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Minyanville reviews the EU debt crisis and bailout.
The period from March 2009 was the year of wishful thinking. Central banks cut interest rates and governments opened their checkbooks, providing a flood of cheap money that gave the illusion of recovery and a normal functioning economy. By pouring a lot of water into a bucket with a large hole, the world sustained the impression that the receptacle was almost full. As Norman Cousins, an American political journalist, noted: “Hope is independent of the apparatus of logic.”
Governments merely transferred the debt from private sector balance sheets onto public balance sheets. The Global Financial Crisis (GFC) has morphed into a Global Sovereign Crisis (GSC) as sovereign governments now face difficulty in raising money.
Stock markets and asset prices have tumbled. Money markets are exhibiting an anxiety not seen since late 2008/early 2009. The year of wishful thinking has run its course. …
…In April 2010, as the market for Greek debt worsened …after considerable prevarication, the EU proposed a highly conditional euro 30 billion rescue package. …
Markets considered the proposal inadequate and unlikely to avoid a Greek default. Increasingly desperate as circumstances began to rapidly spiral out of control, the EU increased the package in early May 2010 to Euro 110 billion, including a Euro 30 billion contribution from the International Monetary Fund (IMF) who would supervise the package and the implementation of the economic “cure.”About a week later, continued market skepticism and increasing pressure on Portugal, Spain, and Ireland forced the EU to “go nuclear.” After months of slow and tortured discussions, the EU acted with surprising speed announcing a “stabilization fund” to the value of Euro 750 billion to support eurozone countries, including an IMF contribution of (up to) Euro 250 billion. The actions were designed in no particular order to salvage the EU, the euro and over-indebted eurozone participants by stopping contagion and further spread of the crisis.
… Initially, stock markets rose sharply, especially shares of banks exposed to Greece who would benefit from the rescue. The interest rates on Greek, Irish, Italian, Portuguese, and Spanish bonds fell sharply. As the announcement over the weekend caught traders unaware, the rally was driven largely by the covering of short positions.
…Wiser commentators mused that if Euro 750 billion wasn’t going to do the trick, then what was? …
In EuroPacific Capital, Neeraj Chaudhary writes about labor strife in China and the changes he sees coming.
…Officials in Beijing know that, in reality, the Chinese workers are not striking against management, as we might expect in the West, but against the ruinous inflation caused by the People’s Bank of China (PBoC). In order to maintain the ‘peg’ of the strengthening yuan to the weakening US dollar, the PBoC has been forced to print new money in lockstep with the Federal Reserve. Since the start of the financial crisis, the Federal Reserve has more than doubled the number of dollars in circulation. This inflation, exported to China via the peg, has resulted in frothy real estate prices in some Chinese markets, as well as consumer prices increasing at a rate of more than 3% per year (and probably much higher, given the propensity for all governments to systematically understate this data). According to the Washington Post, there is widespread “frustration among younger, urbanized workers that their wages have stayed relatively meager even as prices all around them — particularly for housing — have soared.”
With over one billion citizens, the Chinese government cannot afford widespread unrest. They must find a way to nip their labor issues in the bud. The best policy approach would involve yuan revaluation. By reducing the rate of inflation of the Chinese yuan, the purchasing power of the yuan will increase, thereby allowing Chinese workers to better enjoy the fruits of their labor. As living standards rise, worker unrest will subside, and the impetus to strike will vanish. …
Even with Governor Christie’s efforts to balance the budget, New Jersey’s fiscal crisis is far from finished. In the NY Post, Steven Malanga looks at the Garden State’s pensions.
…How bad is the Garden State’s situation? A new study by Joshua D. Rauh, a Northwestern University finance professor, warns that Jersey’s public employee-pension plans could run out of money within a decade.
…Jersey taxpayers find themselves in this pickle because the state’s politicians have been shamefully irresponsible by granting rich public-sector benefits — and then trying to hide the cost with fiscal evasions.
…Rauh thinks the numbers are so ugly that a federal bailout of the worst state pension funds like Jersey’s is inevitable. He says such a bailout, to pass Congress, would need to come with strict reforms — like forcing Jersey to immediately close its current plans to new hires and put all future workers in defined-contribution plans, like private-sector 401(k)s.
