Quotulatiousness

September 21, 2012

California’s “wall of debt” actually a very high cliff of debt

Filed under: Economics, Government, USA — Tags: , , — Nicholas @ 09:21

Mary Williams Walsh on the so-much-worse than estimated debt of California:

Gov. Jerry Brown of California announced when he came into office last year that he had found an alarming $28 billion “wall of debt” looming over the state, which had to be dismantled.

Since then, he has slowed the issuance of municipal bonds, called for spending cuts and tried to persuade the state’s famously antitax voters to approve a tax increase this fall.

On Thursday, an independent group of fiscal experts said Mr. Brown’s efforts were all well and good, but in fact, the “wall of debt” was several times as big as the governor thought.

[. . .]

The task force estimated that the burden of debt totaled at least $167 billion and as much as $335 billion. Its members warned that the off-the-books debts tended to grow over time, so that even if Mr. Brown should succeed in pushing through his tax increase, gaining an additional $50 billion over the next seven years, the wall of debt would still be there, casting its shadow over the state.

August 24, 2012

It’s an odd sort of “austerity” that increases government spending

Filed under: Britain, Economics, Government — Tags: , , , , — Nicholas @ 10:27

Everyone knows that Britain’s current economic woes are because of the government’s harsh austerity measures, right?

The argument over ‘the cuts’ has now become wholly detached from reality. Listen to any BBC debate and you’ll find the debate presented along these lines: ‘The Coalition, aiming to eliminate the deficit by 2015, has cut spending; this has had the effect of reassuring the markets and preventing a Greek-style meltdown but, on the other hand, it has impeded growth, and so reduced the tax-take, which has meant that the deficit now won’t be abolished until at least 2017. Some people believe that we need to focus on growth, not austerity. They are calling for Plan B’.

Every assumption contained in that summary is false. Net government expenditure is higher now than it was three years ago. Such deficit reduction as there has been has come largely through tax rises rather than spending cuts. The reason that government borrowing costs are low is not because of the imagined austerity programme, but because the Bank of England has magicked up nearly £400 billion through quantitative easing, given it to banks and told them to buy government debt with it. Growth and austerity are not antonyms: it was debt-fuelled growth caused the disaster in the first place. As for Plan B, no one has yet tried Plan A: spending less.

August 13, 2012

After five years, the Great Recession still shows little sign of ending

Filed under: China, Economics, Europe, USA — Tags: , , — Nicholas @ 09:02

For your daily dose of doom, here’s Ambrose Evans-Pritchard at the Telegraph:

The world remains in barely contained slump. Industrial output is still below earlier peaks in Germany (-2), US (-3), Canada (-8) France (-9), Sweden (-10), Britain (-11), Belgium (-12), Japan (-15), Hungary (-15) Italy (-17), Spain (-22), Greece (-27), according to St Louis Fed data. By that gauge this is proving more intractable than the Great Depression.

[. . .]

The original trigger for the Great Recession has since faded into insignificance. America’s house price bubble — modest by European or Chinese standards — has by now entirely deflated. Warren Buffett is betting on a rebound. Fannie and Freddie are making money again.

Five years on it is clear that subprime was merely the first bubble to pop, a symptom not a cause. Europe had its own parallel follies. Britons were extracting almost 5pc of GDP each year in home equity by the end. Spain built 800,00 homes in 2007 for a market of 250,000. Iceland ran amok, so did Latvia and Hungary. The credit debacle was global. If there was an epicentre, it was Europe’s €35 trillion banking nexus.

[. . .]

A study by Stephen Cecchetti at the Bank for International Settlements concludes that debt turns “bad” at roughly 85pc of GDP for public debt, 85pc for household debt, and 90pc corporate debt. If all three break the limit together, the system loses its shock absorbers.

“Debt is a two-edged sword. Used wisely and in moderation, it clearly improves welfare. Used imprudently and in excess, the result can be disaster,” he said.

