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Debt, Conflict and the European Dilemma

Posted by Steve Markowitz on January 28, 2015

Europe has is encountering another canary the mine. The Greeks have voted in a radical Leftist party called Syriza. They won as an opposition to the so-called austerity measures placed on Greece since the 2008 economic meltdown that resulted in it not being able to pay its debt.

The 2008 economic calamity was initially caused by a meltdown in the US mortgage markets. Thhis crisis was not by happenstance or caused by normal market forces. It was inflicted on financial markets worldwide as a result of broad-reaching governmental interventions in the economy. This included bailouts of equity markets and industries when the markets attempted to rebalance supply and demand through normal recessionary action. In addition, central banks, particularly the US Federal Reserve, intervened with artificially low interest rates, again in efforts to forestall the normal corrective market actions through recessions.

As a result of the intervention, not only has the recovery been the weakest since the Great Depression, but at the same time the financial imbalances have not been corrected. Instead, they (the debt) have been moved from the private sector to sovereign debt. The most recent economic manifestations that have now become systemic include the significant turmoil in currency markets. However, a potentially more serious issue has surfaced on the geopolitical front, especially in Europe, where the euro and European Union itself is in jeopardy.

George Friedman of Stratfor.com has published an article titled The New Drivers of Europe’s Geopolitics that offers insight into the current building crisis within Europe that is posted in full below. Friedman’s concludes that “I am focusing on fragmentation partly because it is happening before our eyes” referring to the fragmentation of the European Union. In addition, “The coalition of the Radical Left party, known as Syriza, has scored a major victory in Greece.  ….  It is drawing along other left-wing and right-wing parties that are united only in their resistance to the EU’s insistence that austerity is the solution to the ongoing economic crisis that began in 2008.”

Friedman discusses two views within Europe as why the financial crisis of 2008 continues in the EU.

  1. The German version, and the one that became the conventional view in Europe, is that the sovereign debt crisis is the result of irresponsible social policies in Greece, the country with the greatest debt problem. These troublesome policies included early retirement for government workers, excessive unemployment benefits and so on. Politicians had bought votes by squandering resources on social programs the country couldn’t afford, did not rigorously collect taxes and failed to promote hard work and industriousnes
  1. The other version that is beginning to gain traction, especially in the poorer European countries is: “The loans German banks made to countries such as Greece after 2009 were designed to maintain demand for its exports. The Germans knew the debts could not be repaid, but they wanted to kick the can down the road and avoid dealing with the fact that their export addiction could not be maintained.”

Friedman points out that problems caused by government-imposed austerity in countries like Greece have been amplified by governmental intrusion into their economies. For example, many workers in fields such as medicine and other services are state-controlled with these workers being employed by governments. Therefore the austerity programs have more significantly affected the middle class then would have been the case had the private sector controlled a larger part of the economy.

Greece cannot repay its debt. This is not only because they barrowed too much capability under normal conditions, but also because with unemployment rates exceeding 20% in many industries, their economy generates little revenue to maintain critical social services, let alone repay debt.

What started as an economic problem caused by excessive debt is now morphing into social issues that are rocking European stability. This is a major theme Friedman’s article as he concludes:

  • “Europe’s mainstream political parties supported the European Union and its policies, and they were elected and re-elected. There was a general feeling that economic dysfunction would pass. But it is 2015 now, the situation has not gotten better and there are growing movements in many countries that are opposed to continuing with austerity. The sense that Europe is shifting was visible in the European Central Bank’s decision last week to ease austerity by increasing liquidity in the system. In my view, this is too little too late; although quantitative easing might work for a recession, Southern Europe is in a depression.”
  • “Virtually every European country has developed growing movements that oppose the European Union and its policies. Most of these are on the right of the political spectrum. …. The left has the same grievances as the right, save for the racial overtones. But what is important is this: Greece has been seen as the outlier, but it is in fact the leading edge of the European crisis. It was the first to face default, the first to impose austerity, the first to experience the brutal weight that resulted and now it is the first to elect a government that pledges to end austerity.” 
  • The issue then is not the euro. Instead, the first real issue is the effect of structured or unstructured defaults on the European banking system and how the European Central Bank, committed to not making Germany liable for the debts of other countries, will handle that. The second, and more important, issue is now the future of the free-trade zo 
  • “There are then three drivers in Europe now. One is the desire to control borders — nominally to control Islamist terrorists but truthfully to limit the movement of all labor, Muslims included. Second, there is the empowerment of the nation-states in Europe by the European Central Bank, which is making its quantitative easing program run through national banks, which may only buy their own nation’s debt. Third, there is the political base, which is dissolving under Europe’s feet.”

