Greece update: EU agrees on a bailout for Greece.

( The most significant point is that Greece is was already being bailed out by the EU and now the EU and IMF will officially bail Greece out if it runs out of other options.) As noted in earlier post, Greece is experiencing a sovereign debt crises. This whole topic is of interest as it is a microcosm of what is happening in the world and is a look at where the world economy is headed. Smaller entities such as businesses states(California), and nations(Greece) have been pursuing unsound fiscal policy and have come to a fork in the road: make reductions in the size of government or continue the same policies and growth of government that led them to this financial situation. Governments and Supranational organizations(SNO's) have responded to this by bailing these entities out. This removes any incentive for the businesses or nations to make any real change from the policies that led them to the point of needing to be bailed out. A recession or downturn, this is part of the business cycle, is where the economy is supposed to correct the misallocation of its resources and inefficient entities are supposed to FAIL. Bailing out entities, or nations, and not allowing them to fail prevents this necessary correction from occurring. This is building the world on an unsound economic foundation by tying the larger economic entities to the weaker ones and forcing the larger economic entities to assume the debt of the weaker entities, these bailouts are delaying the inevitable failure of these entities and is forcing the larger entities to share the same inevitable fate of the smaller entities--failure. We have to keep in mind that Greece is not the only country in the EU facing a debt crises. There are the PIIGS, Portugal, Italy, Ireland, Greece, and Spain. In response to the Greece's government making spending cuts, there have been strikes and civil unrest. The most recent ones included sixty thousand people marching in the streets doing the usual burning and trashing of the cities. If this rioting becomes more widespread, this could impact Greece's response to its financial crises by making it politically very difficult to make any real or meaningful reform to Greece's economic system. With America facing the real possibility of a debt-driven crises , pg 7, with its unfunded liabilities and health care, this could be a picture of what will happen when our government has to make painful spending cuts in social security--is it in its final stage?--and other social and welfare programs . Some states are already making spending cuts in many areas. There have already been minor nation-wide student protest, along with some communist, in response to tuition hikes and other education cuts that were the result of the fall in tax revenues. Americans are not yet at the level of dependence that the Greeks are on; but as noted in earlier post, we are getting there. (A couple of us on this blog are already there with most of our income coming from the government. Would you be angry if your benefits that you are "entitled" to are taken away? What would you do with out it?) I do know that a vast majority of Americans are not going to respond well to the social security cuts, health care rationing, and the coming economic near failure that are all coming our way. This is America so things can't get too bad.


According to this article, Greece is already being bailed out by the European Union,

Yet, the whole debate is misleading[If Greece will be bailed out by the EU]: Greece is already being bailed out by the rest of the union. The European Central Bank (ECB) accepts Greek government bonds as collateral for their lending operations.[1] European banks may buy Greek government bonds (now paying a premium in comparison to German bonds of more than 3%) and use these bonds to get a loan from the ECB at 1% interest — a highly profitable deal.

The banks buy the Greek bonds because they know that the ECB will accept these bonds as collateral for new loans. As the interest rate paid to the ECB is lower than the interest received from Greece, there is a demand for these Greek bonds. Without the acceptance of Greek bonds by the ECB as collateral for its loans, Greece would have to pay much higher interest rates than it does now. Greece is, therefore, already being bailed out

The other countries of the eurozone pay the bill. New euros are, effectively, created by the ECB accepting Greek government bonds as collateral. Greek debts are monetized, and the Greek government spends the money it receives from the bonds to secure support among its population.

Prices start to rise in Greece, and the money flows to other countries, bidding up prices throughout the eurozone. Abroad, people see their buying costs rising faster than their incomes. This is a redistribution in favor of Greece. The Greek government is being bailed out by a constant transfer of purchasing power from the rest of Europe.

The future of the euro is dark because there are such strong incentives for reckless fiscal behavior, not only for Greece but also for other countries. Some of them are in situations similar Greece's. In Spain, official unemployment is approaching 20% and public deficit is 11.4% of GDP. Portugal announced a plan to privatize national assets as its deficit is at 9.3% of GDP. Ireland's housing bubble burst with a deficit of 11.5% of GDP.

