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Posts Tagged ‘Bailouts’

Unintended Consequences of Dodd-Frank Act

Posted by Steve Markowitz on January 17, 2016


In reaction to the 2008 financial meltdown, the government came up with the Dodd-Frank Wall Street Reform and Consumer Protection Act.  Signed into law in 2010 by President Obama, its name implies consumer protection.  Reality does not match the implication.

The 2008 financial meltdown occurred because of bad behavior on the part of consumers, lenders and financial institutions.  This led to the possibility that major financial institutions would fail worldwide leading to governmental bailouts of mega banks and other corporations, justified by the claims that the institutions were too big to fail.  It is impossible to determine the accuracy of this claim.  However, the possibility of systemic economic failure in itself seemed to justify the interventions.

Successful capitalism demands that the imprudent borrowers, lenders, and shareholders should have suffered catastrophic losses as a result of their behavior that so badly damaged society.  Instead the bailouts saved those who most deserved punishment.  Worse this has led to increased likelihood of such imprudent behavior being repeated.  Instead of allowing this appropriate economic response, the government gave us the Dodd-Frank Act, which is not only ill-conceived, but too complex to fully comprehend, let alone its consequences.

If indeed the banks were too big to fail the government should have responded by breaking them up so that they could not cause systemic damage to the economy in the future.  Not only have the banks not been broken up, but Dodd- Frank resulted in banking consolidation with the large banks becoming even larger and more dangerous to greater society.  This increases the potential need for even larger bailouts in the future.

Some of the unintended consequences of Dodd Frank remain unknown.  Others, such as banking consolidation, are apparent.  Another consequence was announced earlier this month by insurance giant MetLife.  They will divest a large part of their US life-insurance business, which generates approximately a fifth of their total revenues.  Because this MetLife falls within the purview of Dodd-Frank, it was required to increase its capital base.  Instead of taking this step MetLife will make the announced divestiture with its spokesman saying: “aAn independent new company would be able to compete more effectively and generate stronger returns for shareholders…[and] this risk of increased capital requirements contributed to our decision to pursue the separation of the business.”

The fact that MetLife is making a divestiture of a major business unit is not in itself problematic.  However, making this decisions based on governmental regulations is an inefficient way to regulate economic activity.  This divestiture will allow both MetLife and the newly created life insurance company to skirt Dodd-Frank and will likely result in weaker companies providing life insurance to consumers increasing consumer risk.

In typical governmental action, Dodd-Frank attempts to corral horses that already left the barn.  Like Sarbanes-Oxley before it, Dodd-Frank will increase the cost of doing business, create more regulatory jobs, and be a boon for the accounting and legal industries.  Ultimately, consumers will suffer and the politicians and bureaucrats that gave us this mess with be retired on huge government pensions.


Posted in Governmental Intervention | Tagged: , , , , | Leave a Comment »

Subprime Loans are Back Again

Posted by Steve Markowitz on March 21, 2015

It was just six years ago that the world was at the brink of economic Armageddon.  The crisis was brought on by the cheap loans made available to borrowers including those rated as subprime with credit scores below 640.  The cheap mortgages to those with limited assets helped create a huge bubble in the housing market.  When the economy slowed down and home values began to depreciate, many borrowers began to default on the mortgages, which placed at risk major financial institutions worldwide that invested in these bundled mortgages.

Banks and others that owned the collateralized mortgages then required bailouts from the government to stave off failure.  This did not eliminate the debt, but merely moved it from the private sector to governments; i.e. taxpayers.  In addition, the bailouts inordinately benefited companies and their shareholders who made the imprudent loans.  Without the bailouts they would have encountered substantial financial losses.

There is also been a more incipient result of the bailouts of investors who made imprudent loans in the subprime market.  Without suffering losses investors have had short memories and in fact they are back bailoutsat it again in the subprime financing business, once again supported by low interest rate central-bank policies with interest rates worldwide remaining at artificially and historic lows.

