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Archive for the ‘Euro’ Category

Egypt’s Morsi Seizes Dictatorial Power

Posted by Steve Markowitz on November 28, 2012

Democratization was an unlikely outcome of the so-called Arab Spring in Egypt.  When tens of thousands then protested and rioted in Tahrir Square, Progressives worldwide cheered while dreaming of a Western-style democracy to replace the country’s dictator, American ally Hosni Mubarak.  With any understanding of history and the Middle East, that outcome was nothing but a dream.

Those with more realistic expectations realized that the Muslim Brotherhood, a radical Islamic movement, would ultimately gain control of Egypt as a result of the revolution that ousted Mubarak.  While secular Egyptians were unprepared for a change in power, the Muslim Brotherhood was organized and ready to fill the vacuum.  Its former leader, Mohamed Morsi, was elected Egypt’s president and has now shown his autocratic and radical Islamist roots.

While a new Egyptian constitution is being crafted, it is being done so by Morsi allies intent on inflicting Islamic law in the document.  On Friday, Morsi took the next step towards dictatorship when by presidential edict he seized additional unchecked authority by placing himself above judicial review with the authority to replace public prosecutors at will.  In addition, Morsi has removed legal appeals for some “crimes”.  Typical of autocrats when seizing power, Morsi claimed to have taken the action to protect democracy.  However, his true intent comes through when he said: “God’s will and elections made me the captain of this ship.”

Reaction in Egypt to Morsi’s power grab was swift and violent.  Thousands are again protesting in Tahrir Square, with some placing blame the United States.  However, this time the Progressive Western press is giving little attention to the protests.  It is again evident that news coverage has become subservient to political views.

The Obama Administration was swift in supporting the Tahrir Square protesters when they were against Mubarak.  So far it’s reaction to Morsi’s undemocratic actions have been muted with State Department spokesperson, Victoria Nuland, saying: “The current constitutional vacuum in Egypt can only be resolved by the adoption of a constitution that includes checks and balances, and respects fundamental freedoms, individual rights and the rule of law consistent with Egypt’s international commitments.”

The Muslim Brotherhood’s creed statement is: “Allah is our objective; the Quran is our law, the Prophet is our leader; Jihad is our way; and death for the sake of Allah is the highest of our aspirations.”  That does not leave much wiggle room for a constitution and makes the US State Department’s statement border on infantile.

Posted in Egypt, Euro, Radical Islam | Tagged: , , , , | Leave a Comment »

Spain’s Credit Rating Downgraded by Standard & Poor’s

Posted by Steve Markowitz on October 19, 2011

In what seems to be a never ending race to the bottom, another sovereign debt downgrade was announced last week.  Standard & Poor’s downgraded Spain’s credit rating to AA- with a negative outlook.  In making the downgrade, S&P said: “Despite signs of resilience in economic performance during 2011, we see heightened risks to Spain’s growth prospects due to high unemployment, tighter financial conditions, the still high level of private sector debt, and the likely economic slowdown in Spain’s main trading partners.”

On what is occurring weekly, countries or major banks are having credit ratings downgraded.  Earlier last week S&P also gave a negative rating action on 15 major Spanish banks.  In addition, earlier in the month Moody’s cut Italy’s credit rating three notches to A2.

While these announcements should negatively impact worldwide equities markets, they have not.  In fact, some of these markets have gone up to their highest levels of the year.  The reasons behind this illogical direction for equities markets are troubling and include governmental interventions in monetary markets and wishful thinking.

Governmental Interventions

Since the financial meltdown of 2008, governments with leadership from the United States have flooded financial markets with liquidity and instituted historically low interest rates.  The liquidity has created new bubbles, initially with commodities and bonds, and more recently with equities.  However, even with these monumental interventions the American stock market is still valued at about the same level as it was ten years ago.  Clearly equity values would be substantially lower without what amounts to substantial governmental subsidies.