The incentives for irresponsible behavior for these and other countries are clear. Why pay for your expenditures by raising unpopular taxes? Why not issue bonds that will be purchased by the creation of new money, even if it finally increases prices in the whole eurozone? Why not externalize the costs of the government expenditures that are so vital to securing political power?

The EU has recently pledged support for Greece. What does this mean? A weaker economic structure for the EU that will lead to a much greater financial crises for the EU and eventually the world.

What is the future of the euro? As we have seen, the inherent incentives in the eurozone encourage destruction of the currency because deficit costs are externalized. Therefore, there are three main possibilities.

1. The Stability and Growth Pact is finally enforced.[This has never happened since it was created] Unfortunately, strong political resistance makes this possibility unlikely.

2. The more conservative member states refuse to continue bailing out the more profligate ones. The economically stronger states force the weaker ones to enter bankruptcy and to leave the monetary union.

3. Countries continue to increase their deficits, attempting to externalize the costs. They yield to the incentives and participate in a spending race, leading to a hyperinflation; and the euro moves closer to collapse.

I am no expert, but it seems like to me that another option under the point B above is for the weaker nations to remain in the EU and for the economically stronger nations to be given greater authority to intervene in the economically weaker nations' economies--this has happened to some extent now and not in a way that will prevent a further pursuit of bad economic policies on the part of the smaller EU nations. That was the point I made under my original post: that this situation could lead to a EU with a stronger political structure but one with a weaker economic structure--much like the recession in America led to more government involvement in the economy.

Will this economic crises lead to the end of the welfare state in Greece? The Greece government is making some spending cuts and reduction in the size of its government, but I don't think this is a long term or real shift away from the welfare state as the reductions are not big and no fundamental change in Greece's welfare state will occur. Greece is being bailed out to some extent by the EU and later by the IMF. Now a real bailout or some formal form of assistance is now a reality. The EU and the IMF are removing any incentive for the smaller EU nations to not run up debt which will lead to a weaker EU economy. Taking into account how the Greece people are reacting, the fact that the EU is preventing a collapse, and the statement below by Mises, I currently believe that this will not lead to the end of the welfare state in Greece; but instead, possibly the expansion of it to the greater EU.

But neither a low standard of living nor progressive impoverishment automatically liquidates an economic system. It gives way to a more efficient system only if people themselves are intelligent enough to comprehend the advantages such a change might bring them.

I don't see the Greek people comprehending this fact until the whole system completely collapses, this won't be allowed to happen. In this case, supranational organizations are actually allowing Greece's welfare state to continue to exist by preventing any major changes because they are bailing them out to some extent now and will be expanded later. This action by the EU and IMF is preventing the current welfare state from collapsing. This is necessary for any real change away from unsustainable government to occur and is preventing any real fundamental change from occurring: the EU and IMF are protecting the status quo. This situation parallels what the American government did by bailing out the banks. This market interference by governments is the crises of intervention as noted by Mises,

All varieties of interference with the market phenomena not only fail to achieve the ends aimed at by their authors and supporters, but bring about a state of affairs which-from the point of view of their authors’ and advocates’ valuations—is less desirable than the previous state of affairs which they were designed to alter. If one wants to correct their manifest unsuitableness and preposterousness by supplementing the first acts of intervention with more and more of such acts, one must go farther and farther until the market economy has been entirely destroyed and socialism has been substituted for it.

Most of the major economic powers in the EU are socialist leaning, so how can a union of these nations led to a union based on the free market? The only way to avoid the current EU system from becoming socialist, or a command system, is for a decline of government intervention. Current events indicate that this will happen until a complete collapse occurs.

The smaller EU nations now have no reason to not pursue reckless fiscal policy with the EU pledging a bailout for Greece. They know that maintaining the prestige and existence of the EU is more important to the larger EU nations than enforcing a strong economic union--this union will be maintained at all cost.

It was also a comedown for the French and the European Central Bank, which had opposed turning to the IMF out of fear it would damage the euro's prestige and show that Europe was unable to solve its own financial woes.

To put this change into perspective, this transition of the mixed economies of the world turning towards a command system is not anything new to human history:

It is a poor makeshift to call any age an age of transition. In the living world there is always change. Every age is an age of transition. We may distinguish between social systems that can last and such as are inevitable transitory because they are self-destructive.

