The E.U. on the Brink

Don't look now, but it appears Europe, as a confederation of European nations, is crumbling.

Ostensibly, the beginning of its troubles started with the sovereign debt crises in what are called the "PIIGS" countries (Portugal, Ireland, Italy, Greece, and Spain), but particularly with Greece's debt crisis, made much worse not only by the widespread use of credit default swaps (sponsored, of course, by U.S. financial "experts"), but also by a 110 billion Euro bailout.  Monetizing Greece's debt, however, hasn't helped, and a deal is in now in the works for another bailout.

If Greece's debt troubles weren't difficult enough for the European Central Bank to handle, now Italy faces a debt crisis of its own.  The problem with Italy, however, is that it's not Greece.  In fact, its economy is the third largest of the European Union, behind Germany and France.  Their debt is now well over 2 trillion euros.  They were thought to be too big to default, but now, they're too big to bail out.  Though it hangs by a thread, the Euro is all but dead, as British PM David Cameron asserted that the currency was facing it's "moment of truth." 

Greece's and Italy's fiscal woes are not without their political consequences, either.  Prime Minister George Papandreou resigned yesterday, as Greek faith in their government collapses.  Italian PM Silvio Berlusconi has pledged to do the same.  Economist/Bankers are taking over in their stead.  French citizens, now facing austerity measures of their own, thanks to their own contributions in attempts to keep Greece afloat, all but assume that President Nicolas Sarkozy will be replaced in coming elections by socialist candidate Francois Hollande.  German Chancellor Angela Merkel is calling for a "breakthrough to a new Europe."

No one is sure, of course, exactly how the breakup of the E.U. will play out, but in all likelihood, it's not going to be pretty.

America's Failing Corporatocracy

In May 2010, President Barack Obama paid a personal and well-publicized visit to a solar panel manufacturing company in California, called Solyndra.  In order to promote government "investment" in green technology, the Obama administration granted Solyndra a $535 billion loan guarantee.  The guarantee had been applied for and denied under the Bush administration, but the company's investors and executives had made substantial donations to Obama's campaign.  They had also spent over a million dollars lobbying Congress on bills that would benefit companies in the business of clean energy production.  Thus, the administration fast-tracked the company's loan application.  But, in early September 2011, Solyndra filed for Chapter 11 bankruptcy, and is now not only under FBI investigation, but is also being sued by the 1,100 workers who were abruptly laid off.  Meanwhile, taxpayers are now liable for the $535 million, in order to cover Solyndra's defaulted loan.

We post this news neither to single out a failed corporation, nor to single out a poor economic decision on the part of a presidential administration.  Rather, we deliver this news so as to explain that the Solyndra affair now typefies what can happen when government crawls into bed with corporations.  And anymore, crawling into bed with corporations is what government does most effectively.  Political party affiliation matters not, for both Democratics and Republicans do it.  For better or for worse, the United States has become a full-fledged corporatocracy, and as the economy flails and wags and sinks, so does the government that marries it. 

Few could, or even would, argue that government does not benefit most those who contribute to it.  Politicians cater to campaign contributors, if only to get more contributions.  Meanwhile, government funds are proportioned (lately, under the guise of "stimulus" measures), loans are guaranteed, and regulations are legislated and subsequently enforced by newly created regulatory bodies, all to the benefit of specifically those entities that have contributed.  As those companies succeed, more is contributed to the politicians who perpetuate and propagate them; and when they fail, they're "bailed out."

Yet, though many may admit to America's corporatism, few seem to recognize that the ones who must ultimately pay for it is, well, everyone else who's not a member of the corporatist structure.  The taxpayer.  The voter.  Joe and Josephine Sixpack, who still naively believe that America is the land of opportunity, but can't start their own business because they're regulated and taxed out of the prospect, or because they lack the mountain of funds necessary to contribute to the campaigns of those politicians that would help them.  As a result, they must resign themselves to their workaday jobs in order to make enough money to buy their food from the corporations that process it, and to pay their taxes to the government that subsidizes and regulates the food processing corporations.