In addition, the low-interest rate policies are “forcing” investors to seek higher returns requiring riskier investments. Given the poor condition of private savings, this is precisely the wrong policy for governments to promote.  Should equity markets go in the negative direction, the damage to consumer investments and their savings, as well as pension plans, will magnify the problems of the weak economy.

Wishful Thinking

Wishful thinking is another reason equity markets have gone up.  Currently, the biggest concern on markets involves sovereign debt of the so-called “PIIGS“, fiscally distressed nations that include Portugal, Italy, Ireland and Greece.  In a manic fashion the markets have gone up and down based on the news out of Europe.  Last week the news was an announcement from France and Germany that they will work out Greece’s debt problem before the end of October.  With most economists agreeing that Greece will have to default, it is illogical that the markets responded so positively to this announcement that will be impossible to implement.

When the Greek default occurs, European banks will be forced to take haircuts on loans given to Greece.  In addition, contagion will likely affect other banks including potentially some in the United States.  This has the potential to create another Lehman Brothers like crisis.

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It is generally agreed that Europe and its banks can afford a Greek default.  However, it is understood that such could lead to other PIIGS defaulting and this would involve an amounts of funds that Europe cannot afford.  Adding some urgency to this issue is a statement released today by Moody’s hinting concern about France.  Moody’s indicated that “the possible need to provide additional support to other European sovereigns or to its own banking system” could result in “significant” liabilities for France.  They further stated that: “The deterioration in debt metrics and the potential for further contingent liabilities to emerge are exerting pressure on the stable outlook of the government’s AAA debt rating.”  In other words, the challenge for Europe goes beyond the PIIGS

The artificial stimulus given to equity markets by governmental policies makes investments in more risky than usual and more like gambling than investing.  Those industries that profit on the selling equities will continue to promote purchasing mutual funds and to remain in the market for long-term.  This strategy has been a total failure during the past decade.  With governmental interventions not allowing the markets to rebalance themselves it is likely to be a failed strategy for years to come.

Posted in Debt, Euro | Leave a Comment »

Cracks in European Unity Growing

Posted by Steve Markowitz on June 2, 2011

While many Western economies continue being stressed from the 2008 worldwide financial meltdown, Europe has unique problems, some of which are self-inflicted.  The source of these problems can be traced to the creation of the European Union (EU) and its common currency, the Euro.

The EU and Euro were created in an attempt to emulate the economic size and political power of the United States.  While noble goals, Progressives put the EU together without considering the most basic economic laws, i.e. supply and demand.  This was at best foolish.  These laws are now working to correct the EU’s mistakes in a painful manner.

Like much of the West, most European countries are floating in excess debt.  The huge debt has made Greece insolvent and threatens to do the same to Ireland, Portugal and Spain.  However, with the Euro the only reasonable mechanism for economic correction between European countries was dismantled.

Prior to the implementation of the Euro, Greece had its own currency, the Drachma.  Should they have taken on too much debt, the Drachma would have deprecated not only putting a tax on all Greeks for their sloppy finances, but also making Greek exports cheaper.  With lower prices, Greece could have exported more to pay off debts to other countries.  However, with the Euro, the only available answer is forced austerity, which is not palatable to Greeks who have been rioting in protest.

This week the European Central Bank (ECB) ratcheted up take of austerity.  Its president, Jean-Claude Trichet, called for tougher fiscal intervention suggesting “giving euro-area authorities a much deeper and authoritative say in the formation of the county’s economic policies if these go harmfully astray.”  In addition Trichet suggested that EU authorities be given “the right to veto some national economic-policy decisions“.  Translation; European countries could be forced to give up sovereignty under certain circumstances.

Trichet’s comments were not taken kindly by some EU countries, the weaker ones.  Slovakia’s Finance Minister Ivan Miklos quickly voiced opposition stating: “We’re certainly against abandoning our independent fiscal policy-making“.  That response is not a surprise given Europe’s history of starting wars over less significant issues.

