Where the "Debt Crisis" is going

This is one of the most concise and direct explanations I've read:

How The Debt Crisis Will End

It became increasingly clear this month how the debt crisis will end - and it is not going to be comfortable.

The latest phony solution is for the large, "responsible" countries to demand more fiscal responsibility from the smaller and purportedly "less responsible" countries. In Europe, Germany's Angela Merkel and France's Nicolas Sarkozy are demanding that other European states give up some of their sovereignty and agree to strict limits on their deficit spending.

President Obama and Treasury Secretary Timothy F. Geithner, as well as British Prime Minister David Cameron, have been lecturing the European Union about being more fiscally responsible. How odd and hypocritical, based on their own behavior.

Given normal growth of roughly 3 percent, annual deficits of 3 percent or less tend not to be a problem. Small deficits tend not to increase the ratio of debt to gross domestic product (GDP) and debt service as a percent of GDP. That is why the annual deficit limit under the European Union Maastricht Treaty was set at 3 percent.

The table on the right shows the dismal record of the major countries when it comes to hitting the annual deficit target during the 13 years that the euro has been in existence.

Of the 17 eurozone countries, only Finland and Luxembourg have been in compliance all 13 years. The three biggest eurozone countries, Germany, France and Italy, have been out of compliance more years than they have been in compliance. The three big, democratic, non-eurozone countries, the United States, the United Kingdom and Japan, also have had dismal records in keeping their own deficits under the prudent 3 percent rule.

The simple fact is that most democracies are unable to police their own fiscal behavior, let alone the behavior of other countries.

Europe not only is sitting on a fiscal time bomb, which already is starting to explode, but also has a demographic time bomb with a rapidly aging population. Despite the fiscal crisis of the past few years, which is accelerating, most of Europe has done next to nothing to cut back entitlements to a manageable level, which is equally true of the United States.

Looking at the actions of the European leaders, rather than listening to their words, it is obvious that they increasingly are using the European Central Bank to buy the sovereign debt of their members after repeatedly saying they would not. [...]

Read the whole thing, to see the table of countries referred to, and to read the blunt but to-the-point summation of the article. While it's not what most people want to hear, it's none the less refreshing to hear someone being honest about what's really going on, and where it's going. But I would say the details of the "transition" it speaks of, and what comes after, is anyone's guess.

     

Will Greece, Italy and other PIIGS sink the Euro?

For my fishtank, I got one of those Greco-Roman Ruins backgrounds. I thought perhaps, to make it contemporary, all I needed to do was add a Euro ATM machine:


It would be ironic if Greece and Italy, from which the principles of Western Civilization sprang, turn out to be also the springboard for it's collapse and ruin.

Is it really that bad? I can't say for sure. But it does look alarming, as the Europeans seem unable to contain the problem:

Spain and France: Market says you're next!

NEW YORK (CNNMoney) -- Next up on the 2011 Europe Financial Calamity tour? Spain and France.

Yes, government bond yields in Italy are still climbing -- even after the resignation of Silvio Berlusconi. With the Italian 10-year back above 7%, it's clear that investors are still very nervous about the debt problems in Europe's boot.

But perhaps more alarming is the fact that the market is now increasingly wary of Italy's Mediterranean neighbors as well.

Yields on Spain's 10-year bond have climbed to about 6.3%. That's dangerously close to the 7% level that many investors feel could signal the need for a Spanish bailout.

And France's bonds are starting to look like French toast. With yields now around 3.67%, that puts the "pain" in pain perdu. (Yes, I watch Top Chef.)

[...]

The verdict from the experts I spoke to: Unless the European Central Bank steps up to the plate with a real plan to stop the bleeding, Europe will keep bleeding.

"The market keeps looking ahead to the next potential victim in Europe," said Jurgen Odenius, chief economist for Prudential Fixed Income in Newark, N.J. "Volatility is rising because there is no comprehensive, credible solution. It's becoming readily apparent that there's only one game in town, an ECB rescue."

Europe: New leaders, same debt crisis

Odenius said he doubts that Europe will be able to convince China and other global sovereign wealth funds to put up enough capital to increase the leverage of the European Financial Stability Facility bailout fund. That means the ECB may have to be the proverbial lender of last resort.

If the ECB does not take more bold action -- namely a strong commitment to keep buying more sovereign debt -- Odenius thinks Spanish yields may soon hit 7% like in Italy. And if that happens, France could also be in serious trouble.

"The French have problems in their banking system related to Italy, Spain and other countries. Investors are not suggesting that France is a crisis just yet, but it is murky," he said.

Michelle Gibley, senior market analyst with the Schwab Center for Financial Research in Denver, agreed. European leaders need to bust out a "bazooka" to deal with the debt crisis, she said.

[...]

But the problem facing Europe right now is that leaders haven't even acknowledged they have a big financial weapon, let alone talk about a willingness to use it.

"I am concerned that European policy makers have yet to find the bazooka," Gibley said. "The crisis is rolling from one nation to the next. The contagion has not been contained."

Eurozone teeters on edge of recession

Her biggest worry is that European governments are simply choosing to focus on austerity to deal with their fiscal problems. But while budget cuts, higher taxes and more responsible spending can help cut onerous debt loads, such actions do nothing to help stimulate their economies.

"The debt crisis is now potentially entering a dangerous cycle where austerity just reduces growth, borrowing costs continue to rise and credit ratings get downgraded. That's because nobody is addressing growth," Gibley said. "How much more turmoil does there need to be before the ECB does more?" [...]

But how much more CAN they do? Can they stimulate economic growth, sufficient enough to stay on top of their debt payments? If they don't have a bazooka, will they get one in time?

It all remains to be seen. Hopefully not on a fish tank backdrop.


Also see:

Why Greece is in trouble. And a warning for us.
     

Beggars can't be choosers. Or CAN they?

Greece to hold referendum on Europe debt deal

[...] "This referendum will be a supreme act of democracy and of patriotism," Papandreou said, apparently catching many lawmakers by surprise. "The [Greek] citizen will be called upon to say a big 'yes' or 'no' to the new loan arrangement."

But asking voters to support harsh austerity measures that were part of a painstakingly crafted bargain with Greece's creditors casts uncertainty over the country's ability to meet its part of the deal.

Greece is facing the possibility of a devastating default that could imperil the fate of Europe's single currency, shatter global markets and get the country evicted from the 17-nation Eurozone.

[...]

Angelos Tolkas, a government spokesman, said details involving a referendum were under review. It would be the first such public ballot in Greece since 1974, when voters decided to abolish the monarchy after a brutal military dictatorship.

"It will most likely take place in January and it will be binding," Tolkas said.

[...]

A poll published in the To Vima weekly newspaper over the weekend showed 6 in 10 Greeks opposing last week's rescue deal, many fearing more cutbacks in wages and jobs. Still, 54.2% supported the idea of a referendum, while 40% believed Parliament should decide whether the deal makes sense for Greece.

Whispers about a referendum had been heard for weeks. Still, Papandreou surprised opposition rivals, and even some of his aides.

Members of the Communist Party referred to the move as blackmail. Rival conservatives said Papandreou was dangerous, with New Democracy party spokesman Yannis Michelakis saying that instead of "withdrawing honorably, [Papandreou] dynamites everything."

Senior government officials said Papandreou could push the agreement through Parliament should the public knock down the debt deal in the referendum.

Whatever the contingency plan, Christopher Pissarides, a Nobel economics laureate, told Sky News, "a rejection [of the European deal] will be disastrous."

"Greece will default immediately," Pissarides said, "and I can't see them staying in the euro having rejected such a vital EU plan."

So if they decide having half of their debt eliminated isn't good enough, they will take the global economy down with them? I thought kicking them out of the EU was not an option?