July 31, 2012

QotD: The crony capitalist Olympics

Filed under: Britain, Government, Politics, Quotations, Sports — Tags: , , , — Nicholas @ 09:17

The Olympics are a giant exercise in sports socialism — or crony capitalism, if you prefer — where the profits are privatized and the costs socialized. The games never pay for themselves because they are designed not to. That’s because the International Olympic Committee (an opaque “nongovernmental” bureaucracy made up of fat cats from various countries) pockets most of the revenue from sponsorships and media rights (allegedly to promote global sports), requiring the host country to pay the bulk of the costs. Among the very few times the games haven’t left a city swimming in red ink was after the 1984 Los Angeles Olympics, when voters, having learned from Montreal’s experience, barred the use of public funds, forcing the IOC to use existing facilities and pick up most of the tab for new ones.

Even that’s far from fair. If anything, the Olympics should be compensating the host city for the hassle and inconvenience, not the other way around. The only reason they don’t is because the Cold War once stirred retrograde nationalistic passions, blinding the world to the ass-backwardness of the existing arrangement. Londoners are signaling that this can’t go on.

Shikha Dalmia, “Why London Is Yawning Over the Olympics: Have Western countries finally outgrown the sports socialism of the Olympic Games?”, Reason, 2012-07-31

July 8, 2012

Economic land mines laid by Blair and Brown’s governments exploding now

Filed under: Britain, Economics, Government — Tags: , , , , , — Nicholas @ 10:34

At The Commentator, John Phelan wonders if it’s now time for “an economic Nuremburg” for the 1997-2010 British governments of Tony Blair and Gordon Brown:

Like an iceberg, the extent of the damage wrought by the last Labour government is still becoming apparent.

One of the wheezes Labour used to camouflage its vast spending spree was the Private Finance Initiative. These had been brought in by John Major’s Conservatives (to criticism from the then Labour opposition) and involved a private sector entity building something and then selling it or leasing back to the government over a number of years, usually decades.

Upon winning the election in 1997 however, Labour performed a volte face and embraced PFIs. They appealed to Gordon Brown because the liabilities taken on under PFIs would not show up on the government’s balance sheet. In other words, they wouldn’t be included in the national debt figure.

Labour signed up to an estimated £229 billion of PFI projects. That’s almost two and a half times the entire projected budget deficit for 2012 – 2013, or 16 percent of GDP.

[. . .]

Indeed, like the cat who leaves little ‘presents’ around the house for you to discover when you return from holiday, the Labour government of 1997 to 2010 is the gift that keeps on crapping on your carpet. We will be discovering fiscal turds left by Labour for literally decades to come.

If you were being charitable you would ascribe the fiscal incontinence of the Blair/Brown governments to some sort of Keynesian economic theory, though that fails to explain why they applied fiscal ‘stimulus’ for seven years to an already growing economy.

If you were being slightly less charitable you might ascribe it to incompetence of a quite staggering degree. The last Labour government, after all, were probably the biggest set of mediocre idiots ever to govern this country.

And, if you were being even less charitable, you might ascribe it to something more sinister – Brown poisoning the wells when he heard opposition tanks at the end of his strasse.

July 3, 2012

“The longer the euro area’s debt crisis drags on, the more it resembles an instrument of economic torture”

Filed under: Economics, Europe — Tags: , , , , , — Nicholas @ 08:47

The Economist on the long-drawn-out European financial mess:

THE longer the euro area’s debt crisis drags on, the more it resembles an instrument of economic torture. Like the medieval rack, every turn of the crisis tears Europe further apart. This week Cyprus announced it would seek a bail-out. Spain formally asked for money to recapitalise its banks. The Greek limb is close to being ripped off. How long can the Italian one hold?

Monetary union was meant to be a blessing. The euro’s founders dreamed that it would end chronic and divisive currency crises, promote growth and multiply Europe’s economic power. After the creation of the single market, the euro was the next step toward political union.

[. . .]

