brainiac conspiracy

German Humor

It tends to rather be rather droll, now, doesn't it:

Olli Rehn, vice-president of the European Commission, popped up on CNBC a few minutes ago to declare that the EU and the ECB are "ready to act" on the eurozone crisis, just as soon as circumstances permit.

Meanwhile, circumstances.

---Vitelius

Must Be Something in The DC Municipal Water Supply

To see the conventional wisdom being recycled through an otherwise perceptive blogsite:

Having Ryan on the ticket will make it difficult for the losers of the election to claim that the winners [don’t] have some claim to pursue their fiscal vision. A decisive electoral resolution to this high stakes political fight is actually kind of scary, no matter where you come down on issues like Medicare, Medicaid and tax policy. But it’ll also be good for the country if it means the government will have new running room to pay at least passing attention to things like mass unemployment and eroding infrastructure that the next president will have to deal with, whether he’s a Republican or Democrat.

What planet is this guy living on?

Here's what's going to happen if Republicans lose: they will do nothing of the kind to honor Democrats' "claim to pursue their fiscal vision" any more than they did four years ago. They will claim they lost because they didn't nominate a True Conservative® to lead their ticket, and spend the next four years hounding, badgering and harassing the administration, culminating in (my prediction) impeachment of the President, the Attorney General, or some other leading Cabinet minister for the high crimes and misdemeanors of Solyndra/Fast & Furious/ACORN/voter fraud/take your pick.

Here's what's going to happen if Democrats lose: they will offer concessions towards Republicans' "claim to pursue their fiscal vision," which will include cuts to Medicare, Medicaid and Social Security. Republicans will claim that Democrats' concession are insufficient, and proceed to finish off the job that they began under Reagan 30 years ago. How successful they will be depends entirely on whether or not the Democrats retain control of at least one House of Congress---which, if Team Rand wins in November, is fairly unlikely.

But no matter who wins, in the meantime the Beltway policy and media elites will shift the focus of the campaign away from the most pressing matters of the day and towards their legislative Favorite Toys---deficit reduction and entitlement reform---when the issues that voters still care most deeply about are jobs, and money, and mortgage/student loan relief. There will be no "running room' afforded for big-ticket infrastructure spending or jobs programs, regardless who wins the election, because we're not going to hear those issues being debated. Because they cost real money, and require more audacity than simply tinkering with the tax code. What we are going to hear instead is either, "We need to cut the deficit substantially or we'll end up like Greece" or "We need to cut the deficit smartly in conjunction with incremental tax increases." That's the depth and breadth of the debate we will hear for the next three months, and anyone who thinks otherwise is fooling himself.

And that's also why, no matter who wins this election, the winning party is going to be primed to deliver on their promises come January, which for voters will be a choice between (a) savage austerity or (b) austerity on the installment plan. But there will be no ambitious jobs and infrastructure programs being put forth, because the window of opportunity to get such programs enacted into law was slammed shut two years ago. It happened when the administration pivoted away from its stimulus agenda and embraced the wonderfulness of Smart & Sensible Deficit Reduction®. Would love to be proved wrong here, of course, but most everything I've seen and heard emanating from our Serious Persons over the past couple of years leads me to believe that the fix is largely in, and that the only questions remaining to be resolved in the short term are what levels of punishment will need to be inflicted upon the sick, the poor and the elderly.

---Vitelius

Structural Reforms

Guess they're not relying on consumer spending to drive their recovery:

The Conservative-led three-party coalition had resolutely refused to countenance job losses in the public sector whose employees have already born the brunt of internationally-mandated austerity measures. But Stournaras, who has done much to repair relations with Greece’s troika of creditors, said the government was still €4bn short of meeting the bailout target of €11.5bn in spending cuts creditors have demanded in return for rescue loans over the next two years. “The numbers don’t add up,” he said after briefing president Carolos Papoulias on the state of the economy. As a result, he said, officials could be forced to take the politically risky step of placing thousands of civil servants in a special labour pool at reduced pay---a controversial idea that was abandoned earlier this year after Greeks complained that the scheme would ultimately amount to being fired. “On the issue of the labour reserve we will see. The negotiations are continuing and will continue until the end of August,” he said.

Still can comprehend how impoverishing millions of people creates a rising economic tide that will lift all the boats, but I'm not a central banker of finance minister, so what the hell do I know.

---Vitelius

Austerité Pour Vous, Aber Nicht Für Uns

If this doesn't convince them to exit Stage Left, I guess nothing will:

France and Germany are pressing Greece to buy their gunboats and warplanes, even as they urge it to cut public spending and curb its deficit.