According to this guy, what is happening in Greece is a major shift in the world economy, "As Mohammed El-Erian, the CEO of giant bond fund manager PIMCO, wrote in the Financial Times on March 10:"

Today, we should all be paying attention to a new theme: the simultaneous and significant deterioration in the public finances of many advanced economies. At present this is being viewed primarily -- and excessively -- through the narrow prism of Greece. Down the road, it will be recognized for what it is: a significant regime shift in advanced economies with consequential and long-lasting effects.[emphasise mine]

On the implications that America's march towards socialism will have on the world economy,

"In a socialist system in which there is neither economic calculation nor capital accounting nor profit computation, there is no room left for managerial activities either. But as long as a socialist commonwealth is still in a position to calculate on the
ground of prices determined on foreign markets, it can also utilize a quasimanagerial
hierarchy to some extent.[...] It has already been pointed out in what sense interventionism liquidates itself and must lead to socialism of the German pattern[That gave rise to Hitler]. Some European countries have already reached this phase, and nobody knows whether or not the United States will follow suit[We now know the answer.]. But as long as the United States clings to the market economy and does not adopt the system of full government control of business, the socialist economies of Western Europe will still be in a position to calculate. Their conduct of business still lacks the most characteristic feature of socialist conduct; it is still based on economic calculation. It is therefore in every respect very different from what it would become if all the world were to turn toward socialism. [Human Action, Mises pg 86]

The whole world is turning towards socialism or a command system. America will take some major steps back from its march towards socialism in the coming elections; but in the long run, America and the world will still be marching towards socialism. This system will be forced upon the world due to its weak economic structure that is leading to a Wiemar-type economic situation. The current mixed economic system can not last a a permanent system. It will eventually give way to either capitalism or totalitarianism.

What does this mean to you? Nothing of importance for a least a decade or more, although I now question if it will happen sooner. Sovereign debt is a ticking time bomb. These recent developments will be of concern to one latter down the road when America and the whole world is facing the very same situation that Greece is. The beginning of this new world system started long ago and we are now in the middle of the transition to this new system. This is a look at the events that are shaping the economic future of America and the world; and if my point above is correct, it would indicate that these sovereign debt crises will lead to international governing bodies with stronger political powers and a global economy with a weaker structure due to the fact that the governments like the EU are preventing and delaying the inevitable world economic failure or cleansing, and by delaying this from happening it is setting this inevitable economic failure up to be a much worse failure than it would have been if these entities had been allowed to fail.

Time to Be Amazing

Great post by Doctor Zero at Hot Air.  He covers briefly how we got here from FDR to present.  He discusses the possibility that this march towards socialism cannot be stopped, but points out that it will be stopped, by Adam Smith's unseen hand (though he doesn't mention that specifically), eventually, and then points out that we Americans can rectify things if we stay properly motivated, and get off our asses.  Read the whole thing.

His summary paragraphs are more motivational, like the Bluto and Henry V links:

There’s no reason a country with vast natural resources, tended by a bold and innovative people, should suffer double-digit unemployment and capital flight. A compassionate nation, whose daily industry has done more for the downtrodden than every utopian scheme combined, has no reason to lower its head in shame, and tolerate the extraction of “charity” at gunpoint. The veterans of bloody wars against lawless tyranny should not accept a system that makes fools of the industrious. A great people, who live in reverence of equality, require no lists of class and racial enemies from opportunistic politicians.
This is the hour for passion and reason, not anger and disgust. The strength to restore our prosperity lies in the muscle and imagination of citizens who have been programmed to think of themselves as sheep, by those who seek power as their shepherds. The time for averting a painful disaster is short… but the most amazing chapters of American history were written in the last seconds before midnight.
It’s time for us to be amazing again. I hope you find that as invigorating as I do.

I bolded the section that liberals just cannot understand.

So, we keep this up, we keep proselytizing, we go to the Tea Parties, and hopefully, get enough people to see sense, before changing things throught the legal process becomes impossible.  I think it can be done.