Much of the long-term economic problems that the world currently faces have their origins in governmental meddling in economies.  In the United States, more recent interventions included using Fannie Mae and Freddie Mac to promote social polices instead of having them act as rational mortgage lenders.  This significantly promoted the housing bubble.  Also, the Fed pushed interest rates to artificially low levels incentivizing more risky investing behavior throughout the world.  European governments made similar ill-advised interventions and also added additional interventions through the economically unnatural Euro.

Instead of learning from past errors, some Western countries are doubling down on failed policies with still more economic interventions.  They are not only doomed to fail, but will prolong the downturn as they create additional market imbalances.

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

Germans Paying Europe’s Bills

Posted by Steve Markowitz on April 11, 2011

The European Union (EU) was a bad idea from day one.  The creation of Progressives that understand neither history nor economics, the EU is now teetering.  The EU has a common currency, the Euro, each country plays by its own economic rules.  This has lead to the basket cases such as Greece fudging its books, now requiring a bailout by the stronger European countries; i.e. Germany.

Here’s a joke currently making the rounds on Wall Street: “A German, a Greek, an Irishman, and a Portuguese go into a bar.  ……  The German pays.”

Posted in Euro, European Union | Tagged: , , , , , , | Leave a Comment »

Debt and the World Economies

Posted by Steve Markowitz on June 23, 2010

This Blog has expressed concern about worldwide debt, both in the private and public sectors.  While a complex issue, the video below shared by a reader simplifies the subject of public debt, especially as it pertains to Europe.  Enjoy!

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

Europe’s Progressive Benefits are No Longer Sustainable

Posted by Steve Markowitz on May 23, 2010

The bastion of Progressive thought, the New York Times, has come to a remarkable conclusion: the huge government benefits handled out by European counties to their citizens are not longer sustainable.  Well to that they must be given a big duh!

The Times has printed an aritcle titled “Europeans Fear Crisis Threatens Liberal Benefits” (link below) by Steven Erlanger that includes the following conclusions:

  • “The deficit crisis that threatens the Euro has also undermined the sustainability of the European standard of social welfare, built by left-leaning governments since the end of World War II.”
  • “With low growth, low birthrates and longer life expectancies, Europe can no longer afford its comfortable lifestyle, at least not without a period of austerity and significant changes.”
  • “The reaction so far to government efforts to cut spending has been pessimism and anger, with an understanding that the current system is unsustainable.”
  • “’The easy days are over for countries like Greece, Portugal and Spain, but for us, too,’ said Laurent Cohen-Tanugi, a French lawyer who did a study of Europe in the global economy for the French government.  ‘A lot of Europeans would not like the issue cast in these terms, but that is the storm we’re facing.  We can no longer afford the old social model, and there is a real need for structural reform.’”
  • “Gross public social expenditures in the European Union increased from 16 percent of gross domestic product in 1980 to 21 percent in 2005, compared with 15.9 percent in the United States. In France, the figure now is 31 percent, the highest in Europe, with state pensions making up more than 44 percent of the total and health care, 30 percent.”
  • “Jean-François Copé, the parliamentary leader for Mr. Sarkozy’s center-right party, says that change is painful, but necessary.  ‘The point is to preserve our model and keep it,’ he said.  ‘We need to get rid of bad habits.  The Germans did it, and we can do the same.”

Americans would do well to focus on certain phrases in the Times article includingsustainability”, “easy days are over” and “bad habits”.  These tell the tale of failed social policies that have brought Europe to the brink of financial collapse.  The politicians and press, especially those from the Progressive side, are quite willing to call capitalism and bankers for their greedy behavior.  However, there isn’t a peep from this group when that greed emanates from the government or those in the population that take from it.

The financial crisis and its ramifications that Europe now faces were foreseeable.  Those that predicted it and spoke up against the expenditures were chided by Progressives for being cold-hearted or mean-spirited.  This deflection allowed Progressives to implement programs and offer benefits that they knew were unsustainable.  These perpetrators should be put in front of the same type of commissions that now rightfully grill the bankers.