Friedman is concerned about the specter of war once again raising its ugly head in Europe. Most find this a very improbable. However, the history of Europe has been one where peace has not been the norm. Further, during the Clinton administration there was a war in Yugoslavia and today it is occurring in the Ukraine. Add to this history the toxic mix of economic hardship and what is considered unlikely increases in probability.

Today’s instability of Europe, both economic and geopolitical, has its roots in Progressive activism that created unstable borders and economic rules within the continent. This is similar to what the Europeans created in the Middle East after World War I. The resulting mess in the Middle East has led to decades of violence that continues today. Unraveling the mess the Europeans created within its own borders will be just as complex.

The New Drivers of Europe’s Geopolitics is republished with permission of Stratfor.

The New Drivers of Europe’s Geopolitics, By George Friedman

For the past two weeks, I have focused on the growing fragmentation of Europe. Two weeks ago, the murders in Paris prompted me to write about the fault line between Europe and the Islamic world. Last week, I wrote about the nationalism that is rising in individual European countries after the European Central Bank was forced to allow national banks to participate in quantitative easing so European nations wouldn’t be forced to bear the debt of other nations. I am focusing on fragmentation partly because it is happening before our eyes, partly because Stratfor has been forecasting this for a long time and partly because my new book on the fragmentation of Europe — Flashpoints: The Emerging Crisis in Europe — is being released today. Read the rest of this entry »

Posted in economics, European Union, Greece | Tagged: , , , , , , , , | 1 Comment »

Federal Justice Department Exonerates Officer Darren Wilson

Posted by Steve Markowitz on January 25, 2015

Following the Michael Brown shooting by a white police officer in Ferguson, Missouri in August 2014, Officer Darren Wilson was judged guilty by many, even before facts were known. This narrative was created by many in the mainstream media and Civil Rights leaders. Tensions came to a head when a Grand Jury refused to bring charges against Wilson. That led to riots only in Ferguson, as well as protest, sometimes violent, in other cities.

Irrespective of the Grand Jury’s findings on the Brown shooting, the Obama Administration through Atty. Gen. Eric Holder had the Justice Department do an extensive investigation to determine if Wilson’s actions involved federal Civil Rights violations for victim Brown. Last week the New York Times reported that the Justice Department and FBI found no violations and that there will be no indictments against Darren Wilson

The Times reported that the Justice Department’s investigation was intense, including interviewing 200 people, analyzing cell phone audio and video data, Wilson’s gun, as well as other physical evidence analyzed at an FBI laboratory. In addition the Times reported: “The federal investigation did not uncover any facts that differed significantly from the evidence made public by the authorities in Missouri late last year, the law enforcement officials said.”

It would be reasonable to now expect comments from Atty. Gen. Eric Holder and others relating to their inappropriate jumping to conclusions on the Ferguson shooting. It would also be reasonable to expect apologies to Darren Wilson who was vilified to the point that he is no longer employable. However, the perpetrators of the false narrative have no shame. In fact, the Justice Department continues pursuing that narrative by indicating it will continue investigating the Ferguson Police Department, an obvious attempt to cover up the Fed’s inappropriate behavior in this matter.

The emotional and often violent reaction to the Grand Jury decision concerning Daren Wilson, and to some extent against police in general, was outrageous, but sadly expected. Many on the Left benefit politically and sometimes financially by stoking racial tensions.

The rule of law is a requirement for any successful democracy. More specifically, without it the weakest in society are most at risk. Those in the media, politicians, and community leaders who used the Michael Brown shooting to inflame racial tensions created a lynch mob mentality that not only setback race relations in the US, but also resulted in significant damage to property, mainly in minority communities.