Last month, the Wall Street Journal highlighted the growth of subprime loans in an article titled Borrowers Flock to Subprime Loans.  Today, subprime loans are not in the housing market, but in consumer goods.  The Journal published the following:

  • Subprime loans are at the highest level since before the 2008 financial meltdown.
  • Approximately 4 out of every 10 loans for autos, credit cards and other personal borrowing in 2014 were in the subprime category.
  • During the fourth quarter of 2014, total US household debt increased by over $300 billion.

The Federal Reserve’s low interest rate policies are pushing investors to greater risk as they seek returns.  This, coupled with the availability of cheap capital has offered incentives for nontraditional lenders to enter the credit markets.  For example some venture backed funds are fueling the growth of subprime lending, such as Lending Tree, Inc., an online auto loan marketplace.  These lenders are not regulated and are likely to use leverage and other financial games to pursue even more subprime lending, a repeat of the actions behind the 2008 financial crisis.

Subprime lending is fueling economic unsustainable growth.  For example US auto sales topped 16.5 million in 2014, a nearly 6% increase from the previous year and up nearly 60% from 2009.  When the inevitable slowdown occurs, an increasing number of subprime borrowers will be unable to repay their loans, a repeat of what led to the 2008.

History has demonstrated that booms and busts, and yes bubbles, are at normal part of economic cycles.  However, major macroeconomic bubbles have generally been a once in a generation occurrence that is self-correcting and serves as a reminder to that generation of the pitfalls of imprudent economic behavior.  The collapse of 2008 was different with many investors being bailed out and equity markets returning to their highs within a relatively short period of time.  This has shortened capitalists’ memory who are now once again making imprudent loans in search of returns.  This will lead to another significant downturn in the relatively near future, a probability that investors are ignoring in the belief that when it occurs the government will again come to the rescue.  However, this time the government and the Federal Reserve are themselves deep in deep.  It remains to be seen how this huge sovereign debt will affect the outcome.

Posted in Bailouts, Bubbles | Tagged: , , , , , | 1 Comment »

US Pension Benefits Guarantee Becoming Heading Towards Insolvency

Posted by Steve Markowitz on December 3, 2014

Milton Friedman once said “If you put the federal government in charge of the Sahara Desert, in five years there’d be a shortage of sand.”  Friedman’s quip was not far from reality.

Alex Pollock recently posted an op-ed in the Wall Street Journal titled “A Federal Guarantee Is Sure to Go Broke” in which he outlines yet another example of a mismanaged government program that will ultimately cost taxpayers billions.  This relates to the near insolvent finances of the Pension Benefit Guaranty Corp (PBGC).  This organization created in 1974 is a private corporation, but with the implied backing US government.  Its goal is to protect pensioners from the failure of private pension funds that pay them.  However, it is but another Ponzi scheme that will ultimately need a governmental bailout meaning that some taxpayers will lose and others will win.

According to economist Pollock:

  • The PBGC insurance fund has a negative worth of $62 billion for 2014, up from a deficit of $36 billion the year before.
  • The PBGC’s total assets are $90 billion with total liabilities of $152 billion. A company disconnected from the government with such a ratio would be shut down.

The government has demonstrated that when these quasi-governmental corporations become insolvent, taxpayers end up bailing them out.  History includes the bailout of Federal Savings and Loan Insurance Corp. costing taxpayers $150 billion in the late 1980s.  More recently it was the Fannie Mae and Freddie Mac debacles that cost taxpayers billions.

One piece of evidence that the PBGC program is a Ponzi scheme is the corporation’s misleading statements to the public.  PBGC’s annual report states: “the U.S. Government is not liable for any obligation or liability incurred by PBGC.”  Its website further states: “PBGC receives no taxpayer dollars and never has.”  Those statements are just not credible.