Now, after first blaming speculators, then profligate states, then, more broadly Europe’s lack of competitiveness, the cardinals of monetary union have belatedly come to understand that the main problem is the euro itself. A new report by a group of prominent economists — sponsored by Jacques Delors, the former president of the European Commission, and Helmut Schmidt, the former German chancellor — describes in telling detail how the euro is destroying itself.

Start with the European Central Bank’s “one size fits all” interest rate, which the report’s leading author, Henrik Enderlein of the Hertie School of Governance in Berlin, relabels a “one size fits none” rate. Differences in inflation are magnified: in countries with higher-than-average inflation (eg, Italy), the real interest is too low, fuelling more inflation; the opposite is true in countries where inflation is low (eg, Germany). Another problem is that the single market is far from complete, so that competition does not even out price differences across the EU. The market in services, which represents the biggest share of economic output, is still fragmented. Moreover, European workers are less likely to move in search of jobs than, say, American ones. A further curse is that countries of the euro zone do not independently control their own money. Because each lacks its own central bank to act as a lender of last resort, troubled countries can more easily be pushed into default as markets panic. Lastly, cross-border financial integration has spread far enough to channel contagion from one country to another, but not so far as to break the cycle of weak banks and weak sovereigns bringing each other down.

July 1, 2012

“Canada was born in debt”

Filed under: Cancon, Economics, Government, History, Railways — Tags: , , — Nicholas @ 11:08

At the Worthwhile Canadian Initiative blog, Livio Di Matteo explains one of the less mentioned but urgent reasons behind confederation in 1867:

The trials and tribulations of the European Union, its debt crisis and the Euro and the suggestion that part of the solution lies in a stronger fiscal union reminds me of the forces behind the drive for Canadian confederation in the mid-nineteenth century. Canadians are usually taught in school that major forces driving Confederation were the potential threat of territorial aggrandizement by the United States in the wake of the Civil War or the need for a larger market given Britain’s move to free trade and the end of Reciprocity with the Americans or the desire to generate the economic resources to build a railway to the west so that it could serve as an investment frontier.

One factor that receives very little mention is the fact that the prior to 1867 the colonies of British North America were heavily in debt and faced a fiscal crisis of their own. The solution to the colonial debt crisis that Confederation allowed was the creation of the federal government that was given strong revenue raising powers and assumed provincial debts and thereby stabilized the public credit. Public debt charges in 1867 already accounted for 29 percent of federal budgetary expenditure and by 1880 had only been whittled down to about 24 percent. Canada was born in debt.

Canada was created with a large debt as the provincial and local levels of government had invested heavily in transportation infrastructure — canals and railways in particular. In 1850, there were only about 66 miles of track in operation but by 1860 about 2000 miles of track had been built in eastern Canada. The total cost of building these railways in British North America up to 1867 was 145.8 million dollars the bulk of which was for the Province of Canada — Ontario and Quebec. By way of comparison, Canada’s GDP in 1870 has been estimated at about 383 million dollars.

[. . .]

Confederation was designed to fix a massive debt problem. Creation of a new political entity — the dominion government — would allow for the current debt burden to be serviced and for more credit to be obtained on foreign markets to fund the railway projects of the late 19th century — the CPR, Canadian Northern, etc… Confederation was a solution to the debt crisis but required a form of government that reduced sovereignty for the member units in order to stabilize the public credit. In the Canadian case, as acrimonious as the discussions were, the process was facilitated by the fact that the member units were all British colonies with similar institutions.

June 24, 2012

Conrad Black: Don’t blame Canada

Filed under: Cancon, Economics, Europe, Government — Tags: , , , , , , — Nicholas @ 08:45

In his weekly column at the National Post, Conrad Black refutes Jose Manuel Barroso (who appeared to refer to Prime Minister Harper as a “nobody” recently) that the European crisis was made in North America:

Stephen Harper is absolutely correct to refuse to contribute to World Bank assistance to Europe. The reward for the consistently intelligent fiscal management of Canada by both governing parties for more than 20 years should not be to assist rich countries that ignored our example and the warnings of their own wiser statesmen until the wheels came off the Euro-fable in all four directions.