It is no wonder that the call is often heard for a "viable third party."  Yet, even members of prospective third parties are most likely to be co-opted into the corporatist structure.  Greens are absorbed by the Democrats; Libertarians are catered to by Republicans.  The only difference becomes what corporations would benefit from whomever is in power.  Such is in the nature of American politics, we suppose, and so it is even less wonder that so many are indifferent to the whole mess.  Yet, such is the state that the country currently finds itself in.

President Proposes a Plan for Jobs

President Barack Obama spoke before a joint session of Congress last night, proposing a plan to create jobs. 

Much political ado had been made over the past week, particularly over the scheduling and the anticipated attendance of the speech.  Initially, the White House scheduled it to coincide with the Republican debate on Wednesday evening, causing no small amount of disgruntlement among Republicans, who would have had to quickly reschedule the debate, were it not for an unprecedented letter from House Speaker John Boehner to the White House, claiming that the date and time of the scheduled speech conflicted with pre-scheduled House voting.  Hence, the speech was rescheduled for last night, then rescheduled again, so as not to conflict with the first official game commencing football season.  As if tensions weren't high enough, already, some Republican Congresional representatives voiced their indifference to the media to even attending the speech, opting instead to watch the football game.  Affronted by the Republican speech-skippers indifference, Senate Democratic Majority Leader Harry Reid astutely scheduled the procedural vote to disapprove the debt ceiling increase to commence immediatly after the speech.

It was then no wonder that in the preamble of the speech itself, the President referred to the "political circus" that characterizes Washington, these days.

In summary, the President's roughly $450 billion plan proposes--
--a significant reduction in employer payroll taxes, to make it cheaper for businesses to hire
--spending on infrastructure and education, to provide for construction and teaching jobs
--funds to retain teachers in budget-crunched states and retrain the long-term unemloyed, and
--a broad-based tax cut in 2012, to put more money in people's pockets.

Although stipulating that "everything in this bill will be paid for. Everything," the detail of precisely where the money to pay for the plan wasn't so clear.  The President expects to deliver that apparently minor detail to Congress next week.  At this point, it is assumed that it will be paid for with the budget cuts to be laid out by Congresses' special committee before December 31 of this year.

In regards to the delivery of the speech, notable was the President's tone, through which, he was adamant that the bill, called the "American Jobs Act" (though it's not officially an "act" until it is passed and signed), be "passed right away."  In fact, he used the phrase, "right away" eight times.

We'll let you draw your own conclusions from all that.

Sunday Summary

In what is possibly the saddest result of the boom in technology of the last twenty years is the reduction of physical mail we send and receive.  The reason it is sad, is because, well, as a result, the United States Postal Service is broke.  Flat broke.  If they were a private company, they'd be bankrupt.

As it is with any private company, we say this because the costs to operate the USPS far outweigh the revenue it generates, currently by $9.2 billion.  Like the rest of the federal government, they've lately had to borrow the funds necessary to make its payments, and currently, they've reached their credit limit of $15 billion.  At the end of this month, they expect to default on $5.5 billion that covers future retirees' health benefits.  Hence, they're looking to Congress for some kind of action.

Two causes have brought about the USPS's difficulties.  First, thanks to digital technology such as email and online bill-paying as well as competition from private carriers such as UPS, the federal service has simply lost the volume of business, and the revenue that it generates.  In any private company, such loss of revenue would likely mean downsizing through employee layoffs.  However, and the second and more serious cause of the USPS's plight, because of no-layoff clauses in their contracts with the American Postal Workers Union, they cannot legally lay anyone off.  Moreover, a 2006 law requires the postal service to pay an average of $5.5 billion annually for 10 years to finance retiree health costs for the next 75 years.  Thus, the situation is "extremely serious,” according to postmaster general Patrick R. Donahoe.  "If Congress doesn’t act, we will default.”

Donahoe has proposed some measures to resolve the crisis, but most aren't likely to go over well with a number of folks.  They've already suggested ceasing Saturday deliveries, but such an idea has gotten flak from Congressional Representatives, who argue that such is a serious disruption for those who receive medications and newspapers via snail mail.  They have the legal authority to close facilities, and have proposed doing so, but who wants to lose their local post office?  They don't have the legal authority to layoff employees, so they have asked Congress to enact legislation that would overturn the job protections, but the very idea has enraged the postal workers union.  Cliff Guffey, president of the APWU, has already said, "we’re going to fight this and we’re going to fight it hard."