The type of pension plans guaranteed by the PBGC are high risk since they guarantee returns based on assumptions that are little better than guesswork.  In addition, increasingly frequent and larger governmental interventions have made such plans irresponsible from a financial standpoint.  Governmental interventions into the economy significantly affect the return rates of these pension plans.  Guaranteeing such plans would not be possible without governmental tacit promises.

Was the PBGC created merely out of bad business judgment or as a plan to reward certain taxpayers (mainly union workers) at the expense of others?  This type of discussion is never held when governmental programs fail.  Instead, those that created the programs have long since departed with huge pension supplied by the government.  In addition to this slap in the face, taxpayers of forced to pay the damage through bailouts.

Posted in Ponzi Scheme | Tagged: , , , , , | Leave a Comment »

Geithner to Join Warburg Pincus

Posted by Steve Markowitz on November 19, 2013

The Wall Street Journal reported that Timothy Geithner, former U.S. Treasury Secretary, is joining Warburg Pincus, a private equity company.  Geithner will become the firm’s president and managing director

Tim GeithnerWarburg Pincus is a well-known New York buyout firm specializing in using other people’s money, i.e. borrowed funds, to buy companies.  They then slice and dice the companies and ultimately (fairly quickly resell them at a profit.  While some argue that such firms help make companies more efficient, they also saddle their acquisitions with significant debt that often hurts these companies’ long-term viability.  In addition, firms like Warburg Pincus typically place huge management fees on the companies until they are resold.

While Timothy Geithner is a bright and talented individual, he has no experience in the private equity world.  It is likely that his deep contacts within the government significantly increase his value to the new employer.

Geithner going for the gold after leaving government is too often the case for former politicians and government employees.  This includes former CIA chief David Petraeus becoming an executive of another large buyout firm, KKR.  Republicans are not immune to this incestuous type relationships after leaving government.  Former VP Dan Quayle and former Treasury Secretary John Snow work for Cerberus Capital Management.  The examples are endless.  If the departing government employee is not good enough to get a cushy job at an investment bank, they likely become a high paid Washington lobbyists for a special interest group.

In the case of Timothy Geithner, joining a buyout firm is especially troubling given the firm’s close relationship to the New York investment banks that were bailed out by the government under Geithner’s direction.  Geithner was a key architect of the banks’ bailouts, as well as that of AIG.  He was often criticize or allowing AIG executives to receive the huge bonuses even after the bailout.

It is been a long time since working for the government meant being a public servant.  It has since become a guaranteed avenue for achieving power and wealth.

Posted in Tim Geithner | Tagged: , , | Leave a Comment »

US Fed Policies Creates Economic Problems in India

Posted by Steve Markowitz on August 28, 2013

The US government and Federal Reserve have intervened with ever increasing frequency in the economy during the past two decades.  In the 1990’s the US economy had various hick-ups that included the dot.com and telecom bubbles’ and their meltdowns.  Immediately following the 2001 9/11 tragedy a steep drop in economic activity occurred.  In earlier years the Federal Reserve and government would have allowed the law of supply and demand to rebalance the economy.  While painful, such rebalancing is necessary to ensure the proper amounts of goods and services be produced for the available demand.   The interventions, mainly through low interest rate policies and printing money, stopped rebalancing and this ultimately led to the largest bubble of all; the housing bubble.

Five years since the housing bubble popped we continue to see the negative effects of the interventions.  Perhaps the best example is the slowest increase in job growth of any recovery of modern times.

The Fed understands the risks of continuing the low interest rate policy.  It understands that pulling the plug on this “free lunch” is akin to making a drug addict go cold turkey.  In an effort to set the stage for changing the policy, in spring the Fed announced that it is considering lessening its purchase of U.S. Treasury bonds.  That made investors nervous with US equity values gyrating since.  The Fed’s easy money policy is the major reason that US equity prices have inflated during the past two years, not economic growth.  Pull the plug on the easy money and equity values will drop.  It is only question of how far.