Health Care Bill Commentary

Various comments from conservatives: 

First two videos from Republican Health Care fighters Paul Ryan (Rep-Wisconsin) :


http://www.youtube.com/watch?v=lwk1aHU-pms&feature=player_embedded

and House Minority Leader John Boehner (Ohio):






http://www.youtube.com/watch?v=pOdvn2dtM0A&feature=player_embedded

Both are good, Boehner's is more emotional and entertaining.  Starts slow, but the middle is powerful.

Conservative writer Thomas Sowell:

http://townhall.com/columnists/ThomasSowell/2010/03/23/a_point_of_no_return?

and finally a couple of motivational speeches:

Henry V (via Shakespeare):

http://www.youtube.com/watch?v=OAvmLDkAgAM

If you didn't understand what he said, here it is in writing (may be just as hard to understand)

Enter the KING


WESTMORELAND. O that we now had here

But one ten thousand of those men in England

KING. What's he that wishes so?

My cousin Westmoreland? No, my fair cousin;

If we are mark'd to die, we are enow

To do our country loss; and if to live,

The fewer men, the greater share of honour.

God's will! I pray thee, wish not one man more.

By Jove, I am not covetous for gold,

Nor care I who doth feed upon my cost;

It yearns me not if men my garments wear;

Such outward things dwell not in my desires.

But if it be a sin to covet honour,

I am the most offending soul alive.

No, faith, my coz, wish not a man from England.

God's peace! I would not lose so great an honour

As one man more methinks would share from me

For the best hope I have. O, do not wish one more!

Rather proclaim it, Westmoreland, through my host,

That he which hath no stomach to this fight,

Let him depart; his passport shall be made,

And crowns for convoy put into his purse;

We would not die in that man's company

That fears his fellowship to die with us.

This day is call'd the feast of Crispian.

He that outlives this day, and comes safe home,

Will stand a tip-toe when this day is nam'd,

And rouse him at the name of Crispian.

He that shall live this day, and see old age,

Will yearly on the vigil feast his neighbours,

And say 'To-morrow is Saint Crispian.'

Then will he strip his sleeve and show his scars,

And say 'These wounds I had on Crispian's day.'

Old men forget; yet all shall be forgot,

But he'll remember, with advantages,

What feats he did that day. Then shall our names,

Familiar in his mouth as household words-

Harry the King, Bedford and Exeter,

Warwick and Talbot, Salisbury and Gloucester-

Be in their flowing cups freshly rememb'red.

This story shall the good man teach his son;

And Crispin Crispian shall ne'er go by,

From this day to the ending of the world,

But we in it shall be remembered-

We few, we happy few, we band of brothers;

For he to-day that sheds his blood with me

Shall be my brother; be he ne'er so vile,

This day shall gentle his condition;

And gentlemen in England now-a-bed

Shall think themselves accurs'd they were not here,

And hold their manhoods cheap whiles any speaks

That fought with us upon Saint Crispin's day.

and finally Bluto:

http://www.youtube.com/watch?v=Q47bpOCTcaY

What is the difference between the Left and Right?

This is a broad topic that I want to learn more about. The Left and Right: The Prospects for Liberty, the second link, from the Mises Institute is a good place to start to understand the differences between the Right and Left. This or most of what I talk about is not going to be of any immediate concern for the average person, but it does provide a glimpse into where we are headed as a nation and a world. Most of our dreams of being successful, wealthy, and having a good life all hinge on a society and a governmental framework that will make this possible. It is still possible to go out and live one's dream, but this will be much more difficult to do with the changes-- the growth of government and the negative effects that go along with this, tax increases, inflation, and a debt driven crises to name a few-- that are occurring in the world. Having an ideal of the direction the country and world is headed as opposed to just blindly stumbling along will help one to achieve their dreams. So how does the differences between the Left and Right matter to you? In America we have a two party system. The two choices that we have before us when determining the leadership of the country and the direction that this leadership is taking us is a false choice in terms of the size of our government: in reality we don't have a choice when it comes to smaller or bigger government. If one explores the difference between these two political parties, one will find that they are leading us towards the same direction: bigger government, and that the two parties are at the core the same. This is in part due to the electorate that would not stand for a party that would make any real shift away from ,a general statement, big government. What is happening in the political realm must be reduced back towards its primary as it is a symptom of our cultural decay, not the cause of our troubles.