Pure democracies always destroy themselves. Is that what we are going to see here? The Greek president using his "dynamite" and going out with a bang? And taking the global economy with him?

I guess we'll see in January, won't we?


Also see:

Why Greece is in trouble. And a warning for us.

     

The Itchy & Scratchy Junker & Rompuy Show

Would you buy a used car from these guys? I wouldn't:

Eurogroup president Jean-Claude Junker and
Herman Van Rompuy, head of the European Council

EU officials scramble to solve the crisis

[...] As a work around, officials are reportedly considering a plan to use EFSF funds to provide loans that governments can use to partially insure new issues of domestic debt. But this would effectively add to already unsustainable levels of public debt.

"All of this is stupidity," said Columbia Business School professor David Beim. "All they can think to do is get an ever larger fund and throw it into ever worse assets."

Beim, like many economists, argues that the first step toward stabilizing the eurozone is to restructure the Greek government's debt load. All else merely delays the inevitable and perpetuates the crisis. [...]

If you read the full article, it sounds like it's all about going nowhere quickly. Re-arranging deck chairs on the Titanic. Borrowing from Peter to pay Paul.

It sure doesn't inspire confidence. I wouldn't much care what they do, except that it will have global consequences. And what might those be?
     

Borrowing from Peter to pay Paul?

American Dollars to prop up the Euro:

Central Banks Act in Concert to Ease Fears on Europe Debt

FRANKFURT — Worried that Europe’s debt impasse posed a growing threat to the global financial system, the world’s major central banks moved Thursday to assure that European banks would not run short of cash as troubled nations like Greece and Italy sought to stabilize their economies.

The central banks, in a coordinated action intended to restore market confidence, agreed to pump United States dollars into the European banking system in the first such show of force in more than a year. Some banks have found it hard to borrow dollars as American lenders grew nervous about their financial condition.

Thursday’s action, coming almost exactly three years after the collapse of the investment bank Lehman Brothers, lifted global stock markets, sharply increasing the value of shares in banks heavily exposed to debt from Greece and the other struggling members of the euro zone. The euro, which had been falling in recent days, rebounded.

The central bank action came as European finance ministers and other policy makers were gathering in Wroclaw, Poland, for meetings on Friday and Saturday. The United States Treasury secretary, Timothy F. Geithner, who was scheduled to attend, was expected to urge European officials to act more aggressively to contain the sovereign debt crisis, which has already begun to undercut growth in Europe.

While the move will relieve some pressure on troubled banks, it does not address the underlying problems that made it difficult for the banks to borrow dollars on their own.

[...]

The European Central Bank said it would allow banks to borrow dollars for up to three months, instead of just for one week as before, giving them breathing room for the rest of the year. The E.C.B. said it was acting in cooperation with the Federal Reserve of the United States, the Bank of England, the Bank of Japan and the Swiss National Bank.

In recent days some European banks have faced difficulties in borrowing dollars, whether from other banks or from money market funds in the United States. There was fear that if they could not borrow dollars, they would be forced to cut off loans to American companies or sell dollar-denominated assets, perhaps forcing prices down in already unsteady markets.

The move was possible under deals between the central banks that were already in existence, and the Fed saw no need to make an announcement on Thursday.

While there now is more certainty that banks will have access to funds, deeper issues remain unresolved, including whether they have enough capital to withstand a possible default by Greece on its government debt.

An official forecast warned Thursday that growth in Europe would come “to a virtual standstill” toward the end of the year. It predicted, though, that Europe would just barely avoid a double-dip recession.

[...]

Analysts said they expected Mr. Geithner to press European ministers in Wroclaw to increase the resources available to their bailout fund for the euro zone countries. But even the expansion of the fund to 440 billion euros ($611 billion), agreed to in July, has yet to be ratified. There is some worry that countries guaranteeing the bailout fund might themselves face doubts about their own credit. [...]

Gee, ya think?

Worried about losing your high credit rating? Just borrow from somebody whose already lost theirs.

     

"The psychological pain will be much greater than the Great Depression, even though the physical conditions will be much better."

That's a quote from an author selling a book about the coming burst of the "dollar bubble", and what changes it will bring to life in the USA.

I've posted previously about dangers to US currency, about various scenarios such as a complete collapse of our currency similar to (or even worse than) the hyper inflation of 1920's Germany.

But what if, the actual consequences were not as bad as any of those? Or even as bad as the Great Depression of the 1930s? Authors of a new book make a similar claim, but they also say it's going to SEEM worse to us, because we've gotten so used to easy money and credit for so long.

Their book is called "Aftershock":

Aftershock: Protect Yourself and Profit in the Next Global Financial Meltdown

From the Inside Flap
From the authors who accurately predicted the domino fall of the conjoined real estate, stock, and private debt bubbles that led to the financial crisis of 2008 and 2009, now comes the definitive look at what is still ahead in 2012 and beyond—and what investors can do right now to protect themselves.

Based on the authors' unmatched track record of precise predictions in the two landmark books America's Bubble Economy and Aftershock, this Second Edition of Aftershock updates the original book by more than 35 percent with fresh analysis of the latest economic developments, plus offers new in-depth advice for how readers can prepare now for protection and profits in the next global money meltdown.

The second edition of Aftershock shows readers:

Why the latest actions by the U.S. Federal Reserve will eventually damage the dollar and hurt investors worldwide

How future rising inflation and interest rates will harm your specific investments, and what to do about it

The future fall of China's bubble economy, as well as current and future problems with European debt

Detailed investment advice about real estate, retirement, annuities, life insurance, and much more

What's next for stocks, bonds, currencies, commodities, and other assets

How to buy and own gold and silver before, during, and after the coming Aftershock

O.K. fine, another one of THOSE books. They all seem to say "buy gold", which is fine if you got plenty of spare cash lying around. Sorry, none of mine is spare or lying around, it's all working. Then they usually offer advice about managing your stock portfolio, your 401K, and other things I don't even have.

I haven't read this book, so I don't know if it's like that. I don't even know if I would buy it. So why am I writing about it?

Because, the authors claim that their publishers made them delete a chapter from the book, that talks about what life is going to be like in the USA after the currency bubble bursts, on the grounds that it was "too grim".

Well, that did make me curious. And it turns out, they have made that 20 page chapter available as a free download on their Amazon page:

More to Explore: Bonus Chapter
Read a bonus chapter (PDF)--available exclusively on Amazon.com--which details the authors' predictions and recommendations for a post-dollar-bubble world.

Now of course I know this is a promotional device for selling the book. Duh. But that doesn't mean that some of the ideas expressed aren't interesting. Lets have a look at a few excerpts and see:

[...] When the dollar bubble collapses, the huge government debt bubble will fall, too. That means the falling value of the dollar will have caused enough foreign investors to become concerned enough about the value of their dollar-denominated investments that they will no longer be willing to buy U.S. government bonds at a reasonable price. This means the government will not be able to refinance its debt (just like a company that loses the faith of its creditors) and instead the government will have to resort to inflation, tax increases, and budget cuts to deal with the situation (see Chapter 3).

Like a family without their credit cards, the U.S. government will be forced to live within the constraints of its actual income, which at this point will be a rapidly declining tax base, much like what California is now facing, but far worse because the U.S. government became very comfortable receiving so much income from deficit financing. Inflation would normally be an additional tool for the government to raise money, but inflation can only be raised so far without destroying a modern industrial economy, such as that in the United States. The amount of inflation the government can feasibly run was discussed in Chapter 3 (about 50 to 100 percent).

That means the government will not be able to create any big stimulus packages or tax cuts or anything of the sort. It will have to cut, cut, cut spending so it can live on its income. Some may see this as a refreshing change—a government that lives within its means. But it will not feel very refreshing. Many things we take for granted, like large pensions, will have to be curtailed. We have gotten very comfortable with a government that always has money and never has to worry about running out; a government that never has to raise taxes to fund wars or stimulus packages; a government with unlimited credit. That’s over.