After news that the Justice Department would not file charges against Darren Wilson, Milwaukee Sheriff David Clarke courageously came out with a blistering attack of some responsible for creating and spreading the false narrative concerning the Ferguson shooting, as seen in the video clip below. His strong comments include:

“I don’t expect anything intelligent to come out of the mouth of Al Sharpton. We know he is a charlatan. Al Sharpton ought to go back into the gutter he came from. The police officer is owed a lot from him, Eric Holder and the President of the United States.”

Immediately following the Michael Brown shooting, and later the Grand Jury findings, the mainstream media gave nightly coverage to the false narrative that the Brown shooting was racially motivated and that he was an innocent victim. The lame coverage of the Justice Department’s confirmation of Darren Wilson’s innocence demonstrates a motivation dangerous to democracy.

Posted in Racism | Tagged: , , , , , , , , | 1 Comment »

Liberal MSNBC Commentators Criticize Obama’s State of the Union Address

Posted by Steve Markowitz on January 23, 2015

MSNBC has been a stalwart liberal proponent and outward supporter of Barack Obama and his policies for most of his first six years in office. However, even this Left-leaning network has become increasingly critical of Obama.

Shortly after the President’s State of the Union address, MSNBC’s Chris Matthews and Andrea Mitchell were highly critical of the President’s bravado concerning foreign policy in the exchange included in video posted below:

Chris Matthews: “… even in a solipsistic way. Because I kept thinking tonight, there’s a real world out there that he didn’t really talk about. And perhaps the over-ambitious notions where we stood in the war against ISIL, the Islamic State – he doesn’t want to call It the Islamic State, but that’s what they call themselves – uh, there’s two Japanese people, no guilt on their shoulders, just staring out of the desert, who are going to be, apparently, decapitated… Uh, that reality, what is going on in Nigeria is reality. How close was the President to reality, overall, globally, tonight?”

Andrea Mitchell: “I think that on foreign policy, his projection of success against terrorism and against ISIS in particular, as I said, is not close to reality. It’s just that… they have not come up with a strategy. And they built a global coalition… but again, he talked about Ukraine, he talked about Putin being isolated… yes, Putin is isolated economically, and the falling oil prices have hammered his economy, but at the same time there is renewed fighting in Donetsk, and we haven’t figured out Ukraine, we haven’t figured out how the NATO alliance can push back. The sanctions have not really worked, and Ukraine is going to need more weaponry. They have not reached that point. So, you’re right, Chris. It doesn’t match the reality.”

Perhaps putting an explanation mark on Matthews’ and Mitchell’s criticism of Obama, yesterday the Middle East country of Yemen fell to a radical Shiite-backed militias. It was not long ago that Obama had the extreme naïveté to call Yemen a success story in his administration’s counter attack to Islamic terrorism

It is clear that Western and America’s interests throughout the world are under attack in the most significant ways since World War II. It is not by coincidence that this is occurring six years after the continuation Obama’s feckless foreign policy. The President has shown an inability to understand, let alone manage, foreign affairs in a way that serves America’s interests. It is unreasonable to expect improvement during Obama’s last two years in office. We can only hope that the problems are relatively contained until the next president takes the office. While hope is not a plan, it is unfortunately the only option available given the President’s unwillingness to admit failure and change course.

Posted in Foreign Policy, President Obama | Tagged: , , , , , , , | Leave a Comment »

Governmental Spending Damages Economic Recovery

Posted by Steve Markowitz on January 20, 2015

Tonight President Barack Obama will make his State-of-the-Union address to Congress and the American people.  Leaked material indicates it will be pure Obama, on the one hand touting the success of his economic programs of the first last six years, but then claiming the need for additional governmental programs and interventions to fix other “inequities.  This includes two years of free community college to any who desire it, as well as taxing some for the benefit of others.  The macro result will be increased government spending.

melting dollarThere two drivers of governmental programs/spending promoted by Obama other big-government politicians.  The first and most egregious is political.  Politicians learned early in the development of their art that giving rewards (programs, tax refunds, handouts, etc.) greases the way towards their reelections, irrespective of long-term consequences.