Indeed, some Greek officials privately say Paris and Berlin are using the crisis as leverage to advance arms contracts or settle payment disputes, just when the Greeks are trying to reduce defense spending.

"No one is saying 'Buy our warships or we won't bail you out', but the clear implication is that they will be more supportive if we do what they want on the armaments front," said an adviser to Prime Minister George Papandreou, speaking on condition of anonymity because of the diplomatic sensitivity.

Greece spends more of its gross domestic product on the military than any other European Union country, largely due to long-standing tension with its neighbor, historic rival and NATO ally, Turkey.

"The Germans and the French have them over a barrel now," said Nick Witney, a former head of the European Defense Agency.

Meanwhile, great progress!

A three-hour meeting between government ministers and officials representing the country's international creditors---the European Commission, European Central Bank and International Monetary Fund, known as the troika---ended on Sunday with the IMF envoy Poul Thomsen saying there had been "great progress" in finalizing a package of 11.5 billion euros in budget cuts for 2013 and 2014 [...]

According to sources, the package includes reductions to auxiliary pensions, to lump sums paid on retirement and to social benefits. The retirement age is to increase to 66, from 65, while low-level pensions are expected to be trimmed by up to 6 percent. Also, the operational spending of ministries is to be cut more than originally planned . . . Prime Minister Antonis Samaras and his coalition partners, socialist PASOK leader Evangelos Venizelos and Democratic Left chief Fotis Kouvelis, are to meet at 4 p.m. on Monday, and then again at 6 p.m. on Tuesday, to discuss the outlook for privatizations and the merging of state organizations.

---Vitelius

Don't Just Do Something, Sit There

You have to wonder what exactly we are paying them to do:

The Federal Reserve said Wednesday that U.S. economic growth had slowed and that few of the nation’s unemployed would find work in coming months, but the central bank declined to take any new action to address either problem.

At the conclusion of a two-day policy meeting, the Fed said it was content with the efforts it has under way to help the economy.

---Vitelius

Not Rocket Surgery

Realize I'm not an economist, but it seems pretty self-evident that when people lose their jobs, or have to take take pay cuts and pension cuts, they have less money to spend on things, which means that the people who make things have fewer customers to sell to, and then:

The manufacturing sector shrank at its fastest rate in more than three years in July, another dismal sign for the UK still languishing in a double-dip recession.

The Markit/CIPS UK manufacturing PMI for July came in at 45.4, the lowest reading since May 2009. That is much lower than expectations of a reading of 48.6 and last month’s reading of 48.4. Any number below 50 signals a contraction in the manufacturing sector.

---Vitelius

There's an Executive Order For That

Not sure I'm completely buying this:

The top housing regulator rebuffed a plan by the Obama administration to cut mortgages held by struggling homeowners, a blow to the White House, which is keen to show voters it can help fix the housing market.

The regulator for government-run housing finance giants Fannie Mae and Freddie Mac said on Tuesday that using taxpayer-funded bank bailout money could encourage defaults and not make a big improvement in reducing foreclosures in a cost-effective way for taxpayers.

"The anticipated benefits do not outweigh the costs and risks," said the Federal Housing Finance Agency's head Edward DeMarco, who has come under intense pressure from the government to agree to the plan.

The regulator's decision drew an immediate rebuke from the Obama administration and Democratic lawmakers. Treasury Secretary Timothy Geithner disputed the agency's conclusions and urged DeMarco to reconsider his decision.

What's stopping the President from issuing an executive order directing FHFA to draw up a writedown plan? What's stopping him from simply bypassing the agency altogether and issuing an executive order to the board of Fannie and Freddie directly? Unless I am overlooking some arcane bureaucratic rule here, it's hard to see this gambit as anything more than the executive branch pretending to care about solving a problem that they just don't care that much about. Sorry, but "stymied by the bureaucracy" holds about as much water now as "we didn't have the votes" did two years ago as a rationale for passivity. They have the power to solve this problem, and they are simply not exercising it. Voters will judge in November whether their course of inaction was the wisest way to go.

Update: Also too, what she said.

---Vitelius

Not Enough Jail Cells

Truth to tell, if everyone responsible for our current economic malaise were held legally accountable for their actions, we'd have to undertake a massive new round of prison construction. Which is why we don't indict anyone but a few wildcatters and low-level operatives---because of an acute housing shortage, basically.

---Vitelius

25% Unemployment Isn't The End of The World, Either

But it probably doesn't feel that way if you happen to be living there:

German Finance Minister Wolfgang Schaeuble was quoted as telling the Welt am Sonntag newspaper that Spain's short-term financing needs are "not so big."