Even during the Great Depression the government’s finances were rock solid and it could certainly borrow money, if needed. But, in the post-dollar-bubble world, the government will be like the rest of us, only worse. It will have its credit cards cut off and a much lower income while still having a massive debt that it can’t possibly make payments on or even pay interest on, and eventually it won’t make principal or interest payments. So, it will have to live within its means.

[...]

Key cuts will hit both the "guns and butter" of the government budget. Cuts in military spending will be much larger than contemplated today and will focus disproportionately on the Navy and Air Force.

On the "butter" side, the most important cut will be to make Social Security means tested, making Social Security essentially a welfare program. For those who have little or no income or assets, Social Security will definitely be there to help. However, for those who have income or assets, forget it.

In addition, Medicare (medical care for older people) reimbursements to doctors and hospitals will be reduced. Since huge numbers of unemployed people and retirees with no more retirement money will qualify for Medicaid (medical care for poor people), Medicaid will explode in size so reimbursements to doctors and hospitals will have to be cut from their already abysmally low levels, and there will be tougher rules on what gets reimbursed. A large percentage of doctors today won’t even accept Medicaid payments because the reimbursements are too low. But Medicaid will grow to be so important that doctors won’t have any choice but to accept its payments. Essentially, in a post-dollar-bubble world, Medicaid will become our national health care program.

High inflation will do much of the dirty work in cutting budgets. Remember, when inflation is high, budget cuts are accomplished simply by not raising budgets to match inflation. So, inflation will be blamed for much of the government budget cutting. [...]

It goes on to describe huge "progressive" tax increases, why they are unavoidable, how they will play out, etc. All important and interesting but too much for me to excerpt here.

There is lots more, but I'm going to skip to a few highlights:

[...] The high unemployment and high bankruptcy rates of the post-dollar-bubble economy, combined with a greatly pared down government will, for a while, create an unusual set of economic conditions. For example, in such a chaotic economic situation, there will be little incentive for people to pay their mortgages or other debts. Many of their creditors will be insolvent and there will be no significant market for selling the properties. Much of the management of these debts will be handed over to an overwhelmed government with little interest in foreclosure. Even if it did foreclose, who would it possibly sell the properties to? And there will be no serious financing available for buyers at that point, anyway. Certainly, the government won’t be able to provide financing.

A good decision for many people will be to simply stop paying their debts. Even rent may not be worth paying as evictions could become increasingly politically difficult for elected sheriffs to carry out. Plus, it will be difficult for landlords to find good tenants to replace the bad ones. Debt repayment will become a bit lawless during this period.

Businesses will follow a similar path as individuals. They will stop paying mortgages and other debts and even limit the rent they pay to what is needed to fund basic utilities and maintenance. They won’t be making much money and if they have to pay rent above basic costs, in many cases, they will go under—something the landlord doesn’t want to see either since there are no good tenants to replace them.

As a result of all this, squatters will be increasingly common for business, and even more common for individuals since it will be politically difficult, and of little economic advantage, to throw tenants out. Local governments will have very tight budgets and won’t have the resources to spend on throwing people (and voters) out of their homes so that the landlord can have a vacant property with no prospects of rental. This situation will not last forever, but in the meantime, people will take advantage of it.

[...]

Pension fund investments in stocks, bonds and real estate will plunge in value. Government contributions to pension funds will also plunge along with falling tax receipts. Government unions may protest, but the reality will be a lack of tax revenue and there will be little ability or interest in raising taxes to fund payments to employees who aren’t working while governments have to massively cut the number of employees who are working.

Yes, there may be lots of legal challenges, but in the end, the bottom line will be the bottom line. Also, since inflation will be high, the easy way to cut pensions will simply be to raise them less than inflation. If pensions are not inflation adjusted, they are easy to eliminate. If they are inflation adjusted, expect the laws to be changed so that they are no longer inflation adjusted.

Yes, there will be court fights, but the money simply won’t be there anymore. Even federal pensions will go the way of state and local pensions. So, clearly there will be will be no federal government bailouts of state and local pensions.

[...]

FDIC insured savings accounts are a bit different. There will likely be some sort of needs based payment for small insured accounts. Clearly, there won’t be full payment, but the government may be able to pay with inflated dollars some portion of FDIC insured savings when banks fail. Since so many banks will be failing, the government can’t possibly pay accounts that are above the insured level, but it could pay some amount of money on accounts under the maximum level of insurance, currently $250,000.

The government will also be able to maintain a payments mechanism so that there will be no problem conducting transactional banking business, such as writing checks or using debit cards. The government will also be able to support banks in making asset- based loans on items such as inventory and receivables. However, the government won’t be able to support banks to make mortgage loans, non-asset based business loans, commercial real estate loans, loans to buy businesses, credit card loans, etc.

[...]

No New “New Deal”

While some people now say they are worried about drifting toward socialism or "sharing the wealth," in fact there won’t be much wealth to share. Instead of the rich funding the poor, the middle class will shoulder most of that burden by paying very high taxes to fund nearly all of the enormous number of people on welfare. Instead of shared wealth we will have "shared poverty".

With the government essentially in default on its loans, it will have no way to raise money for its welfare programs, other than through taxes. And since there will be so few wealthy people left to tax, that leaves only the middle class and the much smaller upper-middle class to carry the load. Still, working and paying very high taxes, perhaps as high as 50 percent, will be better than not working at all.

[...]

The most important difference in the post-dollar bubble world from the pre-dollar bubble world won’t be lower stock or real estate prices, but interestingly, jobs. On a day-to-day level, the lack of jobs will be what affects people the most. Many people lucky enough to have jobs will move down the ladder, not up. For example, a former senior accountant at an accounting firm might have to take a job as a bookkeeper or very junior accountant at a business, and at much lower pay, rather than at an accounting firm Employees will work longer hours for less pay and in less appealing conditions. Benefits will be gone or reduced and competition for jobs will be fierce. Just about everyone will know they could be easily replaced.

However, it won’t be anything like the Great Depression of 1929 because of two important differences:

1. The nation will be much wealthier, so few will suffer like they did in the Great Depression.

2. Paradoxically, because we are much wealthier, unemployment will be much higher, likely in the 40- to 60-percent range, when counting the discouraged unemployed.

Unemployment can be much higher when the nation is wealthier because people don’t have to have jobs. Unemployed people can live with parents, children, relatives, or friends. Plus, there will be a solid safety net of welfare from the government, although people who are used to today’s prosperity will consider the net abysmally low.

In the Depression, if there were a job paying pennies for picking oranges (as in The Grapes of Wrath) you’d take it because you had to. In our much wealthier society, the people who do have jobs will be much better paid and will help support friends and relatives who are unemployed.

[...]

With unemployment in the 40- to 60 percent range, GDP will also drop by a similar amount, but again, even with a 50 percent drop, that would still be a $7 trillion economy in today’s dollars. That’s still pretty big bucks. However, it won’t feel like big bucks. And that is another big difference between the post-dollar-bubble world and the Great Depression: The psychological pain will be much greater for us today.

[...]

As mentioned earlier, This is because expectations were so very high prior to the Bubblequake; much higher than before the Great Depression. Real estate had gone up phenomenally, stock values had gone up phenomenally, and money was easy, not only in the United States but overseas, as well. It seemed like a new billionaire was born every minute. [...]

There is lots, lots more. How small businesses, student loans, education, banks etc. are going to be affected. And of course a pitch to read the whole book.

I'm not saying I think it's all true; but I can see the logic of many of the arguments. Anyway it's food for thought, in the interesting times we live in. Read the whole thing and see what you think.