The second aspect is a belief in Keynesian economic principles that state when economies are slower the government should use deficit spending to offset the lower demand.  While there are questions as to the efficacy of this basic Keynesian principal, one important part of Keynesian economics is that during good times governments need to run budget surpluses to prepare for economic downturns that require deficit spending.  Progressive politicians either have forgotten or purposely ignore this important piece of Keynesian theory.

There is growing evidence that governmental stimulus programs are counterproductive to real economic growth.
For example, the United States has had special government spending since the 2008 economic meltdown.  Given the size of these expenditures it would be reasonable to expect robust economic growth if Keynesian economic theory worked.  Instead, the recovery has been the slowest since the Great Depression.  In addition, while the official unemployment numbers are down, numbers that are already doctored in favor of a positive outcome, wage growth has been stagnant for a decade.

Ruchir Sharma, head of emerging markets at Morgan Stanley, posted an op-ed in the Wall Street Journal titled How Spending Sapped the Global Recovery that offers further evidence that worldwide government stimulus programs have hindered economic recovery.  Sharma points out that political leaders are urging European countries, i.e. developed countries, to significantly ramp up stimulus and deficit spending programs.  However, this focus on additional stimulus spending ignores evidence that similar programs have already failed in emerging countries.  Sharma points out the following examples: Read the rest of this entry »

Posted in economics, Government Ineptness | Tagged: , , , , | Leave a Comment »

Islam Conflict with the West

Posted by Steve Markowitz on January 18, 2015

Terrorism perpetrated by adherents of radical and fundamentalist-based Islamic teachings has been accelerating in recent decades. Last week it took on a new level of significance given the mass murders perpetrated by Islamic terrorists in Paris, France. However, the West’s “new” concern with these terrorist acts shows an inability to understand the nature behind the ongoing conflict between East and West.

George Friedman of Stratfor.com has published an article (reproduced in full below) titled “A War Between Two Worlds” that puts historical and geopolitical context to the conflict has been ongoing for 1500 years. The Islamic terrorism is a continuation of that long conflict and not a new phenomenon as often portrayed by politicians and the media. As Friedman states

  • Islam invaded Europe twice from the Mediterranean — first in Iberia, the second time in southeastern Europe, as well as nibbling at Sicily and elsewhere. Christianity invaded Islam multiple times, the first time in the Crusades and in the battle to expel the Muslims from Iberia. Then it forced the Turks back from central Europe. The Christians finally crossed the Mediterranean in the 19th century, taking control of large parts of North Africa. Each of these two religions wanted to dominate the other.
  • The current crisis has its origins in the collapse of European hegemony over North Africa after World War II and the Europeans’ need for cheap labor. As a result of the way in which they ended their imperial relations, they were bound to allow the migration of Muslims into Europe, and the permeable borders of the European Union enabled them to settle where they chose. The Muslims, for their part, did not come to join in a cultural transformation. They came for work, and money, and for the simplest reasons.
  • Christianity had lost its hegemonic control over European culture over the previous centuries and had been joined, if not replaced, by a new doctrine of secularism. Secularism drew a radical distinction between public and private life, in which religion, in any traditional sense, was relegated to the private sphere with no hold over public life. ….. There are those whose beliefs are so different from others’ beliefs that finding common ground in the public space is impossible. ….. This is the universal problem of secularism, which eschews stereotyping. It leaves unclear who is to be held responsible for what. By devolving all responsibility on the individual, secularism tends to absolve nations and religions from responsibility.
  • If no one but the gunmen and their immediate supporters are responsible for the action, and all others who share their faith are guiltless, you have made a defensible moral judgment. But as a practical matter, you have paralyzed your ability to defend yourselves. ……   Not all Muslims — not even most Muslims — are responsible for this. But all who committed these act s were Muslims claiming to speak for Muslims.
  • These killings have nothing to do with poverty, of course. Newly arrived immigrants are always poor. That’s why they immigrate. ……. But the dirty secret of multiculturalism was that its consequence was to perpetuate Muslim isolation. And it was not the intention of Muslims to become Europeans, even if they could. They came to make money, not become French.
  • I don’t know what needs to be done, but I suspect I know what is coming. First, if it is true that Islam is merely responding to crimes against it, those crimes are not new and certainly didn’t originate in the creation of Israel, the invasion of Iraqor recent events. This has been going on far longer than that.
  • But the idea of shared principles other than their own is offensive to the religious everywhere, and at this moment in history, this aversion is most commonly present among Muslims. This is a truth that must be face.
  • The Mediterranean borderland was a place of conflict well before Christianity and Islam existed. It will remain a place of conflict even if both lose their vigorous love of their own beliefs. It is an illusion to believe that conflicts rooted in geography can be abolished.   ….. What has to be done will be done, and those who refused to make choices will see themselves as more moral than those who did. There is a war, and like all wars, this one is very different from the last in the way it is prosecuted. But it is war nonetheless, and denying that is denying the obvious