The unintended consequences of the Fed’s easy money policies are not limited to the United States.  The Wall Street Journal reported that developing economies are showing significant stress as a result of fears that the Fed will stop buying US Treasury bonds.

  • The Indian stock market lost approximately 5% in value over a two-day period and its currency has dropped significantly versus the US dollar.
  • Thailand has seen its equity markets’ value drop significantly.
  • The Indonesian currency has dropped to a four-year low versus the US dollar and its share prices were down 10% in one week.
  • Malaysia’s currency value has dropped significantly.

The fear is that as interest rates rise investors will pull capital from developing countries and move it to more developed and less risky markets.  As these countries’ currency values drop, their cost of imported commodities such as oil and fertilizer increase.  Inflation in India is currently at an annual rate of about 10%.  Inflation, especially in developing countries, is devastating on the poor who spend most of their money on staples including food.

When the Fed and the US government embarked on the major interventionist policies during the 2008 meltdown that included bailouts, they justified the radical actions by saying they were required to protect us from economic Armageddon.  It is not possible to determine if these policies actually protected us from a more catastrophic meltdown.  However, there are significant consequences to their “free lunch” policies.  We are beginning to see these consequences play out.  People will go hungry.

Posted in Federal Reserve, Interest Rates | Tagged: , , , , , , , , , | Leave a Comment »

Cyprus Bailout Taxes Bank Deposits

Posted by Steve Markowitz on March 17, 2013

Cyprus is a miniscule part of the 17 country European Union accounting for only 0.2% of the EU’s total economic output.  Its total economy is valued at only €18 billion.

Cyprus has become the fourth EU country requiring a bailout after Ireland, Portugal and Greece.  Spain has so far avoided an official bailout, but its banks have been given assistance by the European Central Bank.  Other countries are not far behind including Italy with a much larger economy.

This weekend the European Union announced a bailout of Cyprus that includes an unusual requirement.  In return for €10 billion, CNN reported that all depositor accounts in Cyprus’s banks will be taxed a one-time fee on Tuesday.  Those with less than €100,000 in deposits will pay a tax of 6.75% and those with over €100,000 will pay 9.9%.

Not surprisingly citizens of Cyprus have responded with panic, mobbing ATM machines in attempts to withdraw deposits.  However, the banks placed a limit on withdrawals of only €400 and it is reported that there is a shortage of cash.

After making the announcement, Cyprus’s President Nicos Anastasiades justified the action Sunday saying, “A disorderly bankruptcy would have forced us to leave the euro and forced a devaluation”.  In other words, Anastasiades offered the same Progressive doubletalk that the steps were required to protect the people.  However, this justification will be more difficult to accept given the tax levied on depositors.

The reality of the Cypriot bailout is similar to bailouts that have occurred for banks and sovereign debt throughout the world in recent five years.  These actions were taken to protect the banks and their investors, both private and sovereign investors. These flawed policies have also resulted in economies worldwide jumping from one crisis to crisis in a downward spiral.

Attempting to pay for bailouts by taxing bank depositors is a ratcheting up of wealth redistribution towards the financial sector, protecting large banks and fiat currencies.  While the policies may have some success in the first two goals, this move in Cyprus will increase the pressure on fiat currencies.  It is only a matter of time until fear contagion spreads.  If the Cyprus can take money from bank depositors to pay for the irresponsible behavior of others, it is only a matter of time until other countries take similar steps.

In justifying bailouts and irresponsible government spending, those supporting these actions often refer to the learned economist John Maynard Keynes who was a proponent of government spending to offset slowdowns in the private sector.  However, such rainy day Keynesians ignore the second half of Keynes’ theory that requires governments to save for a rainy day during more vibrant economic times.  This part of the equation has not been met in decades.

Economist Keynes was well aware of the dangers of inflation and the related issue of governments debasing a fiat currency.  Keynes’ written below in a 1919 essay says it all.