As Donahoe suggests, this is a serious problem that requires immediate attention.  As one member of an oversight committee put it, "Unless there is real structural reform, the Postal Service won’t be here in two years."  As it is, the funds necessary to even cover the current payroll will be depleted by early next year, and so there is talk of shutting down the service entirely this winter.

Ben Franklin, the country's first Postmaster General, must be rolling in his grave.

Sunday Summary

Let's face it--the economy sucks, right now.

Most of us are aware that it doesn't help matters to say this.  After all, the prime mover for consumer economy is confidence, and to admit that the economy sucks is only likely to make it worse by deflating the confidence that everyone has that it's going to get better.  It may still, and will, hopefully, get better, but right now, it ... well, it's really tanking.

All most of us need do is take a look around them, if it hasn't effected them directly, already.  Especially here, in California, rents are up, houses are being foreclosed upon, small businesses are going under, "For Lease" signs are going up, people are struggling to find work, and are ever more thankful that if they have a job.  In the broader perspective, we hear more bad news, every day--the stock market is falling, unemployment is rising, the government has been spending ever more money to spur economic growth, so the national debt is through the roof, and all while the price of just about everything goes up.

Economists and bankers are only now beginning to suggest that the "risk of recession" is now "very great".  In an interview several days ago, President Obama said that he "doesn't think that the U.S. economy is in danger of falling into another recession."  But, seriously, who are these people kidding?  Have we even yet to really recover from the 2008 recession? 

Peter Schiff, an American investment broker, author, financial commentator, and former contender in the 2010 Republican Connecticut Primary, believes we're in a depression.  What gives him the confidence to make such statements is the credit he received from those in the financial world for noticing and commenting on the sub-prime housing "bubble" back in 2006, long before anyone realized it was even a bubble. 

If Schiff is right, it's very, very likely that the economy is going to get much, much worse before it ever gets better.  To him, the Federal Reserve is running a Ponzi scheme, effectively sanctioned by everyone; that Ben Bernanke is going to continue to print money until it becomes so devalued that it will collapse.  As it was during Germany's Weimar Republic, it will take barrowfuls of money to buy a loaf of bread.  And only those who have gold or silver, (used as money for millenia), will have any real purchasing power.  This prognostication is echoed by growing number of others in the public sphere, including Republican Presidential candidate Ron Paul.

Those of us who study history are not in the business of making prognostications.  However, we still have to feed our families, and to that end, it behooves us to have an understanding of the current economic climate.  Moreover, one of the very reasons to study history, and indeed, one of the reasons we began this blog, is because, in the oft-quoted phrase, "those who cannot remember the past are condemned to repeat it," and most of us, we're sure, wish not to have to live through an economic depression, if history is any guide.

Bad News All Around

Generally, single, significant current events are recorded in these posts, but in the search for the one significant event for today, we are at a loss.  Generally, it's all bad.  Thus, its general negativity is what makes it significant.

Here is a list, however brief, of the major news items today:

--Last night, Asian stock markets dropped: the Nikkei (Japan) lost 1.3 percent; the Shanghai Composite (China) lost 1.6 percent.

--Europes' major indexes tanked:  the Stoxx Europe dropped 4.8 percent; the DAX (Germany) dumped 5.8 percent.

--The Dow shed 419 points, losing another 3.7 percent.

--408,000 new unemployment claims were filed last week, up 9,000 from the week before, and 8,000 more than expected.

--The Consumer Price Index (CPI), which measures inflation, was up .5 percent in July; Gas alone was up 4.7 percent.

--There are renewed fears of another global recession.

--A flash mob was formed in Germantown, Maryland to raid a local 7-Eleven.  It only took a few minutes, and they made off with hundreds of dollars of goods.  Police are at a loss as to what to do to prevent it from happening again.

--Dozens of Isrealis were either killed or injured in a series of roadside attacks near the Israeli-Egyptian border.