Friedman’s historic historical and context is important if the West is to realistically the challenge it faces. This is opposite to the approach taken by Progressive Western governments in the past hundred years, including the United States. While this approach may have put a lid on the pot, we are once again a point in history where the East and West conflict is boiling over.

How many times have politicians like George W. Bush, Barack Obama and other leaders in Western Europe rhetorically state that Islam is a religion of peace? Whether true or not it ignores the reality of the conflict occurring the Middle East, North Africa, Western Europe, parts of Asia, and to a smaller extent North America. There is inherent conflict between secularism that dominates the West and Orthodox Islamic teachings.

The complexity of the conflict between Orthodox Islam and Western values does not give the West the luxury of falsely defining the problem. There is no better example of this naivety then the conclusion so often offered by Progressive diplomats that if the Israelis and Palestinians resolve their differences that this will somehow lead to coexistence between the West and greater Islamic world.

Finally, it is important to review a warning offered by Friedman: “The murders of cartoonists who made fun of Islam and of Jews shopping for their Sabbath meals by Islamists in Paris last week have galvanized the world. A galvanized world is always dangerous. Galvanized people can do careless things.”

A War Between Two Worlds is republished with permission of Stratfor.”

A War Between Two Worlds

JANUARY 13, 2015, Stratfor

By George Friedman

The murders of cartoonists who made fun of Islam and of Jews shopping for their Sabbath meals by Islamists in Paris last week have galvanized the world. A galvanized world is always dangerous. Galvanized people can do careless things. It is in the extreme and emotion-laden moments that distance and coolness are most required. I am tempted to howl in rage. It is not my place to do so. My job is to try to dissect the event, place it in context and try to understand what has happened and why. From that, after the rage cools, plans for action can be made. Rage has its place, but actions must be taken with discipline and thought. Read the rest of this entry »

Posted in Radical Islam | Tagged: , , , , | 1 Comment »

United States Missing from Paris March

Posted by Steve Markowitz on January 13, 2015

Last week’s massacre by Islamic terrorists in Paris, France at the publication Charlie Hebdo has opened deep wounds in much of the Western world and beyond.  While Islamic terrorism has been a growing threat over the past two decades, this brazen attack that killed 17 also attacked the pillar of modern Western society; free speech.

In response to the Charlie Hebdo tragedy, 40 leaders from throughout the world gathered with over 1 million marchers in Paris to show solidarity with Charlie Hebdo and the victims.  This not only included leaders from throughout Europe such as Germany and England, but also from such divergent countries as the Ukraine, Malley, Jordan, Israel (Benjamin) and the Palestinian Authority (Mahmoud Abbas).

Whether the rather remarkable response to this terrorist act turns into tangible change in the world’s attitude towards Muslim extremists, especially within Muslim countries and communities, is yet to be seen.  However, noticeably absent from the March in Paris was President Obama or other high ranking American official.  While the President has gone golfing and fundraising immediately following other tragedies, he had no time to show solidarity with the French.  At the very least our Country should have sent the Vice President or a former president as a stand-in.

The White House has since admitted it erred in its response to the Paris tragedy.  While that admission is refreshing from an administration that rarely takes responsibility for its mistakes, the error remains inexcusable.  The Daily News cover page posted below says it all.

The void left by the Obama Administration’s leading from behind is not a vacuum, but instead is being filled by those who would damage not only America and its interest, but greater Western culture as well.