Whether or not it's a glimpse of the Brave New World ahead of us, remains to be seen. At any rate, we shall see.
     

Confidence is slipping as debt grows...

Last month it was US bonds. Now, this:

S&P cuts long-term outlook for US debt to negative

WASHINGTON – Standard & Poor's Ratings Service downgraded its outlook Monday on U.S. government debt, expressing unprecedented doubts over the ability of Washington to bring the massive federal budget deficits under control.

The agency lowered the long-term outlook to "Negative" from "Stable," saying there is a one in three chance the United States could lose its top investment rating on its debt in the next two years.

S&P said it has little confidence that the White House and Congress will agree on a deficit-reduction plan before the fall 2012 elections and doubts any plan would be in place until after 2014.

The government is on pace to run a record $1.5 trillion deficit this year, the third consecutive deficit exceeding $1 trillion. President Barack Obama and congressional Republicans are sparring over how to reduce the nation's red ink. Their differences over where to cut have put a crucial decision over raising the nation's debt limit in jeopardy.

"We see the path to agreement as challenging because the gap between the parties remains wide," said Standard & Poor's credit analyst Nikola G. Swann.

Stocks plunged after the rating agency lowered its outlook The Dow Jones industrial average fell more than 200 points in afternoon trading.

S&P reaffirmed its investment-grade credit ratings on the U.S. long- and short-term debt itself. But it said the U.S. government is in danger of losing the top ranking if it doesn't come up with a credible plan for reducing its debt. [...]

Time is running out. It never should have been allowed to get this bad.
     

Egypt's "Facebook" Revolution. Being hyjacked?

Perhaps not yet. And hopefully, not at all. But can the youth hang on to it?


Is it really the internet, things like Facebook, Twitter and Google, that sparked the revolution? And is it now being usurped by others? Many of the younger Egyptians seem to think so:

Freed young leader energizes Egyptian protests

CAIRO – A young leader of Egypt's anti-government protesters, newly released from detention, joined a massive crowd in Cairo's Tahrir Square for the first time Tuesday and was greeted with cheers, whistling and thunderous applause when he declared: "We will not abandon our demand and that is the departure of the regime."

Many in the crowd said they were inspired by Wael Ghonim, the 30-year-old Google Inc. marketing manager who was a key organizer of the online campaign that sparked the first protest on Jan. 25 to demand the ouster of President Hosni Mubarak. Straight from his release from 12 days of detention, Ghonim gave an emotionally charged television interview Monday night where he sobbed over those who have been killed in two weeks of clashes.

He arrived in the square when it was packed shoulder-to-shoulder, a crowd comparable in size to the biggest demonstration so far that drew a quarter-million people. He spoke softly and briefly to the huge crowd from a stage and began by offering his condolences to the families of those killed.

"I'm not a hero but those who were martyred are the heroes," he said, breaking into a chant of "Mubarak leave, leave." When he finished, the crowd erupted in cheering, whistling and deafening applause.

Ghonim has emerged as a rallying point for protesters, who reject a group of traditional Egyptian opposition groups that have met with the government amid the most sweeping concessions the regime has made in its three decades in power.

Protesters have lacked a clear, representative voice and many worry the traditional parties are trying to hijack the uprising, which began when activists used the Internet to mobilize protester. The mostly youthful protesters are insisting that no concessions will do unless Mubarak steps down.

In his first television interview Monday night, Ghonim dubbed the protests "the revolution of the youth of the Internet" and proclaimed defiantly: "We are not traitors."

About 130,000 people have joined a Facebook group nominating Ghonim as the spokesman of their uprising. The page is called "I delegate Wael Ghonim to speak in the name of Egypt's revolutionaries." [...]

Not only is this story not over yet, it's clearly just beginning. Where it's going, I don't think anyone knows for sure. The Facebook youth may have opened the door, but is it creating the "void" that Hillary Clinton warned about, where whoever has the most brute force on the ground can rush in and seize power? Can that be prevented?

And while the internet certainly is playing a role, I believe the actual spark has more to do with economics:

The Economic Roots Of the Revolt
Few countries have been less integrated into the global economy than Egypt.

The mass movement engulfing Egypt exposes a fact that has been hiding in plain sight: In a decade during which China has brought more people out of poverty at a faster rate than ever in human history, in a period of time where economic reform has been sweeping the world from Brazil to Indonesia, Egypt has missed out.

A decade ago, IBM ran a series of commercials featuring its global reach. One included a fisherman sailing on the Nile, tapping into a wireless network. It was an enticing image—and almost completely fictional. Few countries have been less integrated into the global economy.

The country ranks 137 in the world in per-capita income (just behind Tonga and ahead of Kirbati), with a population in the top 20. And while GDP growth for the past few years has been respectable, averaging 4%-5% save for 2009 (when all countries suffered), even that is at best middle of the pack in a period where the more competitive dynamic nations have been surging ahead.

Egypt has long been famous for crony inefficiency. Yet Hosni Mubarak was graced with nearly $2 billion in annual U.S. aid, another $5 billion from dues from the Suez Canal, and $10 billion in tourism, so he could buy off a considerable portion of the 80 million Egyptians. [...]

It goes on into a lot of detail. While some of the problems are unique to Egypt, others are endemic to the region.

Many countries of the Middle East are borrowing money to keep food prices down, instead of creating jobs. Like the Western nations, they are also accumulating massive debts. It's an unsustainable situation. Where is it going to lead to?


Also see: Tahrir photos

     

From "California Dream", to "Hell Hole"

22 Facts About California That Make You Wonder Why Anyone Would Still Want To Live In That Hellhole Of A State

... what most people are focused on right now is the horrific financial condition that the state of California currently is in. Governor Brown recently summarized his analysis of California's financial condition with the following statement: "We've been living in fantasy land. It is much worse than I thought. I'm shocked."

Yes, things really are that bad in California.

The following are 22 facts about California that make you wonder why anyone would still want to live in that hellhole of a state....

What? ONLY 22? Having lived there for 24 years, I can tell ya, there's more.

Here is how they got where they are now:

Harsh Truth About California. And Our Nation?

And this, I think, may be their only way out:

Best option to avoid a massive federal bailout
     

Best option to avoid a massive federal bailout

Sounds good to me:


Give States a Way to Go Bankrupt

[...] In the decades since the constitutionality of municipal bankruptcy was affirmed by the Supreme Court, the most serious obstacle in practice has been the rule that only insolvent municipalities can file for bankruptcy. Because a struggling city theoretically can raise taxes or slash programs, it often isn’t clear if even the most bedraggled city needs to be in bankruptcy. In 1991, a court concluded that Bridgeport, Connecticut—which wasn’t anyone’s idea of a healthy city—had not demonstrated that it was insolvent, and rejected Bridgeport’s bankruptcy filing. To avoid this risk, without making bankruptcy too easy for states, Congress would do well to consider a somewhat softer entrance requirement if it enacts bankruptcy-for-states legislation. Current corporate bankruptcy does not require a showing of insolvency, and the new financial reforms allow regulators to take over large banks that are “in default or in danger of default.” Although these reforms are in other ways deeply flawed, the “in default or danger of default” standard would work well for states.

Given that a new bankruptcy chapter for states would clearly be constitutional, and the entrance hurdles could easily be adjusted, the ultimate question is whether its benefits would be great enough to justify the innovation. They would, although a bankruptcy chapter for states would not be nearly so smooth as an ordinary corporate reorganization. When a business files for bankruptcy, the threat to liquidate the company’s assets—that is, to simply sell everything in pieces and shut the business down—has the same effect on creditors that Samuel Johnson attributed to the hangman’s noose: It concentrates the mind wonderfully. Because creditors are likely to be worse off if the company is simply liquidated, they tend to be more flexible, and more willing to renegotiate what they are owed.

