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Archive for the ‘economics’ Category

Failing Progressive Policies

Posted by Steve Markowitz on March 30, 2017

One of my Progressive friends and I recently discussed the pros and cons of Liberal socio-economic policies. During that discussion my friend questioned my empathy for the less fortunate stating: “”There are a lot of arguments as to why we are short and where the jobs are but the fact remains we have people who cannot survive. I simply don’t understand how making people’s lives miserable somehow makes my life better. Their plan (conservatives) is akin to just yelling ‘Get a Job.’”

It is disappointing that liberals believe, or at least profess to believe, that those with different policy opinions are somehow less empathetic than they are. Inherent in their view is the belief that government and governmental programs improve the lives of the less fortunate. This decades old view had the potential for being correct during the 1960s when the great experiments were initiated. But history has since made its judgment and it concludes the programs have been a failure.

Posted is a graph of the US poverty rate since 1960, but prior to Obama and Trump. Going back a few years helps remove the current partisan political rancor. These numbers and the trajectory of this graph indicate that the poor have fared worse under Progressive policies initiated in the 1960s through the Great Society programs. Many these programs continue to this today.

While this graph does not answer the question of cause and effect, it at least raises a red light. At best, these unacceptable results emanated from bad socio-economic policy. The alternative is that things have turned out just as the political-elites designed. Conclusion; those who promoted the feel-good economic policies of the past five decades, both Democrats and Republicans, own the results. Continuing these Progressive policies will offer the same trends, which will also give the political class the ability to grab more power through offering economic solutions for problems their policies created.

It is time for society use object results instead of feel good talking points to determine public policies. However, this logical approach would usurp power from the ruling political class, which they will not give up easily.

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Brexit Consequences to Come

Posted by Steve Markowitz on July 2, 2016

The political elites and many in the economic community warned of dire consequences should Britain vote to leave the European Union.  Immediately following the announcement of the vote equity markets worldwide drop significantly.  However, one week later they have rebounded and are about back to where they started.

The action of the equities markets suggest either the predicted dire consequences were severely exaggerated, or as an alternative, equity markets with the assistance of continuous central banker interventions no longer believe that stock valuations can go down.  Neither is very comforting.

How the UK’s exit from the EU will affect the world economy remains to be seen.  The Daily Reckoning suggests that political elite Progressives will take a play out of Obama associate Rahm Emanuel strategy book, who infamously said: “You never want a serious crisis to go to waste.”  Using this strategy, they will use the Brexit vote as an excuse for more central bank spending and interventions into the economy.  Why not, that strategy has failed for the last eight years so let’s double up on it.

The Daily Reckoning reports that since 2009 central banks have printed over $12 trillion.  In addition, they have made 654 interest cuts worldwide.  This has succeeded in creating equity bottles that have made the wealthy wealthier.

The Daily Reckoning expects more Quantitative Easing, QE 4, and an even more radical policy called “helicopter money” where the Fed basically froze money to the masses.  These radical steps are not taken out of stupidity.  Instead, they are an acknowledgment by central banks that we are reaching the end game.  Without continuous and more aggressive interventions, the rebalancing of the economy will begin and it will be painful.  Irrespective of the central banks’ actions, that rebalancing will occur.  It is only a matter of time.

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

Understanding the Trump/Sanders Phenomena

Posted by Steve Markowitz on May 22, 2016

Let us travel back in time only 12 months.  America was starting to focus on the next potential President.  There was seeming certainty over the choices.  For Republicans, Jeb Bush was anointed the chosen one with a campaign war-chest that was unrivaled.  Similarly for Democrats, Hillary Clinton was to be anointed, being the next person up.  What was certain twelve months ago has since evaporated, ushering in a paradigm shift in American politics.

There is much in common between Donald Trump and Hillary Clinton and their supporters.  Historically, Donald Trump’s politics have had more in common with Democrat platforms.  Until recently Trump not only donated to Democratic candidates, but also hobnobbed with many of its elites including the Clintons.  Like Trump, Hillary has led a protected life, enjoying the benefits of the top 1% and with access to and being a powerbroker in Washington.

It is ironic that given the many similarities between Hillary and Donald, that Hillary is considered an insider and Donald the insurgent.  Both in fact are consummate insiders.