Others want the feds to be tougher — to shut down current pension funds completely, and cap the benefits of all current employees the way that the Pension Benefit Guaranty Corp. does when it takes over a failed private pension plan. …
And we hear criticism of Obama from another disillusioned liberal. In the WaPo, Richard Cohen takes shots at conservatives while telling Obama to show more bleeding heart in his liberalism.
It can seem that at the heart of Barack Obama’s foreign policy is no heart at all. It consists instead of a series of challenges — of problems that need fixing, not wrongs that need to be righted. As Winston Churchill once said of a certain pudding, Obama’s approach to foreign affairs lacks theme. So, it seems, does the man himself.
For instance, it’s not clear that Obama is appalled by China’s appalling human rights record. He seems hardly stirred about continued repression in Russia. He treats the Israelis and their various enemies as pests of equal moral standing. The president seems to stand foursquare for nothing much.
…What these people were seeking was not an eruption of anger, not a tantrum and not a full-scale denunciation of an oil company. What they wanted instead was a sign that this catastrophe meant something to Obama, that it was not merely another problem that had crossed his desk — and this time just wouldn’t budge. He showed not the slightest sign in the idiom that really counts in a media age — body language — that he gave a damn. He could see your pain, he could talk about your pain, but he gave no indication that he felt it. …
In the WSJ, Paul Rubin offers an excellent comparison and contrast of Katrina and the oil spill.
…The Coast Guard has played an important role in both disasters. During Katrina, it rescued over 33,000 stranded people and received commendations from the president and Congress. In the current disaster, the Coast Guard has received widespread criticism for forbidding 16 barges from skimming oil because they were not inspected for life preservers. Louisiana Gov. Bobby Jindal tried to get the barges working, but was for a long time unable to convince the Coast Guard to permit them to deploy.
Two days after Katrina’s landfall, Mr. Bush suspended the Jones Act (which restricts the ability of non-American ships to work in U.S. waters) to allow assistance for Katrina victims. During Katrina, over 70 foreign countries pledged emergency assistance. In the current situation, President Barack Obama has not suspended the Jones Act. Many countries such as the Netherlands, which would like to help and have expertise in cleaning oil spills, can offer only limited relief. This is significantly delaying the cleanup.
The Jones Act, which requires American crews, is a favorite of organized labor, a major supporter of Mr. Obama. …
David Brooks has fun revising Faustus and gives us these amazing polling numbers.
By 57 percent to 37 percent, voters in these districts embrace the proposition that “President Obama’s economic policies have run up a record federal deficit while failing to end the recession or slow the record pace of job losses.”
Instead of building faith in government, the events of 2009 and 2010 further undermined it. An absurdly low 6 percent of Americans acknowledge that the stimulus package created jobs, according to a New York Times/CBS survey. …
…Election guru Charlie Cook suspects the G.O.P. will retake the House. N.P.R. polled voters in the 60 most competitive House districts currently held by Democrats. Democrats trail Republicans in those districts, on average, by 5 percentage points. Independent voters in the districts favor Republicans by an average of 18 percentage points.
The McChrystal kerfuffle was lucky for the prez because it overshadowed the moratorium slap administered by a federal judge. Michelle Malkin has the story.
… In a scathing ruling issued Tuesday afternoon, New Orleans–based Feldman overturned the administration’s radical six-month moratorium on deepwater drilling — and he singled out Salazar’s central role in jury-rigging a federal panel’s scientific report to bolster flagrantly politicized conclusions. In a sane world, Salazar’s head would roll. In Obama’s world, he gets immunity.
The suit challenging Obama’s desperately political ban was filed by Louisiana rig company Hornbeck Offshore Services, which sued on behalf of all the “small people” in the industry whose economic survival is at stake. As the plaintiffs’ lawyer argued in court, the overbroad ban promised to be more devastating to Gulf workers than the spill itself. “This is an unprecedented industry-wide shutdown. Never before has the government done this,” attorney Carl Rosenblum said.
Scientists who served on the committee expressed outrage upon discovering earlier this month that Salazar had — unilaterally and without warning — inserted a blanket drilling-ban recommendation into their report. …