America is unfortunately on the same failed course chosen by our European brothers decades ago.  While the slippery slope that leads us here started long before Barack Obama took office, the speed in which Obama has increased expenditures on these handouts and bailouts will create America’s version of the Euro crisis in a much shorter timeframe.  America’s party is also not sustainability” and the “easy days are over”.  The only question is whether we can stop the “bad habits” before an uncontrollable “Euro-type crisis stops them for us.

Posted in Bailouts, Euro, Government Handouts, Progressives, Socialism | Tagged: , , , , , , , , | Leave a Comment »

Greece Continues to Unravel

Posted by Steve Markowitz on May 5, 2010

On April 23 this Blog Posted an article titled: “Greek Tragedy Will Keep Growing”.  It didn’t take long for things to get even worse in Greece.  Solutions the European Progressivescontinue to proffer go against the laws of supply and demand and are doomed to fail.  The only question is how long for Europe to come to this reality and how much money will they waste on failed solutions.

The basic problem is simple: Greece has too much debt and cannot pay it back.  So, the Europeans are trying what Progressives often do when economic problems occur; manipulate the markets, in this case giving the over-extended Greeks more loans.  Remarkably counterintuitive.

The Europeans are in this tough spot because of Progressive market interventions years ago that resulted in the formation of the European Union (EU).  These intellects came up with all sorts of reasons why Europe should come together and form a larger union.  But when creating this dream they ignored economic realties and created a common currency, the Euro, without proper disciplines on member countries.

As an example of the Euro’s problems, while the EU prints the currency, they do not control the finances of member countries.  Each member’s sovereign debt is separate from others and guaranteed by that country, not the EU.  This has allowed Greece’s currency to be out of sync with the country’s real financial condition.  While broke, their currency remains overvalued.  This results in their labor rates being kept artificially high verses more productivity EU countries, such as Germany.

Had Greece had its own currency and been in its current state, their currency would have been substantially devalued.  This would have acted as a natural barrier to excessive Greek spending, especially on imports that would have become more expensive.  In addition, Greece would become a lower cost producer and the cost for tourist visiting Greece would have been lowered leading to economic growth and the ability to pay off the debt.  In other words the lower currency would have more evenly reduced the standard of living for all Greeks, rather than the depression being forced on them through the austerity measures that would accompany the proposed EU bailout.

The handwriting is on the wall.  The Greeks will go into default and revert back to their own currency.  This could occur quickly, if the markets are allowed to work their discipline on Greece.  Should the Progressives running Europe have their way, reality could be put off, but with even more unintended consequences resulting in the future.

When governments intervene in markets the unintended consequences are huge and damaging to society.  Greece is now paying this price and the contagion could affect many outside of Greece.

The governmental bailouts of individuals, failed companies and now failed states, are usually accompanied by the tired excuse that without these interventions even worse problems will occur.  Early in this slippery slop it was hard to argue with this claim with anything but rather complex economic theories of how markets operate.  That is no longer the case.  With all of the bailouts not only haven’t the economic problems gone away, but are increasing.  Instead of bailing out individuals and companies, we are now bailing out sovereign states.  It is unreasonable assume that Greece will be the last bailout required.  It is also unreasonable to believe that the next bailout will not be still larger.

The Progressives manipulation of markets in Europe has resulted in a modern Greek Tragedy.  Today that included riots that left three Greeks dead.  The European governments will look to capitalist demons as the cause, but they have the culpability with their reckless market interventions.  We should expect similar problems in America should we allow Progressives to continue marching us down the path the Europeans have taken.

The next time the Washington Progressives tell us that we need another massive government program, ask these questions: 1) What are the downsides of the proposed programs?  There are always downsides to manipulating markets.  2) Why, given that the required bailouts continue to get larger, are the economic problems growing?  3) Why, with the failures of the bailouts to date stop the problems, should we expect the next bailout to work any better?  If the answers to these questions are not clearly evident, then the bailout or intervention must not be allowed to go forward.