One can imagine something like a liquidation sale for cities and even states. Indeed, in the early 1990s, professors Michael McConnell and Randal Picker proposed that Congress amend the existing municipal bankruptcy chapter to allow just that. They argued that many of a city’s commercial, nongovernmental properties could be sold in a municipal bankruptcy, and the proceeds simply distributed to creditors. (They also suggested that municipal boundaries could be dissolved, with a bankrupt city being absorbed by the surrounding county.) Although California has taken small steps in this direction on its own—it recently contracted to sell the San Francisco Civic Center and other public buildings to a Texas investment company for $2.33 billion—it seems unlikely that Congress would give bankruptcy judges the power to compel sales in bankruptcy. Nor could it do so with respect to any property that serves a public purpose. Liquidation simply isn’t a realistic option for a city or state. (The same limitation applies to nation-states like Ireland and Greece, whose financial travails have reinvigorated debate about whether there should be a bankruptcy-like international framework for countries.)

With liquidation off the table, the effectiveness of state bankruptcy would depend a great deal on the state’s willingness to play hardball with its creditors. The principal candidates for restructuring in states like California or Illinois are the state’s bonds and its contracts with public employees. Ideally, bondholders would vote to approve a restructuring. But if they dug in their heels and resisted proposals to restructure their debt, a bankruptcy chapter for states should allow (as municipal bankruptcy already does) for a proposal to be “crammed down” over their objections under certain circumstances. This eliminates the hold-out problem—the refusal of a minority of bondholders to agree to the terms of a restructuring—that can foil efforts to restructure outside of bankruptcy.

The bankruptcy law should give debtor states even more power to rewrite union contracts, if the court approves. Interestingly, it is easier to renegotiate a burdensome union contract in municipal bankruptcy than in a corporate bankruptcy. Vallejo has used this power in its bankruptcy case, which was filed in 2008. It is possible that a state could even renegotiate existing pension benefits in bankruptcy, although this is much less clear and less likely than the power to renegotiate an ongoing contract.

Whether states like California or Illinois would fully take advantage of such powers is of course open to question. During his recent campaign, Governor-elect Jerry Brown promised to take a hard look at California’s out-of-control pension costs. But it is difficult to imagine Brown taking a tough stance with the unions. Even in his reincarnation as a sensible politician who has left his Governor Moonbeam days behind, Brown depends heavily on labor support. He doesn’t seem likely to bring the gravy train to an end, or even to slow it down much.

But as Voltaire warned, we mustn’t make the perfect the enemy of the good. The risk that politicians won’t make as much use of their bankruptcy options as they should does not mean that bankruptcy is a bad idea. For all its limitations, it would give a resolute state a new, more effective tool for paring down the state’s debts. And many a governor might find alluring the possibility of shifting blame for a new frugality onto a bankruptcy court that “made him do it” rather than take direct responsibility for tough choices.

This brings us back to the issue of federal bailouts. When taxpayer-funded bailouts are inserted into the equation, the case for a new bankruptcy chapter becomes overwhelming. And it’s a case for Congress to move now on the creation of a state bankruptcy law.

With the presidential election just two years away, the pressure to bail out California, Illinois, and perhaps other states is about to become irresistible. As we learned in 2008 and 2009, it is impossible to stop a bailout once the government decides to go this route. [...]

I think we NEED a state bankruptcy law. I don't see another viable alternative. Bailouts just increase debt without solving the problem.

It was hard to chose excerpts, it's worth reading the whole article. There are many examples given that back up what is being said.


Also see:

Government Employee Unions are Ruining Us
     

Why it's important to have savings, and budget

Reason #1 is, so you don't end up like THIS:

Funding cuts leave many without home heating assistance in Macon

Showing her Georgia Power bills in the one warm room of her home, Raymeica Kelly explains how her mother, sister and herself were turned away from the Energy Assistance Program on Wednesday morning after standing in line for four hours. All three complained that the system the Macon-Bibb County Economic Opportunity Council uses to give out the assistance needs improving.

Notice the expensive large screen TV, and the gaming console underneath. I'd like to have those things too, but I don't. I also pay my own power bills, and buy my own heath insurance, etc. It wouldn't occur to me to expect anyone else to.

The article says this lady was employed, but then lost her job. Now she's employed again, but has fallen behind on her bills, and wants the government to pick up the slack. And of course if they do, she will then EXPECT the government to do so, every time she falls behind. That's human nature.

Her actual problem is, she didn't plan her finances well enough. When she was working, she should have been saving money in case a hardship like this came along. A hardship like this should, in fact, teach her that she needs to do so.

When I was young, I ran out of money between paychecks a few times. I went hungry for a day or two. It was awful, a hardship, but it taught me to be more careful with my spending. It taught me to SAVE money, so I wouldn't go through that experience again.

Saving money means spending less, and foregoing luxuries like Huge flat screen TV's and gaming consoles. You can even attain those luxuries too, eventually, by planning for them; but it means you can't get everything you want immediately.

In my youth I also got into credit card debt. It took me two years of frugal living to pay them off. By then I was good at frugal living, so I kept doing it and put the money in my savings account, until I had enough for a downpayment on a house.

To do that I had to make some sacrifices; no fancy vacations or clothes, hardly ever eating at restaurants, seldom going to movies. No new cars or expensive computers. But the sacrifices paid off in the end, helped me to get what I wanted, with planning.

By planning purchases I've been able to attain some luxuries too, over time. And maintain some savings. For most of my adult life now, I've always had some money in the bank, for unexpected expenses. You have to make sacrifices to keep savings, but you get security and independence in return.

Most people nowadays want instant gratification; they buy things on credit, and live from paycheck to paycheck, without saving anything. They spend their money on luxuries, then when something happens and they can't pay for essential goods or services, they want someone else to pay. They seem to think their security is someone else's responsibility.

I say, they need to learn from the hardship, and change their spending habits. I did, and I don't see why other people can't too. I sympathize with the suffering, but it happens for a reason. Shielding people from the consequences of their own poor planning just encourages them to keep planning poorly, instead of learning from their mistakes. And when our whole society perpetuates that, it drags us all down. We are meant to learn from hardship and use the contrast to make changes accordingly to improve our lives, to learn to make wise choices.
     

Federal deficit-cutting commission gets real

I hadn't much hope for this commission, but I may have to change my mind:

Deficit-Cutting Chairmen Call Washington's Bluff

Perhaps you don't want to play poker with Alan Simpson and Erskine Bowles.

Mr. Simpson, the Republican and former Senator from Wyoming, and Mr. Bowles, the Democrat and former White House chief of staff, are chairmen of the federal deficit-cutting commission charged with devising a way to reduce the red ink Washington is producing. They oversee an 18-member, bipartisan panel that is supposed to come up with a plan by Dec. 1, provided they can get 14 of the 18 commission members to agree on something.

That's a big if. But the two have at least increased the odds of success with the clever way they rolled out their own personal recommendations Wednesday on how to suck up that red ink.

Specifically, they jolted the capital by laying out ideas to achieve some $4 trillion in deficit reduction by 2020. Look carefully at what they did and how they did it, and you'll see that their effort was designed to box in those on all sides who would rather talk in high-sounding generalities about the deficit than deal with the unpleasant specifics.

That doesn't mean they will succeed, but their tactics have at least given them a better shot.

Consider: [...]

Read the whole thing. It seems well thought-out, and they announced it publicaly rather than privately, so it can't just be ignored. It surpasses the requested reduction amount, and has wiggle room for adjustments. Sounds like a great starting point.

