Saturday, April 11, 2015

No Way Out for Greece

Either the current Greek government will capitulate to the demands of the Troika (IMF, the ECB and the EU) or the Troika will capitulate to the Greek government.  Neither is likely.

If the Troika capitulates, then Spain, Italy and Ireland will expect and demand similar treatment.  If Greece capitulates, there could be a Greek civil war.

Greece will begin printing its own currency within the next three weeks and the unraveling of the Eurozone will begin.

None of this had to happen.  Simply letting Greece default in 2010, when the default would have had a relatively minor impact, and keeping Greece in the Eurozone was the simple and obvious answer.  But, this was not an answer that appeals to bureaucrats, who think they can "fix" everything while maintaining absurd policies.  They can "fix" things for awhile, but ultimately reality (and disaster) sets in.

Sunday, March 22, 2015

Avoiding the Right Answer in Greece

The European Union and the IMF are barking up the wrong policy tree.  More and bigger government and more intrusion into the affairs of Greece are the wrong answers.  The facts are that Greece will never be able to pay off it's debts (acknowledged and unacknowledged).  It won't happen; it can't happen.  It is far past time to face this reality.

It is also a fact that a single currency for the bulk of Europe is a stupendously good idea for all of the obvious reasons.

So what is the "right answer?"

The right answer is for Greece to stay in the Eurozone and to default in whole or in part on its sovereign debt (and its other internal fiscal obligations).  This is so obvious, you have to wonder why such a solution is not being considered - at all.

The reason is that big-government policy wonks always think there is a bureacratic solution to every economic problem.  This is almost always false.  Free markets provide the best solutions to economic problems, if only they were tried.

Those who foolishly loaned Greece money should pay the piper.  They will eventually.  Why not now?

Friday, February 27, 2015

Podemus on the Rise

You might well ask: "Who is Podemus?"

Podemus is a far left political party in Spain whose hero is the late Hugo Chavez, the architect of political disaster in modern Venezuela.  Podemus is on its way to power, following a similar rise of the Greek far left party that now controls the Greek parliament.  The so-called center-left and center-right parties of Europe are steadily losing ground as communist and fascist parties capture the attention of the electorate.  Why?

The centrist parties all believe in big government and somehow think that big government is consistent with economic growth, "fair" economic outcomes, and personal liberty.  In fact, none of these outcomes are consistent with big government and it is only a matter of time before big government obliterates all three.  Once centrist parties are discredited, witness the modern day Eurozone, the extremists take over -- see modern day Venezuela.

Only free markets can provide the troika of economic growth, "fair" outcomes, and personal liberty.  Those who dispute this rely mainly on the argument that they personally know better what other people should be doing and that freedom of choice is an insignificant right.  In fact, freedom of choice is by far the most important right that a free people can have.  Eliminating freedom of choice, Obamacare is the most recent American example, leads to corruption, economic waste and unfair outcomes.

Watch Europe as the extremists begin to take over in country after country setting the stage for a potential rerun of twentieth century antagonisms.  The welfare state is failing, as Margaret Thatcher predicted, as the welfare state "eventually runs out of other people's money."

Wednesday, February 25, 2015

All Show and No Go

From Athens to Berlin to Washington DC, what passes for economic policy is conversation lacking substance.

Greek politicians were recently elected by promising to walk away from the economic reforms required under the European Union bailout.  Listening to both sides suggests that neither is listening to the other.  There is no real agreement between Greek officials and the Troika other than to "extend and pretend." Two years from now, the Greek debt and economic situation will be much worse than it is today (which will also be true for almost every country in the Eurozone).  Conversation alone cannot possibly do anything about the manifold problems in the Eurozone broadly and Greece in particular.

Another strange and bizarre exercise is the testimony this week of Fed Chairman Janet Yellen.  Rather than openly admit that economists no longer, if they ever did, have any idea what the effect of monetary policy may or may not be, Yellen got out the straight-edge once more and predicted that whatever is currently going on will continue to go on (which is basically the same speech given at every Fed briefing since Ben Bernake's reign began.