From the link above we can see that the right has been just as guilty as the left in moving America towards bigger government,

For one thing, the income tax amendment, which he[right-wing libertarian] deplores as the beginning of socialism in America, was put through Congress in 1909 by an overwhelming majority of both parties.

It goes on to state that most conservatives view the New Deal as a liberal plan, but the foundations for the New Deal were laid by Hoover, a Republican. Much of the New Deal was just an expansion of what Hoover started.

I have been covering Theodore Roosevelt in my history class. He was America's first progressive President and he greatly expanded the government and was instrumental in starting fundamental transformation of our country away from limited government and towards the welfare state. It was Nixon who took America off of the gold standard, although a real gold standard did not exist at that time. These are just a few examples that show that there is little difference between the Left and Right.

I read this article that is written by a liberal. It is an interesting read on what the movement by the electorate's opinion and shift towards conservatism, or the rise of the Tea Party, might actually mean for the long term prospects of a real shift away from bigger government. The main point of the article is to illustrate that the movement by the right towards libertarianism, or the principles of Ayn Rand, will actually lead back towards a rise of the Left. The main points that I found interesting were the ones showing that conservatives do not support or espouse what we would consider conservative values: they are not that different from the left,

The media is building Ryan up as a serious thinker.[He was influenced by Ayn Rand. He wants to privatize social security and replace Medicare with vouchers.] Build him up even more, I say. Give him a Nobel Prize, like Obama's. Make him the face of the Republican Party. Progressives should want Ryan and Paul and the Cato Institute to define the next American right. That will ensure its minority status for decades.

Before Buckley and the movement conservatives took the right in another direction in the 1950s, this country had a libertarian, isolationist right, the right of Robert A. Taft and Alf Landon. Thanks to their opposition to the New Deal, U.S. entry in World War II and the Cold War, the libertarian isolationists turned the Republicans into the minority party between 1932 and 1968. The only Republican to be elected in that era, Dwight Eisenhower, ran for the presidency in 1952 to save the GOP from Taftian isolationism and dismissively rejected suggestions that the Republicans try to repeal New Deal programs like Social Security.

Richard Nixon, like Ike, was a modern Republican whose formula for a Republican majority was big government on behalf of the middle class plus a hawkish foreign policy and moderate social traditionalism. The neoconservative writer David Frum has argued that this is the only possible combination that can produce an enduring Republican majority. I agree, and it is therefore with delight that I observe the rise of radical libertarianism in the GOP.

True, thanks to the popular backlash against the bailouts and the unpopular healthcare bill, the Democrats will suffer losses in the midterm elections. The Randian right will claim that Republican gains in Congress are proof that the American people share their goal of abolishing Social Security and Medicare. They should be encouraged in that belief.

After all, the public has repeatedly rejected any attempts to privatize Social Security or slash Medicare benefits. Reagan denounced both entitlements, but as president he raised taxes to support Social Security and refused to touch Medicare. Under George W. Bush, a Republican Congress passed the Medicare drug benefit, which, for all its concessions to the pharma lobby, was the biggest expansion of socialized medicine in the U.S. since Lyndon Johnson signed Medicare into law.

When Bush supported the partial privatization of Social Security, the proposal was so unpopular with the public that the Republican majority in Congress never allowed it to come to a vote. Bush touched the third rail of American politics -- and was promptly electrocuted. Last but not least, one of the arguments that Republicans opportunistically used to mobilize popular opposition to the Democratic healthcare bill was the claim that it would lead to cuts in Medicare for the elderly.[All emphasises mine.]

I agree with the main point of the article in that a move towards classical liberalism or libertarianism(if libertarianism is really classical liberalism?) will not mean be a long term winning strategy for the right and that there will be no long term movement away from big government because the electorate will not stand for this. These quotes illustrates how what we consider conservative does not necessarily lead to a smaller government. Government will continue to grow until it reaches the oppressive stage or a command economy. Only when we reach this stage much later down the road(maybe not that much later)will the system collapse and real change can occur. This is a very short introduction to the detailed look at the Left and Right. This provides a look at where America is headed.