     

National Debt: What the Founder's said about it

Our national debt would horrify the Founders

[...] There is no doubt that George Washington, our first president, Alexander Hamilton, our first secretary of the treasury, and Thomas Jefferson, drafter of the Declaration of Independence and our third president, would be horrified by the present financial condition of the federal government. Public debt was anathema for Washington, who in his Farewell Address admonished us to "cherish public credit," noting that "one method of preserving it, is to use it sparingly ... avoiding likewise the accumulation of debt." Washington warned that one generation could spend itself into great debt, then "not ungenerously throwing upon posterity the burthen. ..."

Hamilton's greatest service to the nation was his management of the federal government's assumption of states' debt accumulated during the Revolutionary War and under the Articles of Confederation. He knew firsthand the devastating effects of growing public debt on every sector of a society. As historian David Barton notes, Hamilton's most succinct advice to his countrymen was that they always remember "to avoid as much as possible the incurring of any new debt."

Jefferson was Hamilton's great nemesis in the political world, but the two adversaries agreed on the evils of public debt. As evidence of their agreement on this issue, Barton points to Jefferson's statement in an 1816 letter to John Taylor of Caroline: "The principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale." [...]

How far we have come from our roots. And in our over-reaching upward, how far we have to fall.
     

The Republican Problem

And what would that be? Getting people to trust them about spending:

Do Not Trust Cornyn or McConnell on Spending Cuts

[...] Republicans, perhaps because of their party’s evangelical wing, understand what it means to be born again — and they’re out to convince Americans that they are born-again debt crusaders, ready to rumble in the holy struggle for smaller deficits and less-unbalanced budgets. This takes a little bit of chutzpah. Here’s McConnell: “The American people don’t think our problem is that government taxes too little. Our problem is that government taxes too much. And that it spends too much and borrows too much. And until Democrats demonstrate even the slightest ability to restrain the recklessness with which they spend Americans’ hard-earned tax dollars, the job creators and the workers of this country aren’t about to take them seriously on how to lower the debt. The American people shouldn’t be asked to pay the price for Democrats’ recklessness through higher taxes.” Until Democrats demonstrate the slightest ability to restrain their recklessness? Fair enough, but let me refresh Senator McConnell’s memory:



Check out the spending under your guys, Senator McConnell. Notice how it doesn’t go down? This is why nobody trusts Republicans on spending: because Republicans have not earned anybody’s trust. [...]

And it doesn't help that we had eight years of a Republican Administration that spent money like a Democrat. Money we didn't have. Republicanism in recent years has meant sucking up to the social conservatives, and ignoring fiscal conservatism.

If Republicans can't put fiscal conservatism FIRST, even before social issues, then why should anyone bother with them?
     

Union abuses are costing taxpayer's plenty

The taxpayers need to be outraged. From Neal Boortz:

THE UNIONS ARE OUTRAGED?

Yesterday I told you about the unionized New York City bus drivers who took an average of two months paid leave in order to recover from being "assaulted" by spit. Turns out that someone in New York is actually trying to do something about these abuses. That person would be MTA Chairman Jay Walder, and boy does he have the unions spitting nails. They are actually MAD that they are being called out for not doing their job.

The bus driver assault story is pretty outrageous. But unfortunately, it doesn't stop there. Here are some other examples from the New York Post of some of the outrageous union practices in New York City.

• Overtime kicks in by eight-hour day rather than 40-hour week. So employees earn full pay while working less by calling out sick and then making up the lost wages through (premium) overtime.
  
  
• Many bus drivers clock a 12-hour shift for driving four hours in the morning rush and four in the evening rush. For the four hours in between, they're paid for being available -- but with no work to do.
  
  
• Whenever crew members of the Long Island Rail Road are switched from one train to another, they get another day's full pay.
  
  
• Real-time bus arrival information is finally being tested on Manhattan's 34th Street -- more than a decade after technology had made it possible. Union drivers didn't want to be tracked, so union bus mechanics refused to service wheels with the rotation-counting device needed to supplement GPS in its early days.
  
  
• While the new system on the Canarsie line can run trains with no crew aboard, L trains still operate with crews of two -- thanks to union work rules.
  
  
• The union representing crane operators insists on having full-time "oilers" at construction sites every day. But unlike the steam-driven equipment of old, modern cranes don't need constant lubrication.
  
  
• On building sites across the city, union operators must staff elevators -- even when they have normal push-buttons for each floor.
  
  
• Told it would cost $1,000 to have a union electrician plug a laptop into the wall of a Midtown hotel, one smart customer ran out and bought a spare battery for $70 instead -- and then noted it would be cheaper to buy a whole new computer than to pay the hotel electrician.
  
  
• A Midtown hotel just lost out on hosting the Sidney Hillman Foundation awards dinner after its unionized workers said they'd refuse to serve the foundation president -- because he also heads up a rival union.

Sort of makes you wonder how much money we could save on government if government employee unions were made illegal.

Bold emphasis mine. It's a good question. If the unions are going to destroy the taxpayers who pay them, I say destroy the parasitical unions. It's self-defense.


Also see:

Another perfect example of how unionized government employees are dragging us all down

Why Greece is in trouble. And a warning for us.

The cure for Greece is the one for US too
     

What happens if China stops buying US debt?

Some people who claim to know, are saying that time may be closer than we think:

China May `Crash' in Next 9 to 12 Months, Faber Says

Investor Marc Faber said China’s economy will slow and possibly “crash” within a year as declines in stock and commodity prices signal the nation’s property bubble is set to burst.

The Shanghai Composite Index has failed to regain its 2009 high while industrial commodities and shares of Australian resource exporters are acting “heavy,” Faber said. The opening of the World Expo in Shanghai last week is “not a particularly good omen,” he said, citing a property bust and depression that followed the 1873 World Exhibition in Vienna.

“The market is telling you that something is not quite right,” Faber, the publisher of the Gloom, Boom & Doom report, said in a Bloomberg Television interview in Hong Kong today. “The Chinese economy is going to slow down regardless. It is more likely that we will even have a crash sometime in the next nine to 12 months.”

[...]

Faber joins hedge fund manager Jim Chanos and Harvard University’s Kenneth Rogoff in warning of a crash in China.

China is “on a treadmill to hell” because it’s hooked on property development for driving growth, Chanos said in an interview last month. As much as 60 percent of the country’s gross domestic product relies on construction, he said. Rogoff said in February a debt-fueled bubble in China may trigger a regional recession within a decade. [...]

Read the whole thing for the details. It sounds like China is on an unsustainable path. So if China stops buying our debt, what could the response of the US government be? Neal Boortz speculated about this recently:

ARE YOU STARTING TO BELIEVE ME NOW?

[...] A story in this week's edition of Human Events details a request by the Obama Administration to the Departments of Labor and Treasury to provide information regarding the "annuitization" of private 401K plans through something the Obama crowd calls "lifetime income options." Yeah ... lifetime income options paid by and controlled by the government. The Republicans are prepared to fight .. but until next year they don't have the numbers.

The second scenario in which the government could seize our 401K or IRA plans isn't really getting all that much attention ... yet. Maybe I just dreamed it up. Here's the scenario: Obama and the Democrats, with no small amount of help from the Republicans, continue to spend America into bankruptcy. The deficit grows and our national debt grows even more hideously. Finally China, facing some economic problems of its own, decides it owns enough U.S. debt. Treasury tries to auction some more debt instruments, and China shows no interest. Suddenly the Imperial Federal Government is faced with a problem ... who is going to buy U.S. Treasuries? Just how much interest are we going to have to pay? Answer? Why, we'll make our own citizens buy them! The next thing you know the Democrats are rushing to pass legislation mandating that all outstanding funds in 401K and IRA plans be immediately used to purchase a special issue of Treasury Bills! If you want to maintain the tax advantages of these retirement instruments you'll have to invest the money in low-yield Treasuries and hold "your fair share" of American debt. Good bye to making your own investment decisions and good bye to any decent rate of return on your retirement savings. [...]