Trumps ascendancy to being the presumptive Republican nominee is remarkable.  He defeated 16 Republicans in the primaries, some who had been quite formable candidates.  Trump has since broken the spirit of the Republican establishment, who were powerless against his insurgent appeal.

Bernie Sanders, who has near zero chance of becoming the Democratic Party’s nominee, has encountered remarkable success against the Party’s anointed one, Hillary Clinton.  Hillary has the backing of nearly every Party leader, has had a significant funding advantage, yet has had difficulty competing against the 73 year old socialist.  With a bit of luck and a more sophisticated campaign early on, Sanders could have won the Party’s nomination.

Ignoring policies proposed by Sanders and Trump, there are similarities behind their successes.  Both are seen as outsiders to voters who are disenchanted in the direction the Country has taken, even though their support comes from opposite ends of the political spectrum.  Understanding the reasons behind this disenchantment by is more important than who wins in November.

Economist John Mauldin recently published a piece titled “trump” that goes a long way towards explaining American’s radically switched politics.  While Mauldin shows compassion and understanding of the plight many less fortunate Americans, his economic background helps explain the difficulty in problem resolution.  Mauldin’s comments/conclusions include:

  • He castigates both political parties for giving us the choice of, as Peggy Noonan states, “Crazy Man vs. Criminal ”, concluding that: “People have real problems, and increasingly they don’t trust traditional leaders to solve them.”
  • Sanders is supported by left-leaning Americans who are “living on the edge, vulnerable and unprotected”.  Trump is being supported by another portion of Americans who believe they are being marginalized.
  • Mauldin divides Americans into the “protected” and “unprotected”.  He makes the important conclusion that the protected make public policy, but it is the unprotected who must live with the results.  The protected that create public policy are not subject to the penalties of these policies with Mauldin including “Because they are protected they feel they can do pretty much anything, impose any reality. They’re insulated from many of the effects of their own decisions.”  The unprotected are now saying enough is enough.
  • The protected Mauldin refers to are both Republicans and Democrats.  So too are the unprotected.  Party affiliation has become meaningless in this discussion.
  • A Federal Reserve survey found that nearly 50% of Americans could not cover an unexpected $400 expense.  No wonder voters are scared.  No wonder they have lost faith in politicians who not only promised so much, but whose policies helped create the economic problems the Country now faces.

sandersThere are many examples of policies created by the protected that inflict pain on the unprotected.  Progressives propose open borders for immigration.  These immigrants are mainly unskilled and compete for the lower skilled jobs in the United States.  This increased competition hurts poorer Americans.  It also benefits businesses that have access to cheaper labor.  In an effort to fix the damage done by the ill-conceived immigration policies, the protected then promote increasing the minimum wage.  This too hurts poorer Americans who lose their jobs to machines that are made still cheaper by the artificially low cost of capital.  A higher minimum wage also benefits larger corporations who are better equipped to pay higher wages than startups, their potential competitors.

Obamacare is another example of Progressive policies damaging the unprotected.  While many Americans now face doctor shortages and increasing healthcare premiums caused by Obamacare, the protected have access to concierge doctor services.  They also have access to accountants and lawyers who can take advantage of the ever-increasing regulatory and tax environments that average Americans do not have access to.

Finally, there is the rigged government numbers.  Unemployment is supposedly down to 5%.  However, this number does not take into account those Americans who have quit looking for jobs.  It also does not take into account less hours available for workers or the quality of jobs available.  Similarly, the government’s inflation numbers are rigged, removing from the calculation must-have goods and services whose costs have increased.  As a result, many Americans feel they are being left out of a supposedly improving economy.

We are eight years after the beginning of the Great Recession.  While various government stimulus programs and artificially low interest rates created bubbles that increased the wealth of the protected, it damaged the unprotected, increasing the wealth gap.  This led to the popularity of Sanders and Trump.  The fact that a Socialist and a bully have become so popular indicates how deep the frustrations are.  While this trend favors Donald Trump in the upcoming election, it blocks intellectual discussion concerning realistic policies that could actually improve the plight of middle Americans.