The president of the European Commission, Jose Manuel Barroso, made the point at the G20 meeting in Mexico last week — in, as he thought, a reply to Harper’s comments on Europe’s self-generated economic and fiscal problems — that the current economic crisis originated in North America. That is not entirely true. It originated in the ill-starred fiscal and social policies of most European countries, and the tinder was set alight by bad financial, social, fiscal and regulatory policy in the United States.

Margaret Thatcher, Angela Merkel, and even Gerhard Schroeder, as well as a number of Austrian, Dutch, and Scandinavian leaders all warned that Europe could not continue to guarantee employment to all job-holders as a steadily shrinking percentage of Europeans worked and the public sector share of GDP rose, infused with the steroids of over-bountiful social democracy. Most countries of Europe today are like the little pigs who didn’t build their homes from weather-proof materials.

Furthermore, it is no rejoinder to Mr. Harper to complain about the Americans. It would be no less logical to blame the floundering of Dalton McGuinty’s Ontario on booming Texas, since both jurisdictions are in North America. In the same line of reasoning, I would like Newfoundland’s involvement in the drug wars in Mexico fully examined.

June 22, 2012

Greek government getting serious about debt issues: selling off government land

Filed under: Economics, Europe, Government, Greece, Railways — Tags: , , — Nicholas @ 10:18

It’s surprising it’s taken this long for the Greek government to consider selling off excess government-owned land as a way to address some of their debt issues:

There’s little that shouts “seriously rich” as much as a little island in the sun to call your own. For Sir Richard Branson it is Neckar in the Caribbean, the billionaire Barclay brothers prefer Brecqhou in the Channel Islands, while Aristotle Onassis married Jackie Kennedy on Skorpios, his Greek hideway.

Now Greece is making it easier for the rich and famous to fulfill their dreams by preparing to sell, or offering long-term leases on, some of its 6,000 sunkissed islands in a desperate attempt to repay its mountainous debts.

The Guardian has learned that an area in Mykonos, one of Greece’s top tourist destinations, is one of the sites for sale. The area is one-third owned by the government, which is looking for a buyer willing to inject capital and develop a luxury tourism complex, according to a source close to the negotiations.

However, if you’re in the market for a lovely little Greek island, you should also consider that land costs are going to be only a small part of your investment:

Only 227 Greek islands are populated and the decision to press ahead with potential sales has also been driven by the inability of the state to develop basic infrastructure, or police most of its islands. The hope is that the sale or long-term lease of some islands will attract investment that will generate jobs and taxable income.

Also on the block for sale are other government monopolies:

In its battle to raise funds, the country is also planning to sell its rail and water companies. Chinese investors are understood to be interested in the Greek train system, as they already control some of the ports. In a deal announced earlier this month, the Greek government also agreed to export olive oil to China.

Update: Ah, I didn’t notice that the article had originally been published in 2010, hence my expressed surprise that it had taken so long for these measures to be considered.

June 18, 2012

Rerun of the Greek election

Filed under: Economics, Europe, Greece, Politics — Tags: , , , — Nicholas @ 09:16

The Economist summarizes the results of yesterday’s election in Greece:

WHEN deciding whether to grant citizenship to an outsider, the Ancient Greeks would put the matter to a vote, tossing coloured pebbles into a clay jar. On June 17th almost 29.7% of voting Greeks picked the colours of New Democracy, a centre-right party that broadly supports the country’s EU bail-out agreement. It was seen as a vote to remain citizens in good standing of the single currency. New Democracy narrowly beat Syriza, the “coalition of the radical left”, which was threatening to rip up the bail-out agreement. That would have resulted in ejection from the euro area or at least ostracism (another Ancient Greek practice) from its fellow members.

On the face of it, this do-over election has generated the kind of result euro-officials were hoping to see in the first election on May 6th. The leader of New Democracy, Antonis Samaras, will now seek to form a coalition with other parties that broadly support the bail-out. The Greek people can look forward to the sweat of fiscal austerity, not the tears of financial chaos. They can expect chronic misery rather than acute disaster.