I've sometimes regretted not maintaining a 401k. Now I'm wondering if it's just as well that I didn't.
     

Why Greece is in trouble. And a warning for us.

From Neal Boortz:
BECOMING GREECE

Some of you may think that I am being dramatic when I say that images of Greece may soon become a reality in America, if we continue down our current path. Yeah ... that's me. Mr. Drama. There are two main issues that led to the downfall of Greece. First, the government took on too much debt, which means the Greek government spends too much money. While our own government debt is alarming - and growing at record rates with The Community Organizer in charge. We're in a financial crisis right now - not as bad as Greece, but bad enough - but it wasn't caused so much by government debt as it was by government ineptness. It was private debt that sent us into a tailspin. Specifically, trillions of dollars owed on real estate loans by people who didn't have and never had much of a chance of paying those loans off. Our government debt problem can still be solved - but not with this man in the White House and these big-spenders controlling the congress.

What is going to be a lot harder to solve is the second issue that led to Greece's downfall: an entitlement culture. Greece is a country that has managed to convince its people that they need the government in order to survive. Not only do they need the government but they are ENTITLED to certain things, and like any good entitlement culture, that list of "things" only grows and grows. Suddenly, the people of Greece believe that they are owed a comfortable life by their government, even if they are not willing to work for it.

In Greece the average government worker retires at 58 years-of-age with 80% of their final basic salary. The Greek government can't even tell you how many government employees there are. Some estimate that figure to be one out of three Greek workers. Unions run the show and the government marches to the demands of union leaders. In this regard Greek government officials are much like our own. Unlike the private sector, when government officials are met with unreasonable union demands for wages and job security they don't have to crunch the numbers to see if the demands can be met with any degree of fiscal responsibility. After all .. they can just raise taxes. You start weighing the effect of unions working against your reelection to the mindless voters remembering a tax increase a year later when they go to the polls and ... well, it's not hard to figure out.

Over the years, Greek salaries and pensions have risen 30% above Greek productivity ... in other words, they were getting paid more than they were worth. Not only that, but they felt ENTITLED to this payment and only sought to gain more and more while doing less and less. We are talking about a culture where being a hairdresser is considered a "hazardous job" ... a hazardous job that makes you eligible to retire with a full pension (funded by the government) at the age of 50. But it's not just hairdressers, there are 580 other job categories that have managed to convince the government that there job is so hazardous that they are worthy of an early retirement - 50 for women and 55 for men. Radio and TV presenters - I guess that would include yours truly - can take early retirement because they are thought to be at risk from bacteria on their microphones. Musicians who play wind instruments .. they can retire at age 50 because they have to deal with gastric reflux from all the puffing and blowing.

No, I am not making this stuff up. This is what happens when you have a country that believes they are owed everything and a government that is willing to give it to them because that gives them (the politicians) more power. In the meantime, paying for this mentality mattered not ... until now.

Are we now watching the final chapter in Greece? The EU and the IMF are ready to bail out Greece with over $150 billion dollars, but there are strings. Wages are going to have to be cut. Government employees are going to lose jobs ... and, as you can see if you peel your eyes away from Inside Edition this evening ... the Greeks don't like it. They're rioting. They're attacking their own police officers. They're destroying property. Greece is virtually paralyzed by violence .. people reacting to the reality that their cushy ride might be coming to an end. You're seeing what happens when a parasite is separated from the host ... when the protected and coddled face the prospect of having to develop a bit of self-reliance.

Could this happen in America? Can someone please tell me why it could not?

The situation in Greece has become unsustainable. Government unions are the biggest culprit.

Unions thrive only when they have a healthy host to feed off of. But too often they see their host as an enemy to be destroyed. If they succeed in weakening or destroying their host, they also weaken and destroy themselves.

Some Unions in the private sector understand this, and work with their capitalist host to ensure the company remains profitable; the relationship is more symbiotic than parasitic. Ford Motor Company comes to mind. They are unionized, but didn't need a bail-out like GM. Ford and the Union maintained a balance, so they could both survive and prosper.

Such enlightened self-interest is not practiced by government unions, which tend to see their host as having unlimited deep pockets. When permitted to grow unchecked, the Greece Crisis is the inevitable result.

As the unionized portion of our own government continues to grow rapidly under the current administration, we would be wise to learn from the mistakes of Greece, so as not to repeat them.


Also see: Beware of Greeks bearing Red Flags

     

Understanding the meaning of "Trillions"

Nowadays we are seeing numbers mentioned in government spending, that should belong in astronomy rather than accounting. They are so HUGE, it's hard to grasp. Here are some sites that can help:

What does one TRILLION dollars look like?

All this talk about "stimulus packages" and "bailouts"...

A billion dollars...

A hundred billion dollars...

Eight hundred billion dollars...

One TRILLION dollars...

What does that look like? I mean, these various numbers are tossed around like so many doggie treats, so I thought I'd take Google Sketchup out for a test drive and try to get a sense of what exactly a trillion dollars looks like.

We'll start with a $100 dollar bill. [...]

It's a good visual presentation. Here is one example of what One Hundred Million Dollars (in $100 bills) would look like, stacked on a palette:



Follow the link to see what a Trillion Dollars would look like in $100 bills. It's mind boggling. Then multiply THAT by 10, and you will have our current National Debt. Unbelievable... and unsustainable.

HT: Walker at Subtle oak flavor; Pleasing finish


Here's another article that tackles the topic:

Obama’s dangerous budget leaves GOP at loss for words

[...] Insensitivity to scope is a major obstacle to understanding the Obama administration’s $3.6 trillion 2010 budget. People simply have trouble understanding a number so big. A recent poll asked Americans how many million are in a trillion. Twenty-one percent of respondents got the answer right — it’s a million million. Most people thought it was a lot less.

Republicans are facing that obstacle as they try to explain the dimensions of Obama’s spending plan. The GOP pollster told me he tries to explain it by asking people to think of a dollar as a second — one dollar, one brief tick of your watch. A million seconds, the pollster explained, equals eleven days. A billion seconds equals 31 years. And a trillion seconds equals 310 centuries.

The task of educating voters got a little more urgent Monday, when the government announced the not-terribly-surprising news that federal tax revenues will be smaller this year than previously thought. After a review of the Obama budget’s numbers before formal submission to Congress, Budget Director Peter Orszag said this year’s deficit will be $1.841 trillion — $89 billion more than previously estimated. If you’re listening to the ticks of your watch, that’s about 570 centuries. [...]

570 centuries worth of seconds... dang. Such numbers, applied to currency and accounting balance sheets, are very scary indeed. And for good reason.
     

Democrat Gamble makes Republicans Scramble

Harry Reid has criticized Republican's for not being bipartisan enough, claiming that they want President Obama to fail. But how can they be "bipartisan", if by definition it means jumping off a cliff with the Democrats? Is not agreeing to mutual suicide really "wanting Obama to fail"?


Ironically, I think if the Democrats would have worked on a truly bi-partisan approach to solving the crisis, they could have, with Republican help, insured Obama's success for improving the economy and creating jobs. Instead, they are taking a terrible gamble that seems suicidal to many of us.

This article in the San Francisco Chronicle attempts to make a very positive pitch for Obama's budget and the Democrat's agenda. But even with all the gushing and praise, it acknowledges many of the risks being taken:

Obama taking big political risk with budget

[...] After two years of protecting her conservative Blue Dog Democrats by signing off on farm subsidies and avoiding immigration votes, Pelosi has signaled a leftward shift, warmly embracing the Obama budget as the culmination of a vision she has fought years to achieve. "We are very excited, I guess is the word," Pelosi told liberal media representatives last week. "Now we have a president who shares our values and has the right priorities."