Asked about talk that Spain could soon make an application for the eurozone rescue fund to buy bonds, he replied: "There is nothing to this speculation."

"The high interest rates are painful and they create a lot of concern---but it's not the end of the world if one has to pay a few percent more at a few bond auctions," Schaeuble was quoted as saying.

---Vitelius

We're Doomed

Of course, it depends on how you phrase the question, but:

[T]here’s skepticism about whether an activist government is the answer: 70 percent say cutting government spending is the best way to stoke the economy and create jobs, while 27 percent say increased spending is the answer. Even among Democrats, 47 percent support cutting federal spending to help the economy.

Maybe we really do get the government we deserve. Guess I'm apartment-hunting in Buenos Aires again.

---Vitelius

Boys Will Be, Etc.

Never falls to amaze me that so many of our leaders' most momentous policy decisions are based not on reason or thoughtful deliberation but on the outcomes of juvenile dick-swinging contests:

Prodi assumed (perhaps wisely in retrospect) that Italy and the other southern European member states would need more time to adjust to the strictures of single currency membership and would therefore go into a 'B' group of later entrants. So he was shocked to find that Aznar fully intended Spain should be in the euro the start.

The reason was that Aznar had found to his horror that Portugal was planning to be in the first group and would have relatively little difficulty meeting the Maastricht criteria for entry. At the time, Portugal had only a minimal welfare state, so its government could squeeze its budget deficit with comparative ease.

The whole thing became a national virility test. Spain could not be out if kid brother Portugal was in. And Italy could not be out if kid cousin Spain was in.

Almost no consideration was given to the pros and cons of membership either by politicians or the media. The discourse throughout southern Europe was all about “being in the first-class carriage” and “passing the Maastricht exam”.

---Vitelius

Meanwhile, Serious Persons

While I realize that the Republican Party as it is currently constituted cannot be trusted with the reins of government---which is why I'll vote yet again, albeit reluctantly, for Team Democrat---I have to admit that this might be the most disheartening Presidential campaign of my lifetime. Because, no matter who ends up winning in November, the keys to the Temple are still going to be held by the same gang of technocrats who have been wrong about everything. The only question to be resolved after November is how much punishment the rest of us will need to endure to atone for their errors in judgment:

For the last three years, the consensus has been that the US economy was on the verge of a robust and self-sustaining recovery that would restore above-potential growth. That turned out to be wrong, as a painful process of balance-sheet deleveraging---reflecting excessive private-sector debt, and then its carryover to the public sector---implies that the recovery will remain, at best, below-trend for many years to come.

Even this year, the consensus got it wrong, expecting a recovery to above-trend annual GDP growth---faster than 3%. But the first-half growth rate looks set to come in closer to 1.5% at best, even below 2011's dismal 1.7%. And now, after getting the first half of 2012 wrong, many are repeating the fairy tale that a combination of lower oil prices, rising auto sales, recovering house prices, and a resurgence of US manufacturing will boost growth in the second half of the year and fuel above-potential growth by 2013.

The reality is the opposite: for several reasons, growth will slow further in the second half of 2012 and be even lower in 2013---close to stall speed.

---Vitelius

What We've Done Hasn't Worked Up to Now

But we're going to keep doing it anyway:

Federal Reserve Chairman Ben S. Bernanke told lawmakers that progress in reducing unemployment is likely to be “frustratingly slow” and repeated that the central bank is ready to take further action to boost the recovery, while refraining from pledging any new policies.

Bernanke, responding to questions during testimony today to the Senate Banking Committee in Washington, said easing tools include further purchases of assets, such as mortgage-backed securities, reducing the interest rate that the Fed pays on reserves that banks keep with the Fed, and altering its communications on the outlook for interest rates.

---Vitelius

If We're Having a Sovereign Debt Crisis

Then why is this happening?

Now, I'm no whiz investment guy, but it sure seems to me that capital is fleeing heavily into Treasury bonds, and not only ours. (If there wasn't on Oklahoma land rush to buy these things, interest rates wouldn't keep trending negative; supply and demand, no?) Now, why would this be happening? Why would you invest so heavily in stuff like Treasuries when your return on investment is so relatively puny? Could it possibly be because investors see sovereign debt as the safest place to park their money in a balance-sheet recession? And doesn't that also mean that these governments' borrowing costs have seldom been lower---which should, well, provide them with an incentive to borrow lots of money and use it to stimulate their morbid economies? Then why are their elected heads of state mostly deciding to do the exact opposite? Because of, uh, Our Unsustainable Welfare State™?

Oh well, I guess that's why I'm not an economist, or a whiz investment guy. Our leaders have got this handled, and it's almost time for Happy Hour.