Posted in President Obama, Radical Islam | Tagged: , , , , , , , | 2 Comments »

Millionaire Elizabeth Warren

Posted by Steve Markowitz on January 12, 2015

elizabeth warrenElizabeth Warren, Democratic Senator from Massachusetts, seems to have self-esteem related issues.  During her successful run for the Senate in 2012, it became public that Warren claimed to be a descendent of native-born Americans.  After the Boston Herald’s was unable to find any such genealogical connection, Warren came up with a novel excuse:  “Growing up, my mother and grandparents often talked about our family’s Native American heritage.  As a kid, I never thought to ask them for documentation — what kid would?”  In addition, Warren defensively proclaimed that “I never sought nor gained personal benefit in school or job applications based on my heritage.”  Unfortunately, American politics does not demand honesty.

Warren claims to be a protector of less well-to-do Americans.  In a CNN op-ed last year, Warren said: “Big banks, powerful corporations and billionaires – people who can afford to hire armies of lobbyists and lawyers – have amassed more and more wealth, and meanwhile, the foundations of our once strong middle class have begun to crumble, and families have been caught in a terrible squeeze.

While the middle class in the US has been squeezed, Warren sure has not.  According to CNNMoney, Warren is part of the top 1% that she so often attacks with an average net worth of just under $9 million, not including her home valued at approximately $2 million.  The total income for Warren and her husband has been just under $1 million annually in recent years.

It is remarkable how elitist Progressives claim to be champions of the middle class while accumulating so much wealth for themselves.  These two realities are not disconnected.

Posted in Politics | Tagged: , , , , | Leave a Comment »

Howard Dean says Paris Killers “Not Muslim Terrorist”

Posted by Steve Markowitz on January 9, 2015

This week three followers of Islam attacked the satirical publication Charlie Hebdo in Paris, France murdering 12.  The attack was in retaliation for Charlie Hebdo publishing caricatures of the Muslim Prophet Mohammed.  The attack was an act of Islamic terrorism.  This did not stop Howard Dean, well-known Democratic politician and one-time presidential candidate, from incredibly claiming:

“I stopped calling these people Muslim terrorists.  They’re about as Muslim as I am.  I mean, they have no respect for anybody else’s life, that’s not what the Koran says.  Europe has an enormous radical problem. I think ISIS is a cult.  Not an Islamic cult. I think it’s a cult.”

Dean’s comments are so ludicrous that they are not worthy of rational debate.  On the other hand if they were but the comments of one loony Leftist they could be ignored.  However, they join similar comments that the Left uses in the name of political correctness to avoid the reality that there are many extremists willing to kill in the name of Islam.  Perhaps the most infamous was President Obama calling the Fort Hood massacre by Nadal Malik Hasan as merely “workplace violence”.  You can make this stuff up!

Let us compare Dean’s outrageous comments with more rational responses.  Retired Air Force Lt. Gen. Thomas McInerney more appropriately said:

Well, this is a classical radical Islamic attack, Steve [Fox News interviewer], and political correctness is killing us. …  Until we hold the Arab world and the Muslim world accountable for letting this radical Islamic ideology, which I have said before is as evil as Nazism, Fascism, and Communism, it is not a religion until we hold these people accountable.

There is a ray of light emanating from evils of radical Islam.  It is opening the eyes of a diverse group of Americans both on the Right and the Left creating a bipartisan response to the challenges.  About Leftist Bill Maher closely matched General McInerney when he Tweeted:

Bill Maher







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Fed’s Low Interests Depressing Employment

Posted by Steve Markowitz on January 8, 2015

One perk of being a politician or government bureaucrat is the lack of accountability.  Sure politicians can be voted out of office, but in many cases this is a small penalty since they have already obtained power and wealth potential.

One example of low accountability is the results of the Stimulus Package promoted by Barack Obama in 2008 and his allies who controlled the Democratic Congress.  The President promised that the $800 billion spending binge would keep the total unemployment below 8%.  Not only did unemployment significantly that level after the spending, but the jobs growth has been tepid, the slowest recovery since the Great Depression.

The Obama Stimulus Package failed to stimulate job growth, the purpose for the spending.  What is less understood is that this boondoggle played a role in stagnant wages since.