Like former President Reagan, who inherited an economic calamity from a deeply unpopular predecessor, Obama is using the crisis to change government's role in the economy. "We are at an extraordinary moment that is full of peril but full of possibility," Obama told PBS' Jim Lehrer, "and I think that's the time you want to be president."

If the polls are accurate, the economic meltdown has altered public attitudes about government, be it the appetite for health care reform, regulation of banks or higher taxes on the wealthy.

"What you've got is a context that makes a very ambitious budget strategy possible in a way that wouldn't be possible in times we would call normal," said Bruce Buchanan, a presidential scholar at the University of Texas. "This is a rare moment." [...]

I read the whole thing. I can follow the logic of the arguments being put forth in favor of what's being done. Yet I can't see that it's going to work, because it's the same flawed logic that got us into this mess. Even the article warns there are a number of pitfalls that could cause it to fail:

[...] Historically, a president's first year is almost always his most productive. "If you can't do it in your first term with your first budget, you almost never get a chance to do it later," said Stan Collender, a veteran budget expert now with Qorvis Communications, a Washington public relations firm. And when a new president comes from a different party than his predecessor, big changes are expected. [...]

President Obama's $3.6 trillion spending and tax plan is the most ambitious effort to shift the federal government's role in the economy since former President Ronald Reagan's in 1981. But instead of rolling back government, Obama advocates spending in three key areas, each dependent on the others. If Congress declines to raise taxes on carbon emissions, for example, money for the middle-class tax credit vanishes, forcing the deficit even higher. [...]

If Obama would only cut taxes to create jobs and increase investment, he would increase the tax revenue from new and expanding businesses, which could fund many of his programs. A true bi-partisan compromise could have achieved that. The problem is, in the name of "fairness", he's instead punishing business with higher taxes, causing investors to sit on their money, shrinking the tax payer base, and borrowing trillions to pay for the Democrat's massive budget agenda. It's growing a bubble that's bound to burst.

Debt is the problem, not the solution. Many Republican's turned against George Bush and the Republican Party for continuing to spend money we don't have, increasing our debt massively and weakening the dollar. And now ironically, Obama is compounding that problem.

If it works I'll eat these words, but I honestly don't see how it can. Jimmy Carter threw endless money at problems, with very bad consequences. It's looking more and more like Barack Obama intends to do the same.

This Administration is still new, and they could conceivably learn from their mistakes. Carter didn't learn from his mistakes, and had one term. Will Obama?


Related Links:

More than a bad day: Worries grow that Barack Obama & Co. have a competence problem

Is Obama taking on too much at once, at economy's expense?

President Obama: a "Leader" or a "Figurehead"?

Does Obama Know What He Is Doing?

HANSON: Maxing out a crisis card
     

Harsh Truth About California. And Our Nation?

Accounting for California’s Suicide: A weird sort of utopian mindset.

Victor Davis Hanson at National Review describes the healthy and prosperous California of two decades ago, and compares it to the flailing and swiftly deteriorating basket case it has become today. Then he gets to the crux of the reason why:

[...] If we can agree that Californians have somehow squandered a rich natural and inherited wealth, what were the root causes of this collective suicide?

Critics disagree. Some cite expanding but inefficient state government, out-of-control state pensions and oppressive taxes. Or are the chief problems costly prisons and astronomical rates of incarceration, illegal immigration, unchecked welfare, and excessive regulation and environmental restrictions?

All these explanations may be valid. But less discussed is the underlying culprit: a weird sort of utopian mindset. Perhaps because have-it-all Californians live in such a rich natural landscape and inherited so much from their ancestors, they have convinced themselves that perpetual bounty is now their birthright — not something that can be lost in a generation of complacency.

Californians count on the wealth of farming but would prefer their rivers to remain wild rather than tapped. They like tasteful redwood decks but demand someone else fell their trees for the wood. Californians drive imported SUVs but would rather that you drill for oil off your shores rather than they off theirs. They pride themselves on their liberal welfare programs, but drive out with confiscatory taxes the few left to pay for them.

Californians expect cheap imported labor to tend their lawns and clean their houses, but are incensed at sky-high welfare and entitlement costs that accompany illegal immigration. Lock ’em up, they say — but the state is bankrupted by new prisons, constant inmate lawsuits, and unionized employees.

In short, after Californians sue, restrict, mandate, obstruct, and lecture, they also get angry that there is suddenly not enough food, fuel, water, and money to act like the gods that they think they have become.

This is spot-on in so many ways. When I moved to San Francisco in 1981, California was the strong and prosperous state Hanson describes at the beginning of his article. Over the twenty four years I lived their, I witnessed the deterioration he speaks of in the middle of his article.

One of the reasons I had moved to California was to further my education. I had gone to a very expensive college in Boston for a year, and was extremely disappointed in the quality of the education. California colleges and universities were supposed to be good, and less expensive.

I enrolled in SF city college a couple of times, but always ended giving up on it. The quality of the education was inferior. At best I felt it was a dumb-downed grade factory for functional illiterates; at worst, a politically correct brainwashing camp. I couldn't bear it.

I could earn such fabulous sums of money going to work at jobs most people didn't want to do, that school seemed like a waste of time. Bothering to show up for work and speaking English were job skills that served me well, I didn't need the brainwashing, thank you.

But unfortunately, the brainwashing had an effect on much of the population, and the "good life" that people had to work for in the past, suddenly began to be talked about as a "right" that everyone was entitled to, rather than a goal to work towards. I watched California become a land of spoiled people spoiling a once prosperous and healthy state. Hanson observes:

[...] Biannual state proposition initiatives, often put on the ballot by narrow special interests, allowed voters to vote for additional entitlements and benefits without providing the money to pay for them. Yet Californians are not an informed electorate, as the state’s mediocre public high schools experience 30 percent dropout rates. [...]

California lost the capacity to maintain that prosperous and healthy state, by killing the heart of the engine that drove it. And the "Utopia" mindset is the dagger that was used to do it.

San Francisco is full of people who "live for today"; they are mostly renters, and they spend their money on fancy cloths, cars, electronic gadgets, concerts, movies, vacations, restaurants, etc. They lavish all their money on themselves, or even worse, live on extended credit, so they can "live the good life" to the maximum, while simultaneously complaining about people who have more than they do. People like Pat, Andy and me, who worked hard and saved money, bought a house and built up a business. They would whine that "it's not fair" that we have what they don't.

We sacrificed, we did without all the above luxuries, so we could attain the things we wanted. They could do the same too, if they wanted. But if you were "rude" enough to point that out to them, they would start screaming at you, "What are you, some kind of REPUBLICAN?".

Those are the same people Hanson describes in his article. People who feel they are entitled to that which they did not earn. People who live on credit. People who have voted for entitlements and benefits without providing the money to pay for them.

Is it any wonder that people like us, who worked and saved, sold up and left? And Hanson points out that educated people with job skills are still leaving California in droves. The state is teetering on financial collapse. But unfortunately, I don't think this problem is limited to California. The mindset that Hanson speaks of is taking root elsewhere, and spreading across the country, like so many California trends do.

Today the Democrat Party is being led by San Francisco (Pelosi) style Democrats. I've posted about what they did to San Francisco, and much of the rest of California as well. I've posted about how the radical "Greens" among the Democrats caused California's energy crisis, which plagues the state to this day, and how Obama and the Washington DC Democrats are adopting a similar plan for our nation, which will likely have similar consequences.

Please read the entire article by Hanson, it's not very long but well worth your time. We have a lot to learn from California. Mostly, not to follow their example of the past two decades. Entitlement utopianism and people living beyond their means on credit ruined California, and now that same mindset is threatening to ruin the rest of our country. And it will, if we don't stop the rot now.

I see the same trend happening here in Oregon, and many other states that are accumulating debt by passing entitlement legislation without financing to support it. If that trend continues unabated, the consequences will likely be devastating.


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