---Vitelius

Suggestion

Instead of handing out more money to a bunch of insolvent banks, maybe our leaders would consider using it to buy up some houses or cars, or some other stuff like that? Might be a smart move, considering:

Retail sales across the US fell by 0.5% in June, much worse than the 0.2% rise which economists had expected. Not an encouraging sign from the world's biggest economy.

---Vitelius

More Shared Sacrifice

Seems to be part of an ever-growing trend:

Spanish prime minister Mariano Rajoy on Wednesday announced sweeping cuts and tax increases totalling €65bn (£51bn) in austerity measures that opposition politicians warned would sink Spain further into recession.

In a spectacular U-turn, Rajoy raised sales tax by three percentage points, contradicting his government's insistence that this would damage consumer spending, strangle growth and punish the poor.

He also cut unemployment payments, pledged to bring forward a move to retirement at 68 years old and reduced civil service pay. Promised changes to energy laws looked likely to increase electricity tariffs [...]

Other measures he announced included further cuts in government spending, closures of state-owned companies and the privatisation of ports, airports and rail assets. While Rajoy spoke, thousands of coal miners marched on the industry ministry in Madrid to protest against a 63% cut in subsidies to mining companies.

You really have to wonder how long it's going to be before the Molotov cocktails start exploding in the streets of Madrid. Not advocating violence here, but people are only going to put up with their own government telling them to fuck themselves for so long before they decide to change governments. And if they can't get the government they want at the ballot box . . . well, sometimes it can lead to extremely ugly outcomes.

Update: Not long, apparently.

Update II: Accolades for a job well done:

The European commission has welcomed Spain's austerity measures, calling them an "important step".

The EC also said it was "working on the principle that private sector distribution" of the losses in Spain's banks will be needed, but that depositors and senior bondholders will not be involved.

So, as feared last night, this means that tens of thousands of citizens who hold preferred shares and subordinated bonds will be hit---and perhaps wiped out.

---Vitelius

Market-Based Solutions

We used to call it "embezzlement," but now it's known as "structural reforms":

[T]he Irish authorities have maintained a strong track record for maintaining reform momentum throughout their programme. They have also taken important steps towards restoring the stability of the financial system.

In Portugal, programme implementation remains good and important progress has been made in such areas as the labour market, the housing market, the general competition framework, the judicial system and the transport sector. The Portuguese authorities remain fully committed to achieving this year's fiscal target.

The Spanish authorities too have shown that they remain fully committed to accelerating the structural reform agenda and putting the financial sector on a sound footing. They are also committed to improving external competitiveness to lay the foundations for more sustainable prosperity.

Meanwhile, structural reforms.

---Vitelius

Good Thing I'm Not an Economist

Otherwise I'd have to be able to explain how this formula works:

(Spending cuts + wage cuts [€]) + (workers laid off x € 20,000) = Prosperity!

But this equation must be valid, because, well, why else would our leaders keep applying it?

"Consensus forecasts indicate the GDP (gross domestic product) will shrink around 2.0 percent," Ignazio Visco said in an interview with the Corriere della Sera, revising down an earlier forecast.

At the end of May, Visco said the contraction could be kept to around 1.5 percent.

"2012 will be negative, but if the situation does not get worse, if the risk on interest rates drops, if the crisis solution is shared on a European level, we could see light at the end of the tunnel by the end of the year," he said.

---Vitelius

Slow Learners

Remember all the feasting and rejoicing after the big Eurozone summit last week, where it was decided to throw a bunch of money at some Spanish banks and stick the taxpayers with the debt? Good times!

Seems like a lifetime ago, doesn't it:

Looks like any joy from last week's eurozone summit has well and truly gone. Reaction as we get it, but going past 7%, which means paying back effectively double what you borrow, is usually the trigger for a government bailout.

Spain has already had a bailout for its banks but this could be more serious.

You don't suppose it will ever dawn on them that handing over billions to the same people who caused their problem in the hopes that they will solve the problem doesn't make for terribly smart policy.

---Vitelius

Better Than Nothing

But unless I'm missing something, it's still not clear how throwing more money at the compulsive gamblers who bankrupted their nations' economies accomplishes anything more than giving them more money to gamble with. Of course they're going to approve, wouldn't you?

After 13 1/2 hours of talks ending at 4:30 a.m. in Brussels today, chiefs of the 17 euro countries dropped the requirement that taxpayers get preferred creditor status on aid to Spain’s blighted banks. They also opened the way to recapitalizing lenders directly with bailout funds once Europe sets up a single banking supervisor. Stocks and bonds in Spain and Italy surged and the euro rallied.

---Vitelius