[. . .]

What about the economy? As our piece last week reported, it has spent the last six weeks in suspended animation. Unfortunately, economies do not keep well in the freezer. The hesitation has wreaked great and irreparable harm. The banks have lost more deposits. The government’s arrears have grown. Erik Nielsen, chief economist of UniCredit, reports that pharmacists have suspended credit to the government, hampering the supply of medicines. The pebbles cast in May have spread damaging ripples through world markets, which have not reversed themselves. They “introduced yet another round of uncertainty” that the second bail-out programme “was not built to deal with.”

Who’s afraid of austerity?

Filed under: Economics, Europe, Government, USA — Tags: , , , , — Nicholas @ 08:17

At the BBC News website, Niall Ferguson on why young westerners should welcome austerity:

The heart of the matter is the way public debt allows the current generation of voters to live at the expense of those as yet too young to vote or as yet unborn.

In this regard, the statistics commonly cited as government debt are themselves deeply misleading, for they encompass only the sums owed by governments in the form of bonds.

The rapidly rising quantity of these bonds certainly implies a growing charge on those in employment, now and in the future, since — even if the current low rates of interest enjoyed by the biggest sovereign borrowers persist — the amount of money needed to service the debt must inexorably rise.

But the official debts in the form of bonds do not include the often far larger unfunded liabilities of welfare schemes like — to give the biggest American schemes — Medicare, Medicaid and Social Security.

The most recent estimate for the difference between the net present value of federal government liabilities and the net present value of future federal revenues is $200 trillion, nearly thirteen times the debt as stated by the U.S. Treasury.

Notice that these figures, too, are incomplete, since they omit the unfunded liabilities of state and local governments, which are estimated to be around $38 trillion.

These mind-boggling numbers represent nothing less than a vast claim by the generation currently retired or about to retire on their children and grandchildren, who are obligated by current law to find the money in the future, by submitting either to substantial increases in taxation or to drastic cuts in other forms of public expenditure.

[. . .]

It is surprisingly easy to win the support of young voters for policies that would ultimately make matters even worse for them, like maintaining defined benefit pensions for public employees.

If young Americans knew what was good for them, they would all be in the Tea Party.

A second problem is that today’s Western democracies now play such a large part in redistributing income that politicians who argue for cutting expenditures nearly always run into the well-organised opposition of one or both of two groups: recipients of public sector pay and recipients of government benefits.

May 31, 2012

QotD: A plague on both your houses!

Filed under: Economics, Government, Politics, Quotations, USA — Tags: , , , , — Nicholas @ 00:02

Protestations from the Obama side that this is all just proof that recession/depression was so much worse than any of us knew that it’s a goddamn great and good thing that Obama is helming the ship of state because if it had been one of those idiot Republicans like George W. Bush we wouldn’t have had bailouts and a stimulus that was too small to really effect the economy — even smaller than the $150 billion tax thingamajig that Bush tried in early 2008 that was really pathetic because we now know that even Obama’s $800 billion attempt was obviously too small christ it should have been two or three or even four times bigger and for god’s sake can’t we just prepare for the alien invasion that Paul Krugman — he won a Nobel Prize so just shut up already! — says will create enough of a multiplier effect to finally restart the economy and screw the debt because we’ll have thousands of years to pay that down, especially now that thank Zardoz we’ve got universal health care that will be awesome if the d-bags on the SCOTUS don’t FUBAR it and Dodd-Frank means there won’t be any fraud or dumb lending!

And of course the Republicans will counter with: See, none of this would have happened if we’d only followed George W. Bush’s disastrous big-government spending ways and expansion of major entitlements and a defense buildup because sharia law is taking over whole hamlets in Oklahoma and our plan to increase annual spending over the next decade by just $1 trillion is so much better than the Prez’s to spend $2 trillion more, especially after increasing federal outlays by 60 percent or more over the previous decade when we controlled things is exactly the tonic the economy needs right now! But seriously folks, what do you expect when you let gay marriage happen? No economy can recover from that!

