Tuesday, September 06, 2011
Too Depressed To Blog
Nor are we really ready yet to attack the root causes of our new round of problems-on-top-of-problems. But here's some food for thought while I administer the necessary psychic beating to myself:
David Foster, at Chicago Boyz, posted about contributing factors to the economic decline. It's a great post. He left out demographics; demographics have a profound impact on growth rates.
Michael Kennedy, also at Chicago Boyz, posted some information that tells unfortunate truths about the man the hapless prez chose to be the new chair of the Council of Economic Advisers. More and more Obama looks to me like a man pretending to be president. As a man acting the part of president, he's doing an excellent job. As a president, he's a terrible failure.
For those who are just as depressed as I am over the current situation, here is a read on a completely different topic - the sudden break in the NY Times Received Revelation that Clarence Thomas is the dumbest justice ever to sit on the SC. Thomas is not verbose, but IMO that is a great quality. Carl of No Oil For Pacifists covers the shock and awe generated by this sudden break with NYT/NPR reality.
And further, today I was driving along on some errand or another, listening to NPR. They had this lady on talking about the importance of Home Ec. She was a professor and her claim was that we needed to learn to cook again. Well, it turns out that this lady got NYT time for her ideas (which are not bad, although given an elitist spin), so of course NPR had to pick it up. My theory is that NPR's current primary function is to make the editorial staff of the NYT feel relevant. The real reason to revive Home Ec is that we need to learn to cook because we can't afford to eat the way we have been eating.
Still, I mention it because Teri has been commenting on a return to the living patterns of the 50s, and I long ago concluded that was where we will end up when we finally emerge from the current cycle. If we're lucky and can force ourselves to face reality in time, that is. That wouldn't be bad, overall, but it will be a terrible shock to many now in power.
PS: Okay, I can stand to blog about some of the more humorous economic developments, such as UBS' Zombie-Attack Meets Mad Max scenario unless those Germans get off their butts and guarantee all Euro-zone debt (at least for countries whose sovereigns are being carried in UBS' portfolio). It does not get better than this. UBS financial analysts were apparently holding seances to contact Alfred Hitchcock's restless, baleful spirit, but instead got Edgar Allen Poe's restless, keening spirit.
In possibly related news, S&P threw the off-hand remark that if the Eurobonds are floated and countries guarantee the debt by proportion (if a country has 2% of the total outstanding, it will guarantee 2% of the total outstanding), then of course the bonds will be rated according to the least creditworthy of the guarantors.
Since sovereigns aren't tranched, the firms rate according to risk of loss on the total issue. Clearly, Portugal and Ireland and Greece aren't able to cover losses. Therefore, if a country is expected to default on its own and the country is guaranteeing a proportion of Eurobonds when repayment is also proportionally allocated, then you expect to take a loss.
Despite the reaction that S&P is insane, it appears that they are the only sane people in the Euro-room. However Eurobond structures haven't been worked out yet, so one could theorize that the creditworthy countries are responsible for ALL the debt, rather than just their portion. But what, then, would induce the populations of countries like Portugal, Greece and Italy to pay the high taxes and endure the pain of repaying their debt?
The obvious solution is to introduce a tranched Eurobond system and allocate responsibility for the various tranches according to economic progress goals, but I don't think this is politically workable at this point. The problem is Italy. The problem always was Italy. It has too much debt. See, if Germany guaranteed Italy's debt Germany then would get a credit downgrade of its own. Italy has to leave the Euro before there is a chance of resolution of the issue. The smaller countries can be helped because their troubled debt ratio to the untroubled debt ratio isn't that high. A country as big as Italy cannot be helped - Germany's gross national debt was 2.079 trillion Euro in 2010 (reflecting some of the guarantees on Euro bailout debt already assumed), and Italy's was 1.84 trillion Euro. Making Germany responsible for even 10% of Italy's debt plus Portugal's debt plus Greece's debt plus Ireland's debt puts Germany in a nasty spot.
Needless to say, if you are UBS the nightmare prospect of having to take your losses is enough to inspire dreams of Mad Max careening through a burning Europe, but German citizens might take a more placid view; being forced to impose austerity measures on the Greek population is not making Germans happy, but endlessly writing checks to cover Greek deficits isn't a solution either. Having to herd Italian debt cats in addition to the Greeks is obviously impossible. Collecting taxes in Italy is a task even the Vatican could never achieve back when the threat of excommunication carried real fear.
"David Foster, at Chicago Boyz, posted about contributing factors to the economic decline. It's a great post."
I might be a tad biased, but "The Decline of American Prosperity–Causes and Cures" is a great title.
I offer the following confirmation.
My WV is "prized". Seriously, lol.
At the very least, blogger's word verification should be as good as untrained monkeys. At best, it is quite possibly even better than a central banker with a PhD in economics!
Now if only the economists decided to pretend to be sentient, we'd be getting somewhere.
Blogger continues to pick winners with word verification; this post's WV was "baliance".
You're doing a lot of good. Keep fighting the good fight.
the banks and hedge funds. Without legislation to
control them, they will destroy Europe's middle class.
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