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Increasing Minimum Wage Killing Jobs

Posted by Steve Markowitz on May 17, 2016

Discussions relating to raising the minimum wage inevitably include to the issue of “fairness”.  Those in favor of raising it point out that the minimum wage is not a “fair wage”.  Once this emotional claim is made, those who oppose increasing in the minimum wage are pegged as unenlightened and against allowing the lowest wage earners the opportunity to make a reasonable living.  Economic realities tell a different story.

Wendy’s is a large fast food chain with approximately 6,000 restaurants nationwide.  They have historically started employees at the minimum wage.  They recently announced steps to offset the cost increase due to the increased minimum wage and it is not good for workers.

According to Investors Business Daily, Wendy’s is replacing many of its order takers with an automatic kiosk system.  This action should surprise no one with a basic understanding of economics.  Not only does the new minimum wage increase the cost the labor, but with government inflicted artificially low interest rates, the cost of capital has decreased.  This decreases the cost of capital equipment at the same time the new minimum wage will increase the cost the labor.  Wendy’s response to the increased minimum wage will be duplicated by many in the service industry across the Country.

The political elitists who are behind the increased minimum wage will not be negatively impacted by the coming loss of lower paid jobs in America.  Their political positions could even improve with the additional votes they likely will receive from those who believe the increased minimum wage helps the working poor.  Further, with more Americans being unemployed these same political elitists can then offer handouts in exchange for future votes.  It’s a nice, but unholy, gig if you can get it.

There is another group of crony capitalists who will benefit from the increased minimum wage.   Large corporations who do not employee lower paid American workers will benefit by the increased wage pressures placed on upstart competitors who might try to make a better mousetrap.

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ECB Continues Cheap Money Policies

Posted by Steve Markowitz on April 22, 2016

The Wall Street Journal reported that the European Central Bank (ECB) intends to continue with its loose monetary policies.  ECB President Mario Draghi held a news conference this week and stated that the Bank intends to continue to do whatever is necessary to fight deflation, including more interest rate cuts.  This followed the ECB’s decision last month to again cut interest rates and increase its bond purchases.

To put the ECB policies in context, the current ECB base interest rate is 0% with depositors actually paying 0.4% to keep money in banks.  This is a radical effort that continues central bank policies to stimulate the economy.  However, the policies have failed to promote growth.  In fact, there is a growing school of thought that the policies themselves have constrained growth due to the imbalances created.

The fact that central bank stimulative efforts have not worked have not curbed banker enthusiasm for more of the same.  For eight years artificially low interest rates have been the backbone of central bank policy.  After it becomes apparent that the policies did not work, bankers respond by calling for more of the same.  Wow, speaking of insanity!

At the news conference Draghi was questioned about even more radical future steps such as “helicopter money”.  With this approach, the nuclear option indeed, central banks basically hand out money to consumers to fight deflation, i.e. create inflation.  Draghi’s response was that the ECB has not officially discussed at the tactic.  Translation of central banker doubletalk: the approach is being considered.

The ECB has placed itself in a precarious position.  After the 2008 meltdown the Bank was determined to fix the economy with easy money policies.  Not only did the policies not stimulate the economy, they hindered economic correction and growth.  A problem created by excessive debt and loose money cannot be repaired by more the same.  The central bank efforts merely moved what was excessive private debt to the public sector.  In addition, cheap money allowed debt to once again grow in the private sector.  Finally, too many commercial banks and corporations have been allowed to continue operations only because of access to cheap financing, so-called zombie corporations.

The anemic economic growth of recent years has been artificially created by low interest rates.  The low rates only temporarily propped up growth, requiring still further interest rate cuts, each with diminishing benefit.  While the ECB understands the conundrum it is in, it fears the result of change back to more normal monetary policy.  Therefore, it continues down the path of still more radical monetary interventions, a downward spiral.  Given this, “helicopter money” seems inevitable.  Significant inflation will not be far behind.

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Bernie Sanders and Wealth Redistribution

Posted by Steve Markowitz on February 23, 2016

Much has been made by the fact that the second most popular candidate running in the Democratic presidential primary is not even a Democrat, but instead an admitted Socialist.  While some moderate Democrats may be troubled by this, the fact is that the Party has morphed from being merely Progressive to supporting Socialism long ago.