By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some…. Those to whom the system brings windfalls… become “profiteers” who are the object of the hatred…. the process of wealth-getting degenerates into a gamble and a lottery.

Lenin was certainly right.  There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency.  The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.

Posted in Bailouts, European Union | Tagged: , , , , , , | 2 Comments »

Fannie Mae and Freddie Mac Pay Huge Salaries

Posted by Steve Markowitz on December 10, 2012

The Wall Street Journal reported on the compensation of high paid employees of Fannie Mae and Freddie Mac.  Their high compensations indicate a significant problem with the greed of government and the employees who live off of it.

Through much of America’s history, working for the government was considered a public service.  In exchange for this service, those that worked for the government received salaries below that paid for similar jobs in the private sector.  However, these workers enjoyed greater job security.  While the job security remains, many government workers now receive significantly higher total salaries and benefits than their counterparts in the private sector.  No longer can this be considered “public service”

While previously independent, Fannie Mae and Freddie Mac have always enjoyed the financial backing of the US government.  However, through mismanagement and the downturn in the economy, both had to be taken over by the US government four years ago and have cost taxpayers nearly $140 billion.  While one might expect Fannie and Freddie managers to have financially suffered as a result of their mismanagement, that has not been the case.

According to the Journal, for 2011, approximately 330 employees at the vice president level receive a median pay of just under $390,000.  The next level down that includes 1,650 employees considered “directors” had median pays of over $205,000.  These two categories of approximately 2,000 employees accounted about one-sixth of these companies workforce. Adding insult to injury, the 90 highest-paid executives took home over $92 million in pay.

When questioned about the high salaries, a Fannie Mae spokesperson said: “Our employees are managing…significant risk in an operationally complex market.  It is absolutely critical that our compensation is competitive in the market.”  If compensation is a driving force behind a person’s decision to work for the government, then such positions are subject to as much corruption or predatory practices as found in their private counterparts.  This coupled with the reality that government organizations have proven to be bureaucratic and inefficient demands their privatization.

The taxpayer funds dumped into Fannie Mae and Freddie Mac are no different than the bailout of the private banks, General Motors and others.  It is a reward for those that have been inefficient and/or imprudent at the expense of those who have been more successful.  Such bailouts have become the most destructive force against the American capitalism.

Posted in Fannie Mae | Tagged: , , , , , | Leave a Comment »

Dodd-Frank Bill Failure

Posted by Steve Markowitz on July 28, 2012

During the late summer of 2008, the financial markets were unraveling.  Lehman Brothers failed, which precipitated general panic in the markets and the potential failure of other large financial institutions.  When the panic hit jumbo worldwide insurer AIG based out of New York, the government blinked with an over hundred billion dollar bailout.  This bailout was justified with the logic that should AIG fail, it would wreck havoc on the entire world’ s financial markets.  Thus, we had the concept of “too big to fail”.

It is impossible in hindsight to determine if AIG were allowed to fail we would have had the threatened financial Armageddon.  However, it is inarguable that the AIG bailout, as well as that of other firms, benefited some individuals and corporations at the expense of others.  Since the bailouts, we have had the weakest recovery from a recession of modern times.  It is likely that the bailouts and ongoing poor shape of the economy are connected.

The panic and financial markets’ turmoil played huge roles in the election of Barack Obama to the presidency, as well as giving Democrats large majorities in both houses of Congress.  With the mandate, Democrats set out to implement changes in our financial system that would purportedly eliminate future financial crisis.  The result was the infamous Dodd–Frank Bill with far-reaching implications to the financial world.

Ex-Citigroup CEO, Sandy Weil, was responsible for making Citigroup a large mega bank through mergers and acquisitions.  This week Weil came out against allowing these large banks to continue in their current state and recommended that they be broken up, separating their brokerage businesses from regular commercial banking functions.  In explaining his position Weil indicated that this back to the future approach would eliminate future risk to taxpayers of bailouts since no bank would be then too big to fail.