Posted in Bailouts, Debt, economics, Euro, Greece, Progressives | Tagged: , , , , , , , , , , , , | 1 Comment »

European Union Declares Vacations Human Right

Posted by Steve Markowitz on April 24, 2010

The Progressives in Brussels who run the European Union (EU) have proven to be larger knuckleheads than the group in Washington.  Small consolation!

According to Fox News, Antonio Tajani, the EU commissioner for enterprise and industry has come up with a bonehead plan to make vacations a right like one’s right to vote.  Specifically, Tajani said: “Travelling for tourism today is a right.  The way we spend our holidays is a formidable indicator of our quality of life.

Now let’s see:  Europe, like the rest of the world, is in the midst of a deep recession.  Greece is ready to default with a few other Euro countries not far behind.  Now, this Progressive bureaucrat, Antonio Tajani, wants to add hundreds of millions of Euros in costs for a new human right.  That’s madness.

Given the madness that the Progressives in Europe continue to exhibit, why are Obama, Pelosi and Reid taking America down this same path?  Could it be that madness is actually a contagious disease?

Posted in Euro, Governmental Intervention, Progressives | Tagged: , , , , , , , , , , | 4 Comments »

Bailout Nation Meets a Bailout World

Posted by Steve Markowitz on March 14, 2010

What started as government bailouts for manufacturers, banks and individuals is rapidly morphing into bailouts for countries.  The bad news is that these bailouts have progressively gotten larger with time.  The good news is that they can’t get much bigger than bailing out countries!  One needs to be an extreme optimist to see good news in this reality.

European governments recently announced that they will bail Greece out of its excessive debt problems.  They took this unusual step due to fears for the alternatives; 1) either letting Greece go into default that would depress or break up the Euro, or 2) make Greece live up to its obligations, which would create significant economic turmoil for the people of Greece and probably lead to social unrest.  If history is a good barometer, the European Union will not avoid the problem they seek to avoid, but will only create greater problems for Europe down the road.

Let’s start with the more basic problems caused by the creation of the Euro and European Union.  In an effort to create a more powerful economic block, the European Union (“EU”) was created over a decade ago that included many European countries.  The larger players were Germany, France and England.  In addition, a single currency, the Euro, was created and is in use throughout most of these countries.  Incredibly, while England is a part of the European Union, it continues to use the Pound Sterling as its currency.

Another problem with the EU structure is the loose federal control that it has over member countries.  For example, unlike the United States with one federal government, each country in the EU maintains its own government and in fact its own army.  Just as problematic, countries that use the Euro still maintain their own sovereignty over fiscal matters, including debt and barrowing.  While the EU created guidelines in these areas, member countries like Greece have been cheating for years.  Now it is time to “pay the piper” and that brings us back to Greece’s need for a bailout.

Had Greece still had its own currency, the current turmoil would have lead to its devaluation making Greek goods and services less expensive compared to other countries.  This would have resulted in more business for Greek companies, more taxes for Greece and ultimately a resolution to the problem.  But with the Euro, Greek is stuck with a currency that remains strong based on the strength of Germany and France.

The current Greek Tragedy will be blamed on all but those that are responsible for creating the mess.  They will blame the banks and other capitalist.  However, the real culprits are the Progressives who believed that they could create the European Union just because they thought it made sense.  These Progressives instead created a problem that is now breaking down because of economic realities and the laws of Supply and Demand.

It is going to take time and pain to correct the problems in Greece.  This is unavoidable.  The lesson here is for the future and how to avoid messes caused by grand experiments like the creation of the European Union.  We must start by rejecting the Progressives and their future adventures.  That brings us back to the United States.  President Obama and the Liberal Democrats are Progressives who are currently attempting to push through government controlled healthcare in the United States.  Should they be successful, we will have our own Greek Tragedy.

Posted in Euro, healthcare reform, Progressives | Tagged: , , , , , , , , , | 3 Comments »