Socialism, and for that matter crony-capitalism from the Right, are a natural progression of a corrupt political system.  The political class in essence buys votes by taking money from certain members of society and handing it out to others, their constituents.  As time goes on the amount of payouts grow as involves embraces more constituents that will then vote for one political party or the other.  Socialism is the natural end to this progression where everybody supposedly becomes economically equal (except for the political elites), although at the aggregate level, society becomes much poor.  This tune has been played many times in countries that tried this utopian experiment.

During a recent interplay (video posted below) between Fox Business host Stuart Varney and Erin Bilbray, a supporter of Sen. Bernie Sanders, the goal of Socialists is unveiled.  Ms. Bilbray indicates her belief that when some in society encounter hard times, it is the government’s job to resolve their problems.  That feel-good approach to problem resolution does not work in nature, parenting, education, or economics.  So why do Socialists promote this agenda?  In the case of some, it is naivety and it is likely that Ms. Bilbray falls within this category.  For others including the political elites, it is but a method to gain power and wealth.

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European Progressives Never Learn

Posted by Steve Markowitz on February 7, 2016

Thomas Piketty , a renowned economist from France who posted an op-ed in the New York Times titled “A New Deal for Europe”.  While Piketty’s topic is important, his conclusions are misplaced.  His logic shows just how unapologetic Progressives are for the problems their policies have inflicted on the world.

Piketty expresses concern for the growth of the far Right in Europe.  This Blog has been concerned for some time with the potential for fascism to once again rear its head in Europe.  This concern stems from Europe’s unsustainable economic path that has led to the large sections of its population being negatively impacted, creating a breeding ground for discontent.  This path started long before the meltdown of 2008 that Piketty refers to.  Its roots stem from the Left’s Progressive policies that have dominated European politics for decades.

Piketty blames mismanagement by European governments for not only poorly creating the EU, but also managing their economic policies.  While true, the EU’s creation was so poorly done that it guaranteed the current result, as economist Milton Friedman predicted in 1997:

The drive for the Euro has been motivated by politics not economics. The aim has been to link Germany and France so closely as to make a future European war impossible, and to set the stage for a federal United States of Europe. I believe that adoption of the Euro would have the opposite effect. It would exacerbate political tensions by converting divergent shocks that could have been readily accommodated by exchange rate changes into divisive political issues.”

Piketty concludes that Europe’s challenges can best be addressed by governments now doing the “right thing.”  Expecting the same group that created the current mess to do a better job this time is incredulous.

Piketty states: “Only a genuine social and democratic refounding of the eurozone, designed to encourage growth and employment, arrayed around a small core of countries willing to lead by example and develop their own new political institutions, will be sufficient to counter the hateful nationalistic impulses that now threaten all Europe.”  He also says: “The objective would be to reduce public debt as a whole, starting with a system of allocation of payments based on the increases in debt that have occurred since the crisis began.”

Nicely said, but politically and economically unrealistic.  Europe’s political, social and welfare programs make this kind of reform impossible.  Reducing government debt will cause pain to much of society.  Piketty ignores this, much like some of the BS we hear from Republicans in this country who believe that we can grow ourselves out of the excessive debt.

Piketty also concludes: “Such a process demands a new form of democratic governance, one that can assure that such disasters are not allowed to recur.”  Economic realities are disconnected from a “form of democratic governance”.  The laws of supply and demand will prevail in the long run, irrespective of interventions.  While Piketty acknowledges that governmental interventions caused the problems in the first place, he then suggests that further interventions in infrastructure, universities social welfare, etc. are the appropriate response now.  Again, why should we expect these next interventions to work better than the last ones?

Irrespective of one’s belief as to the appropriateness of governmental spending on any particular project; military, green energy, social programs, etc., from a macro economic standpoint the issue is straightforward.  Governments; i.e. the people, can only borrow so much from the future to pay for today’s lifestyles.  We have hit the economic wall with additional borrowing and deficit spending becoming a drag on growth, not simulative, as suggested under Keynesian economic theory.