After Sandy Weil went public with his position, CNBC reporter Maria Bartiromo interviewed Congressman Barney Frank, Democrat from Massachusetts who was one of the co-authors of the Dodd-Frank Bill.  She correctly raised weaknesses of the Bill including the fact that more than two years after its passage, important rules relating to the Bill are yet to be written.  Instead of addressing the Bartiromo’s questions, Frank became defensive and obnoxious, as evidenced in the video.

Barney Frank is the same Congressman that refused to place more controls on Fannie Mae and Freddie Mac during the bubble years.  He was famously quoted then saying that these government-backed corporations were financially solid and needed no further government oversight.  After the bubble popped these corporations needed billions in taxpayer bailouts and will likely require more.  Add to this Frank’s performance in the video below and it is easy to understand why Washington’s interference in the economy typically makes bad situations worse.

Posted in Banks, Barney Frank | Tagged: , , , , , , , | Leave a Comment »

Spain/Europe Approaching Tipping Point

Posted by Steve Markowitz on June 10, 2012

What started with bubbles, particularly in the real estate markets, morphed into a larger international  banking crisis in 2008.  Interventionist governments including the United States acted quickly in bailing out the banks and other financially dysfunctional corporations and individuals.  These radical steps in essence bailed out reckless borrowers at the expense of more prudent ones were enacted in the name of saving the world from economic Armageddon.  Nearly 4 years later the worldwide economy is once again heading towards the brink.  Clearly these policies have failed.  But that will not stop the governments from throwing more good money after bad.

The inevitable and huge costs of the bailouts were hiding from the People by using printed money to purchase the bad debt.  This did not eliminate the debt, but instead increased and moved to it to various countries’ balance sheets.  These countries then went about selling bonds to cover this massive debt and forcing their commercial banks, especially in Europe, to purchase these toxic assets.  This has played a large role in creating the banking crisis raging in Europe. with Spain currently being at its epicenter.

Yesterday Spain announced it would accept a $125 million European bailout, the fourth and largest European country to require a bailout in the ongoing sovereign debt crisis.  It is unlikely that this bailout will be any more successful than previous European attempts to stop the economic bleeding.  Already the politicians are bracing for more problems.  After announcing the bailout, Spain’s Prime Minister Mariano Rajoy told The Associated Press: “This year is going to be a bad one.”  Given that 25% of the Spanish workforce is already unemployed, this is an ominous statement.

Jens Boysen-Hogrefe, Kiel Institute for the World Economy economist said of the bailout: “It’s a calming signal at a time when calming signals are badly needed.  The uncertainty is still high and bad news can pop up anywhere in the euro area.  This is not a final solution.”  Translation; the can has once again merely been kicked down the road a bit.

This weekend, Nouriel Roubini and Niall Ferguson published an op-ed in the Financial Times that put Europe’s economic crisis into proper perspective.  Roubini, an American economist and professor at New York University’s Stern School of Business, predicted the collapse of the housing market and subsequent massive recession before these events occurred.  Ferguson is a British historian who specializes in financial and economic history with specific expertise in hyperinflation and the bond markets.  These well respected experts stated in their op-ed titled One Minute to Midnight?:

“We fear that the German government’s policy of doing ‘too little too late’ risks a repeat of precisely the crisis of the mid-20th century that European integration was designed to avoid.”

“…….  Fixated on the nonthreat of inflation, today’s Germans appear to attach more importance to 1923 (the year of hyperinflation) than to 1933 (the year democracy died). They would do well to remember how a European banking crisis two years before 1933 contributed directly to the breakdown of democracy not just in their own country but right across the European continent.”

“But now the public is finally losing faith and the silent run may spread to smaller insured deposits.  Indeed, if Greece were to leave the eurozone, a deposit freeze would occur and euro deposits would be converted into new drachmas: so a euro in a Greek bank really is not equivalent to a euro in a German bank.  Greeks have withdrawn more than €700m from their banks in the past month.”