Speech class argument

White People are the single most discriminated against race in America today. Isolated yet influential groups in pop culture and government use discrimination against whites in order to achieve racial equality. These groups can get away with racism because of the horrific truths of white oppression in America from before the civil rights movement. That very racism has lulled our society in to never being able to accept or acknowledge a white person being discriminated against. Kind of like the neighborhood bully being beat up, the kids on the block would never believe it.

“Do you know where you’re runnin from, scared of the sun, I live in the sun you shrivel like a raisin,” “Cause I kill more cracka’s than Bosnia,” raps Ice Cube, an African American, in his song called “Enemy” (lyrics depot.com). The cover of this album has a dead white man with a tag on his toe that says “Uncle Sam”. It is not hard to find Ice Cube’s blatant racism in his lyrics, it takes all of five minutes to find lyrics like this in an array of his songs. Ice Cube though, is still a socially respectable artist in American mainstream media. He has a number of hit movies that do very well with America’s diverse audiences. “Are We There Yet?” a film that Cube starred in grossed approximately $82,000,000 domestically (boxofficemojo.com). Kanye West, another African American pop culture figure, was quoted, “Actually, I do not think that white people are allowed to use slang until it is at least a year old. If you say a slang word too early, its like you’re trying to be black. So as long as the slang is a little played out, you’re all good.”( blackplanet.com ). Amidst his racial comments, Kanye still receives awards for music including eight nominations for the 50th annual Grammy Awards. Don Imus, a white radio host, made racist comments as well, “That’s some nappy headed hos there,” Imus said on his radio program (mediamatters.org). Imus was referring to the black female players on Rutger’s women’s basketball team. These comments enraged most Americans and from public pressure NBC News and CBS Radio dropped Imus’s program. Don Imus lost public respect and millions of dollars as a result of his abominable comment. Looking at all three of these examples objectively, one could conclude that they are all racist. Don Imus was publicly scrutinized and punished by his employer while Kanye and Ice Cube’s repetitive racial bigotry goes publicly unnoticed.

The American government exacerbates the problem with racism by enacting discriminatory legislation like Affirmative Action. “Affirmative Action permits factors such as race, gender and national origin to be considered when hiring or admitting qualified applicants, keeping the doors of opportunity open.” reads bold letters on the government lobbyist group ACLU’s website ( aclu.org ). Affirmative action only singles out the majority and enables racism to continue. White man, being the majority, is subsequently oppressed because of the color of his skin. Chief Justice John Roberts once wrote in a majority decision concerning race, “The only way to stop discrimination on the basis of race is to stop discriminating on the basis of race.” ( caselaw.lp.findlaw.com ). Roberts statement exposes the hypocrisy in Affirmative Action. Thomas Sowell, an American Economist and Senior Fellow of the Hoover Institution at Stanford University, says in his “Race, Culture, and Equality” speech- Do we as individuals and as a nation wish that others less fortunate had our blessings? We should and we do. But our blessings as a nation did not consist of having other nations give us foreign aid. The blessings of individuals who have achieved in life have seldom taken the form of having others accept mediocre performances from them or make excuses for their counterproductive behavior. ( tsowell.com )That is precisely what Affirmative Action does, it makes excuses for mediocre performance and enables counterproductive behavior to be accepted.

It is hard for people in our country to believe that white people experience discrimination. Modern history is saturated with Western Culture’s dominance. Starting with the Alexander and the Greeks, to the Roman Empire, to the English Empire, and now America and it’s Coalition, the West has been far superior to the world in might and riches. Every military around the world has adopted Western uniforms and Western military strategy. Western languages are used everywhere around the world as a result of European exploration and colonialism. These statistics, along with other facts of White Man’s success, create society’s ignorance of the racism that is occurring all around us. As of 2005 there were approximately 10,000,000 White people in America with 100k jobs and only 5,000,000 Black, Hispanic, and Asian Americans combined with 100k jobs (census.gov). Figures like these over shadow the actual discrimination that occurs in our country.

Everyday I walk the campus of MHCC and see signs celebrating African American history month, Hispanic history month,and womens history month. Where is the European American history month? Why should I be ashamed of my heritage? Where is the WET channel? Where is the White Men's magazine? We dont have these things because we have had the bad side of our history shoved down our throat in the public education system. Where is the equality? MLK is spinning in his grave.