Excess debt is the basis of our current macro-economic problems.  Central banks worldwide have likely come to this same conclusion, which is why some in Europe and Japan, and likely to come to the United States, are going to negative interest rates.  Given the ineffectiveness of historically low interest rates in the past eight years, central bankers understand that pushing the rates still lower will unlikely to lead to economic growth.  Irrespective of this they are taking this radical step in an attempt to debase fiat currencies, which will lead to a crisis that would enable governments to create a new currency (currencies) that will result in writing off the debt that is unrepayable.  While not a pretty solution, this method for sovereign debt abandonment does not require political will or approval.

The European Union as created will likely not survive.  It has only been held together this long because member countries fear the results of undoing the union.  The Europeans may continue to use Band-Aids to hold off the inevitable, but they do not have the political will or courage to take the steps necessary to make the EU viable. This will have serious consequences.  The blame rests solely on those Progressive politicians who created an entity based on desires, rather than economic and political realities.  Still they have the gall to suggest that the same approach going forward will work better this time.

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Federal Reserve Indicates Willingness to Employ Negative Rates

Posted by Steve Markowitz on October 12, 2015

For months the Federal Reserve (Fed) has been “threatening” to increase interest rates from the historic lows.  To date the Fed has come up with a myriad of excuses in delaying any increase.  Given the bubbles created in certain parts of the market including worldwide equities, it is likely that the Fed fears that a rate increase would pop the bubbles leading to significant economic dislocations.

In a world where macroeconomic rules have been turned on their heels, the Fed has floated a trial balloon that is diametrically opposed to their purported goal of increasing rates.  As reported by MarketWatch.com, some in the Fed have indicated a willingness to go to negative interest rates during the next economic crisis; i.e. recession.  In a nutshell, those that put cash in the bank would lose a small percentage of that cash each year, instead of obtaining interest, the historical norm.

New York Fed president William Dudley said in an interview last week: “Some of the experiences [in Europe] suggest maybe can we use negative interest rates and the costs aren’t as great as you anticipate.”  He went on to state: “We see now in the past few years that it has been made to work in some European countries,” and “so I would think that in a future episode that the Fed would consider it.”

It is likely that Dudley’s comments were not a slip of the tongue, but instead a trial balloon to see how markets would react to a radical economic move.  While there has been some softening of the US dollar and increases in commodity prices such as gold, the response has been muted, exactly what the Fed hope for.  This helps demonstrate how far off of economic reality we have come.

Interest RatesTo help put things in perspective, the Federal Reserve refused to implement negative interest rates during the 2009 meltdown, the worst economic calamity since the Great Depression, for fear of the consequences.  The fact that they would consider such action today helps demonstrate just how fragile the Fed views the economy.

The central banks have used historically low interest rates since the 2009 meltdown, as indicated in the attached chart.  Pushing rates to negative returns is a continuation of this policy, although now breaking a psychological barrier, whose goal is to stimulate the economy through increased consumption.  This low interest rate policy has been a failure, which is being confirmed by the Fed’s willingness to go even further.  Why should we expect this additional step would be more successful?

A negative interest rate policy will have unintended economic consequences.  However, there are consequences that are rather easy to foresee:

  • Lower savings for individual Americans will make them even more vulnerable to the consequences of recession.
  • Inflicting economic pain on retirees and others on fixed incomes.
  • Cajoling investors into more risky investments in search of returns.
  • Significantly damaging those dependent on money markets.
  • Decreasing return assumptions for pension plans that will force managers into more risky investments and require additional injection of funds to keep the plans solvent.

New York Fed Chairman Dudley would be willing to pursue the radical negative interest rate policy based on the fact that some European countries have implemented it without major consequences.  However, Dudley ignores the fact that the US dollar is the world’s reserve currency and therefore has broader implications.

We are now approaching the eighth year since the economic meltdown.  We were told that the Fed’s low interest rate policies will repair the damage.  We also have been told by our government that all sorts of stimulus programs and deficit spending would repair the economy.  Both failed, which has resulted in the Federal Reserve announcing the possibility of still more radical programs.  A more prudent approach would be a realistic review of the implemented policies and determine why they failed before implementing more of the same.  But this small piece of logic is either lost on the Fed or they feel that they have no alternative.  Neither offers confidence in the Fed’s ability to navigate these complex issues.

 

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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 »

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 »

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