Although the list above is primarily econocentric, there just seems to be a sense, an intuition, if you will, that the future isn't looking so bright these days.  Even my girlfriend feels sad, for no apparent reason.  So much of the news today is ... so grim.

Those who studied U.S. History, might recall in those studies, how, weeks before the Japanese Imperial Navy attacked Pearl Harbor, a number of people are recorded to have felt a strange sense of foreboding.  They intuited that something, some catastrophic event was about to take place, though they knew not what.  Those who experienced that foreboding could certainly attribute it to certain causes--Europe was already in the midst of another Great War, and many felt that it was only a matter of time before United States serviceman would be called and shipped east. 

Perhaps it is merely because the economic news is so bleak; or perhaps that news itself is rarely positive, and that we see more of that negativity since beginning to research more of it for the purposes of this blog; but whatever the cause, we can relate, today, to the generation that witnessed the attack on Pearl Harbor, and their odd sense of coming calamity.  We certainly hope nothing catastrophic is on the horizon, that this intuition is misconstrued, or that it is merely a passing phase of dread in the attempt to understand the causes of current tragic events.  Yet, if the sum of today's news is any indication of a bleak future, we would do well to prepare for it, however we can.

Who is this Bernanke guy?

We felt that yesterday's post regarding the differences of opinion regarding Ben Bernanke warranted further examination into the subject matter.  After all, does anyone really know who this guy is?  And what exactly did he do that would warrant calling such acts "treasonous"?  Well, as historians are wont to do, we've been doing some research.

Back in 2002, in one of his first speeches as a member of the Board of Governors of the Federal Reserve System, (a.k.a., "The Fed"), Bernanke outlined his views on the cause and the economically debilitating impact of deflation on the U.S. economy, and the available and plausible measures the Fed could take to prevent it from happening.  This speech would come to be known as the Bernanke Doctrine.  In short, the measures he proposed to combat deflation are all geared toward the singular purpose of maintaining a constant rate of inflation of 1-3 percent via measured increases of the money supply and graduated reductions of interest rates.  If inflation exceeded 3 percent, the Fed could raise interest rates (to slow the actual injection of money into the economy); if it dropped below 1 percent, it could increase the money supply (a.k.a., "Quantitative Easing").  If interest rates got to zero, the fiscal authorities of the government could then step in to use more unconventional methods, like broad-based tax cuts, or even the acquisition of "existing real or financial assets."

Call Bernanke what you will, he is nonetheless a man of his word.  In 2008, two years after his ascendency to Chairman of the Board, when the recession hit, and inflation dipped as low as .1 percent, the Fed bought up roughly $1 billion in bank debt, Treasury Notes, and Mortgage Backed Securities (with newly printed money).  In 2010, with an inflation rate averaging about 1.5 percent, the Fed bought roughly another $600 billion in Treasury notes (with even more newly printed money).

The reason why so many question the soundness of such a policy of seemingly uninhibited money-printing, is that, once inflation peaks over Bernanke's 3 percent, interest rates must then be increased (to keep the inflation in check), which in turn could stall the debt-based economy (as anyone who witnessed the prime rate increases in the 70's could attest).  Moreover, such a massive stimulus of money could lead to hyperinflation and complete monetary collapse, as has been the ultimate fate of every fiat currency in history. 

Not to say that this is going to happen, but let it now be no surprise that even the very possibility of it is likely to upset people.

Perry, et al. and Obama Clash over ... Bernanke

Republican Presidential candidate Rick Perry, who announced his candidacy while the rest of the Republicans were debating in Iowa, today voiced his opinion of Ben Bernanke and Quantitative Easing.

"If this guy prints more money between now and the election," said he, "I dunno what y'all would do to him in Iowa but we would treat him pretty ugly down in Texas. Printing more money to play politics at this particular time in American history is almost treasonous – or treasonous in my opinion."

Michelle Bachmann then reiterated her anti-Fed stance, explaining that, "the Federal Reserve is not subject to transparency. The Federal Reserve has made terrible, grievous errors."

Most interesting is that Ron Paul, who earlier this year grilled Bernanke, and who has been anti-Fed since the days he was a Libertarian, said ... nothing.