Speech class

I tried to post my speech for others to comment on and I'm sorry but I am unable to transfer my speech from my computer to this blog for some reason. If you make a comment on my speech then we can continue from there. Thank you

China: The Enemy

Not a lot of time to write or do much. Much critique of analysis of the "statism" to come, it will be a fun side project during Spring Break. In the mean time, interesting articles I found on Drudge about China and our EU allies:

http://technology.timesonline.co.uk/tol/news/tech_and_web/article7053254.ece

China cyber warfare increases cyber attacks; the EU most prone to infiltration.

http://www.ft.com/cms/s/0/6cd3a766-2925-11df-972b-00144feabdc0.html

Discusses some debate in China about possibly letting the renminbi appreciate (something that has been pushed by the US since Bush to mitigate the massive trade imbalance).

http://www.reuters.com/article/idUSTRE62605720100307?feedType=RSS&feedName=topNews&rpc=22&sp=true

very short article about Chinese Foreign Minister stating ties with the US have been seriously disrupted. Blame the US.


I'm caught between propensity to support Free Trade as well as my utter fear of the rise of the Chinese counter-weight. Overall, I think my security fears win out, as well as my unwillingness to accept their artifical mechanisms to keep the renminbi weak so as to dominate trade market as fair practice in the WTO.

_The Bubble that Broke the World_

This is a really interesting article by the Mises Institute, a good website for further economic inquiry, that pertains to the recent topic being discussed. The article is about the lessons that are presented in the book The Bubble that Broke the World, another book to read. The book was written during the 1903's and talks about what caused the Great Depression. The author of the article states the solution to the problem: "There is only one long-term solution, and that is the reduction of government". The lessons of the past can be applied to today's situation.

How is the current financial situation different than that of ones in the past? The main difference is the cost of unfunded liabilities. It will be impossible for the government to fulfill all of its promises. I heard it stated on the Hannity special show about the movie Generation Zero that the government has promised more to current and future generations than the total value of America's assets. How will people react to the government being unable to meet their basic needs at a time when they are becoming increasingly dependent on the government, health care/social security, to meet these needs? The level of dependency of the people, the severity of the economy downturn, and the character of the people will determine this.

Keynesian economists, like Paul Krugman, argue that growing debt will not be a problem given that large government debts are not unprecedented. For example, Krugman argues that the United States ran large debts during the Second World War and was able to pay them off after the war ended. This Princeton professor and Nobel laureate also argues that, because the United States is one of many countries piling up debt, its public debt is justifiable and tenable.

Paul Krugman conveniently leaves out, or fails to apply, some key details. Regarding the Second World War, he notes that the debt was paid off largely because of a cut in government spending. He fails to account for the fact that the most dangerous factors behind the current debt are 'unfunded liabilities' — the future costs of welfare and social-insurance programs. As for those other countries building debt, they are also looking at political uncertainty and almost-certain economic collapse.[1]

To put things into perspective the current economic situation is not anything new in the course of history; although the circumstances are slightly different.

The current fiscal situation is not unprecedented. High public and private debt has been the bane of large governments for the entirety of written history. It is what Ludwig von Mises described as the 'crisis of interventionism.'

'Intervention aims at confiscating the 'surplus' of one part of the population and at giving it to the other part. Once this surplus is exhausted by total confiscation, a further continuation of this policy is impossible.'

Put in simpler terms, the crisis of interventionism is summed up by the adage, 'the problem with socialism is that eventually you run out of other people's money.'

The current financial situation is nothing knew, but these past and recent financial upheavals do led to a long term trend toward an increasing larger role of government in the private sector as indicated by history. This trend will only stop when, as stated in the last part above, that eventually these big government programs will collapse under their own weight. This is one of Bud-D's points about this topic. I question how much farther the statist system will progress before this happens.

What was to blame for the "worldwide economic collapse of the 1930s"? The interesting thing is that all points below are present today. The aspect of nations debt to each other in point one could come about in the future due to all of these sovereign debt crises and the fact that the governments of the world and IO's are reacting to this by continuing to extend credit, bailouts, when there is no actual credit. This will have the effect of building the world economy on a foundation of debt.