“More worryingly, there was also a surge in withdrawals from some Spanish banks last month.   ….   This kind of process is potentially explosive.”

“Germans must understand that bank recapitalisation, European deposit insurance and debt mutualisation are not optional; they are essential to avoid an irreversible disintegration of Europe’s monetary union.  If they are still not convinced, they must understand that the costs of a eurozone breakup would be astronomically high – for themselves as much as anyone.”

“Ultimately, as Angela Merkel, the German chancellor, herself acknowledged last week, monetary union always implied further integration into a fiscal and political union.  But before Europe gets anywhere near taking this historical step, it must first of all show it has learnt the lessons of the past.  The EU was created to avoid repeating the disasters of the 1930s. I t is time Europe’s leaders – and especially Germany’s – understood how perilously close they are to doing just that.”

Roubini and Ferguson are indicating that the European crisis is a game changer that will require commensurate game changing strategies.  The nickel and dime approach of kicking the can down the road cannot work.  Just as significant, time is running out for such halfhearted approaches.

Many financial experts agree with Roubini’s and Ferguson’s thesis that Europe will require decisive action, and sooner rather than later.  This includes financier George Soros and Nobel Laureate Joseph Stiglitz, among others.

The problem of excessive debt, not only in Europe, but in the United States as well, is the most pressing problem facing the world today.  Governments use of printing presses for problem resolution over the years has made many citizens oblivious to this reality, including some very smart people.  Just last week France’s new President Hollande incredibly lowered the retirement age in his country from 62 to 60 years old.  This will exasperate France’s debt problems.

In the United States debt has been growing at an alarming pace for the past 30 years with it significantly quickening under the tutelage of Barack Obama.  Instead of concern for this serious problem, many Americans focus self-serving economic and social issues.  Unless the Country is on stable financial footing, all Americans will be weaker and have less rights.

Economists John Mauldin said of the financial crisis in Europe that: “Europe has no good choices, only a choice among very distressing and expensive options.”  This same conclusion can be made of all countries with excess debt.  Sovereign debt is an immoral methodology whereby future generations are demanded to pay for the good life of the current generation.  Pulling the plug on this false economic high, like any addiction, is painful.

When a country deleverages, i.e. pays down its debt which ultimately must do, is an unpleasant experience.  Initially, special interest groups attempt to use political leverage to shield themselves from the pain.  This only can continue until a full-blown crisis hits.  That is the status of current Europe and other countries including the United States are not far behind.  Either a country takes corrective action, a difficult task for any democracy, or the cruel and unbending hand of supply and demand will enforce its own corrective actions.

Posted in Bailouts, Sovereign Debt | Tagged: , , , , , | Leave a Comment »

April’s Unemployment Numbers are Troubling

Posted by Steve Markowitz on May 4, 2012

The Labor Department this morning released April’s employment numbers and it wasn’t good.  While the headlines stated that the unemployment rate dropped from March’s 8.2% to 8.1%, with only 115,000 jobs added this seemingly positive trend could only have come from workers dropping out of the market and not being counted as unemployed by the government.  In fact CNNMmoney reported that over 340,000 people stopped looking for work in April, three times more than the number of jobs created.  As has been said, figures lie and liars figure.

CNNMoney also reported that since the recession started, nearly 9 million jobs were lost.  Since the “recovery” began, only 3.7 million have been added back.  The graph shows that the trend is quite negative.  It is obvious that the trillions in governmental spending, bailouts, and other governmental interventions have not put the economy back on a sound footing.  How much more needs to be spent for the Country to understand that governments do not and cannot create prosperity?

Look for the Progressives in Washington to start calling for even more governmental intervention and spending.  Sooner or later these knuckleheads will succeed in creating inflation, but not prosperity.

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