The New Austrian School of Economics published an article titled “Artificially Lowered Interest Rates Cause Stagnating Wages and Unemployment” that offers the compelling argument that low interest rates promoted the Federal Reserve, a Keynesian partner to the Stimulus spending, has significantly depressed jobs and wage growth.  It references the work of Professor Antal E. Fekete who concluded that drastically lowered interest rates have not expanded credit that was supposed to stimulate activity.  Instead, these policies pitted the cost of capital goods against those of labor to the benefit of capital and detriment of the latter.

The artificially low interest rates significantly decreased the cost of borrowing used by companies to purchase of capital goods.  For manufacturers this often means advanced production equipment.  At the same time the cost of labor does not decreased, or at least not quickly.  This increases incentive for employers to replace relatively expensive labor with capital equipment that is now less expensive due to cheap credit.  This leads to:

  1. Increased layoffs for marginal employees.
  2. Newer companies do not have access to debt and therefor are at a competitive disadvantage compared to establish firms that now have access to low-cost debt.
  3. Large companies use debt to fund high tech manufacturing of technology products, a mainstay in today’s consumer market. They then need fewer employees.
  4. As the new capital equipment funded by low-cost debt is installed and utilized, this further increases the cost discrepancy to the benefit of capital goods. This then puts downward pressure on wages.
  5. In addition, the middle class nearing retirement find their accumulated funds not large to create the required income for retirement due to lower interest paid on safer investments. They then delay retirement, further depressing wages, especially for younger workers. This then leads to falling consumption, further depressing economic activity and future wage growth potential.

It is likely that Pres. Obama and the Federal Reserve did not mislead the public when they the promised benefits from the Stimulus Package and low interest rate policies.  However, there are always consequences to governmental and central bank interventions, which history teaches.  Often policymakers that focus on only a few variables and the short term do not foresee the consequences of interventions.  However, that does not relieve them of responsibility for the long-term damage to the economy caused by the ill-conceived policies.

When Pres. Obama officially leaves Washington in two years he and his family will enjoy the wealth and benefits of being an ex-president.  He will leave with a huge pension and wealth creation capabilities.  Similarly, those in the Federal Reserve who have been responsible for their misguided policies will have a positive economic experience after leaving the Fed and returning to the private sector.  The lack of accountability and responsibility for failed programs are perhaps the primary reasons why governmental policies fail to accomplish the promised goals.  This reality is a major driver of the long-term failure of many (most) governmental programs.

Posted in economics | Tagged: , , , , , , , , | Leave a Comment »

US GDP Grew 5% for Q3

Posted by Steve Markowitz on January 4, 2015

The Bureau of Economic Analysis released third quarter GDP figures late last month indicating that the US economy grew at a torrid pace of 5% (annualized). This is a remarkable growth rate that would indicate the strongest GDP growth in a decade.

It is often difficult to properly interpret economic figures published by the government since not only are they complex and based on many variables, but also due to political pressures often exerted on governmental agencies to gin figures.

This Blog is concerned about the reliability of the current figures given the inaction of the Federal Reserve. Specifically, if the GDP actually grew at a 5% annualized rate during the third quarter, it is reasonable to have expected the Fed should to have started raising interest rates in order to forestall an overheating of the economy. The fact the Fed continues to leave rates at historically low amounts indicates that it is either not doing its job properly or it does not believe the GDP growth figures to be reliable.

Tony Sagami wrote an article titled Connecting the Dots for mauldineconomics.com that raises specific concerns relating to Q3’s published GDP growth figures that includes:

  • The largest contributor to the GDP growth was in Net Exports that occurred because of downturn in imports, a counter indicator to growth.
  • Nearly 20% of the Q3 GDP growth came from government spending, mainly on defense. This is not long-term growth indicator.
  • Nearly 50% of Q3’s GDP growth came from an area called Personal Consumption Expenditures. This area was aided by increased household spending on medical care; i.e. Obamacare. Wasn’t Obamacare supposed to be revenue neutral or an aggregate cost cutter?
  • Sagami points out that total Goods spending only increased by 27 basis points with durable goods actually declining.

Sagami’s offers a plausible explanation as why the Federal Reserve is not moving quickly to increase interest rates. It also adds color to the lack of transparency of governmental issued economic data.

Posted in economy | Tagged: , , | 2 Comments »


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