Garrett placed the blame for the worldwide economic collapse of the 1930s on the Federal Reserve System's program of extending credit to bail out its European friends. He branded the entire process a Ponzi scheme.

Garrett described the bubble as a product of three factors:

First, the idea that the panacea for debt is credit.…[Jeff, this is the prevaling opinion of today's governments.]

The burden of Europe's private debt to [the United States] now is greater than the burden of her war debt; and the war debt, with arrears of interest, is greater than it was the day the peace was signed.…[9]

Second, a social and political doctrine, now widely accepted, beginning with the premise that people are entitled to certain betterments of life. If they cannot immediately afford them, that is, if out of their own resources these betterments cannot be provided, nevertheless people are entitled to them, and credit must provide them.…

Third, the argument that prosperity is a product of credit, whereas from the beginning of economic thought it had been supposed that prosperity was from the increase and exchange of wealth, and credit was its product.[10]

In the current situation it will be America and most of the world as opposed to just Europe that will have to be bailed out, or have credit extended, to deal with the sovereign debt that the world is accumulating.

Some interesting points"

But the era of growing bureaucracy, of the welfare/warfare state, and of illusionary wealth cannot last forever.[...]

The West has undermined its own security by allowing its governments to quickly grow beyond the fiscal means of their people. The United States and Western Europe have built up a mountain of debt. Deficit spending as a counter cyclical fiscal policy is the least of the world's worries. The collapse of today's credit-based Ponzi scheme is mainly due to the multitude of social-insurance programs that are becoming far too costly to sustain. In other words, the crumbling keystone is not short-term expenditure but long-term debt.

Given the political unpopularity of cutting these untenable programs, it is unlikely that governments will purposefully reverse their growth.[11] There is a fast-growing addiction to credit. Western governments can be compared to drug addicts. While a drug addict can overdose, however, the government can remain high as long as credit continues to be supplied at an exponentially rising rate. But, as with any addict, the day the supply cuts short is the day that marks the beginning of a severe depression.

Credit almost ran dry back in the fall of 08. The government stepped in to prevent this from happening with TARP and all of these bailouts. As noted in my earlier post, this has according to Neil Barofsky--the special inspector general for the Trouble Asset Relief Program (TARP)--not solved the fundamental problems of the economy. I infer from Barofsky's statement that credit, or drug, will be cut short.

The author of the article states that,

For better or for worse, as Garet Garrett beautifully explains in The Bubble That Broke the World, the market corrects itself. The lengthening of the period of interventionism only increases the painfulness of the inevitable reallocation of resources.

This inevitable collapse is being delayed by the governments. And at the same time the governments are forcing people through economic circumstances to become more dependent on the governments for their basic needs. I question if the governments will allow the market to correct itself before this correction becomes extremely painful to the point that people will be in such dire economic situation that they will not be able to meet their basic needs; thus leading them to temporarily demand more government intervention to deal with the pain. This delaying is affecting the severity of the collapse and changing how people will react to it.

This article appears to point out and somewhat illustrates why another world-economic depression must occur. The author of the article states that inevitably this statist system will collapse. I agree with that, but I am asking how will the governments and people of the world, keeping in mind the culture and prevailing tides of thought of this people, react to this and how much farther the statist system will progress before this turning point occurs? If--almost when-- a world economic downturn/depression happens, how will globalization and international organizations affect or determine how this plays out?

"Germany and Greece Go to the Mattress"

Following up on Jeff's article, the Weekly Standard discusses the situation.  They mention that the German people (Das Volk?) are fed up with bailing out Greece, that Germany pays out 10 billion more Euros to the EU than it gets back.  People are complaining that Germany may be raising their retirement age from 67 to 69 so that the Greeks can retire at 63.  Stuff like that.  Things that point out that there will be a breaking point where this statist crap won't be tolerated.  But the author then goes on to say that the EU bureaucrats, including Germany's Conservative leader Angela Merkel probably will not allow Greece to collapse, despite the will of her people.  This tends to back up Jeff's point that the statists will continue to keep the system going despite the will of each country's own people.  I disagree with this.  There will come a point where the government will have to answer to the will of the people.  It will come quicker in the US than in the EU, but it'll happen anyway.