitive managed care.

Medicare is the toughest nut to crack. Social Security trust fund deficits can be solved by gradually raising the retirement age for future generations, means-testing benefits, and changing the growth path of benefits from an index based on wage growth to one based on price growth.

As for Medicaid, several states, such as Indiana and Rhode Island, have successfully reduced its growth through personal accounts and competition.

But Medicare presents the most daunting challenges. The Office of the Actuary of the Center for Medicare and Medicaid Services has estimated that without the projected Medicare spending cuts under the Affordable Care Act — cuts that may never, if history is any guide, occur — Medicare expenditures as a percent of GDP would grow from 3.7% today to 7.7% in 2050, to 10% in 2080. With the cuts, Medicare spending would be 6.7% of GDP in 2080.

Italy Trumps Greece

Italy may leap frog over both Greece and Spain as the source of angst for investors and policy makers

by Marc To Market 

News that the Greek bond buy scheme did not get sufficient takers to reach the 30 bln euro target set the commentariat ablaze.  This may prove to be a minor technicality as Greek banks initially offered 75% of the Greek bonds but were prepared to pitch them all if necessary to ensure EU aid is forthcoming, which is the source of their recapitalization funds. 

The bigger story is the fall of the Monti technocrat government in Italy.  Berlusconi's PDL party pulled support by abstaining economic reform votes at the end of last week.   After a series of consultations with the Italian president, it appears that parliament will not be dissolved until two important pieces of legislation are approved, the 2013 budget and financial stability measures.  The former is needed for obvious domestic reasons.  The latter is needed to maintain credibility in  EMU; assuring its partners. 

As the situation was unfolding on December 7, Italian bonds fared well, with the 10-year benchmark yield dropping 5 bp.  In comparison, 10-year Spanish yields fell 2 bp.  On the week, the Italian yield rose 3 bp, while Spain rose 14.  Italy's 10-year generic yield is about 93 bp below Spain's.  This is at the wider end of the  in recent months.  Recall that end of 2011, Italy was paying a 200 bp premium. 

With parliament likely to have been dissolved in any event by the middle of next month to prepare for spring parliamentary elections (must be held within 70 days of the dissolution of parliament), it is not exactly clear why Berlusconi chose now to pull the plug.  As in many things of this nature, the decision may have been over-determined. 

Supreme Court showdown expected over gay rights decisions

Intimate and personal choices are the right of individuals and not left up to the government

Justice Anthony M. Kennedy is a libertarian conservative who believes the Constitution protects the freedom of individuals to “make personal decisions relating to marriage, procreation, contraception, family relationships, child rearing and education.”

Conservative giants Anthony Kennedy and Antonin Scalia are likely to be on opposing sides when the justices rule on marriage and federal benefits

By David G. Savage

For more than two decades, the defining battles within the Supreme Court over social and moral controversies have been fought between two devout Catholics appointed by President Reagan.

Justice Antonin Scalia believes the law can and should enforce moral standards, including criminal bans on abortion and on "homosexual conduct" that many "believe to be immoral and destructive."

Justice Anthony M. Kennedy is a libertarian conservative who believes the Constitution protects the freedom of individuals to "make personal decisions relating to marriage, procreation, contraception, family relationships, child rearing and education."

Now the ideological fight between the conservative giants is set for another round. The two 76-year-olds are to some extent likely to be on opposite sides when the court meets in the spring to decide whether the government can refuse marriage and federal benefits to gays and lesbians.

The two have much in common. Born in 1936, they graduated from high school in the early 1950s and excelled at Harvard Law School, where they were a year apart. They were Republicans who rose through the legal ranks. When appointed to the court, both bought homes in McLean, Va.

This Is Just the Beginning

A Bloody Night With Egypt's Protesters

Amid bullets and flames, opposition activists clash with regime supporters over President Morsi's attempted expansion of executive authority

By Evan Hill

The blast echoed from somewhere near the front lines. A fragment -- probably a shotgun pellet -- ricocheted into Muhammad Abdel Aziz's face. He flinched and touched his cheek -- no wound, this time. Earlier, three or four had gashed his chin and swelled one side of his jaw, spattering his striped shirt with blood.

Shouts, explosions and gunfire echoed from all around the glass-carpeted streets. In an alley, Abdel Aziz found shelter from the chaos that had engulfed the neighborhood surrounding Egypt's presidential palace. He had come to protest against President Mohamed Morsi and was treated in a field clinic -- a café on normal days -- after being shot.

Drums of the president's opponent signaled their approach, and the two sides whipped rocks back and forth over a thin rank of riot police. Now behind the pro-Morsi lines and wary not to betray his feelings to the Islamist partisans thronging the road, Abdel Aziz, a tall, rotund, and gray-haired securities trader, confided quietly that he thought the Muslim Brotherhood was dragging Egypt down Iran's path to theocracy. "This is just the beginning," he said.

It was Wednesday night, just four days after Egypt's constituent assembly had rushed a draft constitution to completion in the face of nearly two-dozen walkouts. Protesters had been filling Tahrir Square for nearly two weeks since Morsi had declared himself and the assembly temporarily immune from judicial oversight . But the new constitution, written primarily by Morsi's Muslim Brotherhood and hardline Salafi allies, had swelled the protest's ranks on Tuesday to over 100,000 in Tahrir and, for the first time, outside the presidential palace.