Tuesday, June 30, 2015

One More Absurd Idea

Extending mandatory overtime pay for workers making as much as $ 50,000 is one more ridiculous idea emanating from the Obama White House.  Someone should expose the White House to a lesson in economics.

Does Obama think that companies will not react to mandated overtime hours?  Does Obama think employees will not be adversely affected by increasing costs to employers?  Does he live in a cave?

Workers, in the short run, will find their hours reduced.  In the long run, their per hour pay will be less than it would have been had the mandated overtime never occurred.  There will be more outsourcing and fewer American jobs.

Another blow against the American middle class by the Obama Adminstration.

Monday, June 29, 2015

Next Up -- Puerto Rico

Now that Greece has quit paying its bills and shuttered its banks, the next stop is Puerto Rico.  They owe $ 72 billion that they can't pay, pretty much for the same reasons as Greece.

The education of sovereign bond buyers is just beginning.  There are more defaults ahead, both in Europe and more in the US as well.  The state of Illinois and city of Chicago have absolutely no hope of avoiding default....no hope at all.  California and New York are in line as well.

If you look at the numbers, the ultimate outcome is inevitable even if the media seems to think that there is a never ending supply of bond buyers willing to underwrite folks that are doing nothing.  It's just a matter of time until reality arrives.

The Real Issue in the Greek Crisis

You can't live forever off of other people's money.  That is the simple truth that commentators seem to miss about the Greek crisis.  Every country in the world should take note.  This is not just a Greek crisis, it is a world crisis.

There has been a dramatic cultural shift in the western economies, where folks think they can live off of bondholders indefinitely.  Either that or substitute empty promises (think Medicare and Medicaid in the US) for reality.  The truth is: you get what you pay for, with the emphasis on the "you."

Living off of other people's money is not a long run solution.  Giving everyone insurance that fewer and fewer doctors will accept is not a long run solution.

In the end, people will only receive what they are willing to work for.  All the other big government solutions simply postpone the inevitable.

Sunday, June 28, 2015

Turning a Minor Problem into a Catastrophe

The collapse of the already weak Greek economy that had its beginnings in the 2010 bailout accord is a tribute to political stupidity.  The political leadership of Sarcozy, Merkel, Draghi, Lagarde has taken a minor and small problem -- a sovereign bankruptcy -- and turned it into a major political and economic disaster that threatens the entire Eurozone.

When Detroit defaulted, did that default threaten the dollar or the United States?  No.  In fact it was a minor event and not the first time that Detroit had defaulted, in any event.  So, why the heartburn when Greece was threatened with a default in 2010.  Ignorance, mainly.

When borrowers borrow more than can be repaid, borrower and lender sit down and "work out" a solution that imposes costs upon both the borrower and lender.  This is commonly known as bankruptcy.  That's the normal solution to the problem of unpayable debts. 

But, for mostly absurd reasons, the political leadership of the Eurozone, the European Central Bank, and the International Monetary Fund, decided that they knew better.  They collectively decided that free markets are irrelevant and that politicians could "rescue" Greece.   Thus the logical and normal free market solution of a controlled bankruptcy was never even considered by these political hacks.

But, at the end of the day, markets work.  Greece will default, regardless of what politicians may think.  If Greece leaves the Euro, that will be a political decision, not an economic decision.  There is absolutely no reason for Greece to leave the Euro, even it defaults, any more than Detroit should have created its own currency when it went bankrupt.

Both the media and politicians deserve an F- in economics for the past five years of stupidity regarding Greece.  Now, attention will shift to Spain, Italy and Portugal and it will be interesting to see if the same failed strategy of the "troika" will be pursued in regard to these countries. If so, look for these countries to be headline stories for the next five years, with the same easily predictable results as will soon befall Greecc.

Thursday, June 18, 2015

Bureaucratic Complications -- Grexit

So, what is the big deal here.  We have been on a five year Greek news cycle.  Why?

Greece's situation is so incredibly simple, you wonder why it is even newsworthy:  Greece owes far, far more money than could ever be repaid.  The bizarre "bailout" simply postponed, and made much more costly, what has been inevitable since 2010.  Greece can't pay its debts.  Period.  Finit.

So, what should be done.  It should go bankrupt in as controlled a fashion as possible.  But it should definitely and without question default.  From the very beginning it was completely obvious that Greece would default eventually.  It should have been done in 2010 when the total debt was half what it is today.

But no, the bureaucratic political leaders -- Merkel, Sarcozy, Bernanke -- decided that "extend and pretend" made more sense.  So, at their behest, we wasted billions more in resources pretending that we were rescuing the Eurozone.  What a joke!

So now, the Eurozone and Greece is going to suffer far more than would have been necessary had the Eurozone leaders simply offered $ 50 billion in 2010 to all of Greece's creditors to settle $ 175 billion in debt.  That would have solved the entire problem in an efficient and intelligent way, leaving Greece in the Eurozone and limiting the hit to German taxpayers.  But, no.....enter the politicians.

The politicians have turned a minor problem in 2010 into a major problem in 2015 with Greek debt now more than $ 375 billion with no hope of paying it.  So, what is the news here.  More politicians deciding the free market isn't the answer...they know better.  Free markets have frequent bankruptcies.  Bankruptcies are healthy and therapeudic, serving to remind lenders to be careful who they lend money to.

Thursday, June 11, 2015

LA Punishes the Poor

The Los Angeles city government has voted to increase the minimum wage, in stages, to $ 15 per hour.  That's irrelevant if your skill set is worth $ 25 or $ 30 per hour.  You can retain your job or get a new one.  But, for the vast majority of folks at the bottom of the economic pile, they are now likely to join the ranks of the permanently unemployed, unless they move out of Los Angeles. 

This is the big government advocates version of ethnic cleansing.  The 'less desirables' are now, by law, forbidden to sell their labor in exchange for skill development. They must move out of Los Angeles or go on welfare in order to survive the brave new world of LA.  Instead of trying to find a way to offer folks at the bottom a leg up, the LA city government has decided to show them the door.

This is the left's answer to poverty -- force the poor to move by making it illegal for the poor to develop the skills necessary to survive in LA.