The most serious risk to the American economy, aside from terrorism, is the risk of unexpected and unanticipated inflation. We no longer have any real idea what causes inflation and an absurd pre-occupation with the possibility of deflation.  Historically, deflation has rarely done any economic damage to any real economy (with the possible exception of Britain's return to pre-war gold parity in the 1920s).  The massive expansion in central bank balance sheets throughout the western world in the past decade likely will lead to levels of inflation that are currently assumed to be impossible.  We shall see.

In any event, nothing of substance is going on in Athens, Berlin, or Washington DC these days that appears helpful to economic growth in the future.

Monday, February 2, 2015

Germany in the Crosshairs

France declared its support for the new Greek government yesterday.  France, a country with some of the most anti-competitive regulations, highest taxes and among the most flagrant violations of Eurozone fiscal rules and agreed labor law reforms, is telling Germany that Germany should step up to the plate and provide even more funding for Greece.  Fat chance.  

It is certainly true that Greece will eventually default.  It is also true that, in time, France will default as well.  Both of these countries will be joined by many others.  They will all eventually run out of "other people's money," as Margaret Thatcher once famously opined.  What happens to Germany will depend upon how much deeper Germany goes in underwriting the absurd fiscal policies of Greece, France, Italy and Spain.  Germany may well, already, be past the point of no return.  Even Germany, arguably once best "credit" in the world, is now approaching the credit-worthiness of its southern neighbors.

Saturday, January 31, 2015

Accepting A Mediocre Economy

The Obama Administration is touting the US economic recovery as a job well done.  Data made public yesterday shows that 2014 produced 2.4 percent GDP growth.  Such low levels of growth were considered cause for alarm in the years before Barrack Obama became President.  Now, such mediocrity is extolled as acceptable, even worthy of praise.  How far expectations have fallen!

As the Wall Street Journal points out in an editorial today, it is impossible to find an economic recovery this mediocre at any time in American history.  This is a new record for economic sluggishness.

Don't expect this to change as long as the "war on the economy" continues, waged by the Obama Administration and it's army of bureaucrats.  While this won't hamper the "1 percenters" like Obama, Soros, Pelosi, Kerry and Buffett, it will damage the hopes and dreams of the middle class and the poor, who have no chance of prospering with the damaging economic policies of the Obama Administration.

But, if you listen to the President, he thinks these policies have been a success -- I wonder, who for?

Tuesday, January 27, 2015

Greece Election Exposes the Great European Disease

The sweeping electoral victory of Alexis Tsipras in Greece-- one vote shy of a majority in the Greek Parliament -- means that European economic policy is finally having to face up to reality.  There is no more money to provide for leftist dreams and schemes.

In Greece, starting a business is next to impossible, corruption is endemic at all levels of government, and work ethic in everyday life is almost non-existent.  To some extent, this is simply the most extreme version of what affects all of Europe.  Laws that "protect labor" mainly serve to freeze out free markets and deny opportunities to young people.  These laws create the "haves" and the "have-nots."  If you already have one of these protected jobs -- great!  Otherwise, you're screwed.

So, what happens next.  Obviously, Greece is going to walk away from it's debts -- sovereign debt is now 175 percent of a stagnant GDP in Greece.  Greece cannot pay that, so walking away is the only available answer.  When Greece walks, the left wing political parties in Ireland, Portugal, Spain, Italy and France will take heart.  Most, if not all, of Europe will walk away from their debt obligations in time.  That is where we are headed.

Meanwhile, the Obama Administration has patterned itself after the very policies that are rapidly destroying the European Union.  Instead of economic growth, the mantra is "fairness."  "Fairness" slogans line the pathway to the Greek solution -- economic stagnation and decline.

Only free markets deliver hope for the middle class.   Watch Greece descend into chaos, as it doubles down on "fairness" solutions.