Nick Gillespie, “Is the Obama Recovery Over? Or Has it Not Really Started Yet?”, Hit and Run, 2012-05-30

May 22, 2012

Reason.tv: Is Austerity to Blame for Europe’s Economic Woes?

Filed under: Economics, Europe, Government, Media — Tags: , , , — Nicholas @ 11:50

May 8, 2012

Absurd meme of the month: that European countries have imposed draconian fiscal austerity

Filed under: Economics, Europe, Government, Media — Tags: , , , , — Nicholas @ 11:00

For all the gasping about the impact of fiscal austerity on weakened European economies, it’s hard to detect from the actual numbers:


(Image from the Mercatus Center)

See all those coloured lines dropping precipitously? Me neither.

Veronique de Rugy asks where the “savage” spending cuts can be seen:

Austerity is destroying Europe, we are told. In fact, this “anti-austerity” slogan was a big reason for the victory of newly elected socialist François Hollande to the presidency of France. Interviewed in The Economist a few weeks ago, Hollande’s campaign director said “We are not disciples of savage spending cuts.”

But then, I look at the data and I am asking: What “savage” spending cuts?

Look at [the chart above]. It is based on Eurostat data which you can find here. Following years of large spending increases, Spain, the United Kingdom, France, and Greece — countries widely cited for adopting austerity measures — haven’t significantly reduced spending since 2008. As you can see on this chart:

  • These countries still spend more than pre-recession levels
  • France and the U.K. did not cut spending.
  • In Greece, and Spain, when spending was actually reduced — between 2009–2011 — the cuts have been relatively small compared to what is needed. Also, meaningful structural reforms were seldom implemented.
  • As for Italy, the country reduced spending between 2009 and 2010 but the data shows and uptick in spending 2011. The increase in spending represents more than the previous reduction.

In addition to failing to curb spending, several governments have raised taxes (which has a negative effect on growth in the economy and can — contrary to popular wisdom — actually reduce the total tax collected as people and companies change their habits to minimize the impact of the tax change).

April 17, 2012

Argentina’s latest economic lesson

Filed under: Americas, Economics — Tags: , , , , , — Nicholas @ 10:50

Jan Boucek explains why Argentina is providing a helpful example to other countries on what not to do in economic policy:

This week, President Cristina Fernandez de Kirchner announced the seizure of Spanish oil company Repsol’s stake in Argentine oil company YPF to give the government 51% control. Spain is outraged and has recalled its ambassador. […]

Ms Fernandez justified her move on the grounds that YPF has failed to invest sufficiently to prevent Argentina from importing ever greater quantities of fuel. The fact that Argentine oil reserves have been dwindling means the sector needs greater and increasingly sophisticated investment to reach more complex structures, just like in the North Sea. Expropriation isn’t going to attract that kind of high-risk investment.

[. . .]

The YPF seizure continues Argentina’s cavalier attitude towards other people’s money shown back in 2008 when Ms Fernandez grabbed some $24 billion of private pension funds and used central bank reserves to meet debt payments. More recently, the country has been in a spat with the IMF over the quality of its statistics. Argentina claims inflation is running at somewhere between 5% and 11% but private independent estimates put the number at somewhere around 25%. The Economist is refusing to publish official Argentine inflation data.

Update: Well, regardless of the state of the economy, President Fernandez de Kirchner has a friend in the White House! President Obama has indicated his support for the Argentinian claim to … the ¿Maldives?

President Obama erred during a speech at the Summit of the Americas in Cartagena, Colombia, when attempting to call the disputed archipelago by its Spanish name.

Instead of saying Malvinas, however, Mr Obama referred to the islands as the Maldives, a group of 26 atolls off that lie off the South coast of India.

The Maldives were a British protectorate from 1887 to 1965 and the site of a UK airbase for nearly 20 years.

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