White House Press Secretary Jay Carney chastised Perry for his remarks, explaining, "when you’re running for president you have to think about what you’re saying, because your words have greater impact.  We take the independence of the Federal Reserve quite seriously.”  Obama himself was more willing to "cut him some slack."  After all, "he's only been [campaigning for President] for a few days now."

Though this may appear to be an early and relatively minor skirmish within the context of the 2012 Presidential Election, it highlights one of the most significant differences of opinion between all the candidates and political parties, in the role and function of the Federal Reserve.  In the broader perspective, it also touches upon the question regarding the role the federal government should play in assuring economic growth and stability--i.e., should government be proactive, and provide "stimuli" of cash into the economy (with the help of loans by the Fed through printing more money)?  Or should government remain "hands off," and let the free market right itself?  However one answers that question determines how they view the Federal Reserve, Ben Bernanke, and Quantitative Easing.

Unemployed Teens

The Employment Policies Institute (EPI) issued a press release back in early July that was reported on today by CNSNews.com, that included statistics for teen unemployment in the United States.  Washington, D.C. leads the list, with a phenomenal average teen unemployment rate of 50.1 percent.  California and Georgia were tied for second, each with 34.6 percent.  The national average is 25 percent.  What this means is that 1 of every 4 teenagers between 16 and 19 is unemployed across the country.  Such statistics may provide a bit of explanation as to why young people are rioting and looting in the streets of London--the youth of the world have no work to otherwise occupy them.

This about broke my heart when I first read it.  As the EPI explains, "the consequences for this generation of young people missing out on their first job are severe, including an increased risk of earning low wages and being unemployed again in future years."

What may be helpful here, however, is understanding the underlying cause of such statistics.  "One of the prime reasons for this drastic employment drought," they continue, "is the mandated wage hikes that policymakers have forced on small businesses. Economic research has shown time and again that increasing the minimum wage destroys jobs for low-skilled workers while doing little to address poverty."  Elsewhere on EPI's website (http://epionline.org/) , they explain, "For every 10 percent increase in the minimum wage, teen employment at small businesses is estimated to decrease by 4.6 to 9.0 percent."

Could the answer, or at least an answer, to unemployment really be as simple as the elimination of the minimum wage?  Makes sense to me.  Whatever my situation, if I get hired for $4.00/hour, that's $4.00/hour more than what I would be making if I couldn't get hired in the first place, because a potential employer couldn't afford to pay me a minimum wage.

Tanking Stock Markets

The Dow Jones Industrial Average fell 519 points today.  If that isn't bad enough, it's fallen over 14 percent in the last month, as investors flee to cash and gold in the wake of an ongoing debt crisis, a bleak employment outlook, a downgrading of the government's credit rating, and general fear of a declining American economy.  Moreover, this is happening in markets all over the world, as economies struggle as a result of the declining American economy, as well as their own.  In Asian, Australian, German, French, British, and Canadian stock markets, investors have been selling off their equities.

We can't really say that this is surprising.  Here in the U.S., unemployment claims are at 9 percent (which, as we all know, is a government statistic, and doesn't include everyone who's un- or underemployed), indicating that businesses simply aren't hiring.  If they're not hiring, they likely aren't producing or making enough money to hire.  Hence, we hear terms like "recession", "depression", and "contraction".  Whatever you want to call it, the economy is obviously not expanding, which leads investors to not want to invest in it.

The term, "confidence" has been bandied about quite a bit, lately, and nowhere does such such a term come into play with such significance than in regards to economic activity, and particularly in consumerist economies such as the United States.  A lack of confidence in the economy means that businesses won't hire, because they doubt an increase in their customer base, while the guy he can't hire struggles to pay his bills, and so can't become his customer.  It's a vicious downward spiral, this lack-of-confidence-in-the-economy thing.  This is no doubt why politicians are forever claiming that economy is sound, and if it isn't, perpetually claiming that they can fix it. 

Well, yours truly, for one, doesn't have much confidence in either the economy or the politicians, with all the economic uncertainty floating about.  I certainly hope that changes soon.  I could use a job.