Dispatches from the Parallel Universe

Here’s Charles Krauthammer from “The Choice” at WaPo:

“An Obama second term means that the movement toward European-style social democracy continues, in part by legislation, in part by executive decree.  The American experiment — the more individualistic, energetic, innovative, risk-taking model of democratic governance — continues to recede, yielding to the supervised life of the entitlement state.

“Every four years we are told that the coming election is the most important of one’s life.  This time it might actually be true.  At stake is the relation between citizen and state, the very nature of the American social contract.”

This is just pure delusion.  In 2008, pundits could make wild claims about who Obama was and what he wanted to do.  But he’s been president for four years, a very moderate and centrist president, one who has frustrated the left of his own party.  We’ve seen him, we’ve lived with him, he is no radical.

By contrast, it is Romney/Ryan who are a true threat to the American social contract with their dramatic shifts of wealth and resources even further upward.  They are the threat to the middle class and those hoping to join it.

And if you want to talk about a “supervised life,” what better example could there be than the government forcing you to have your rapist’s baby?  Romney/Ryan, both supporters of the Personhood Amendment, offer their own sick version of an entitlement state where fertilized eggs are more entitled than those of us who are already here.

 

Will GOP Succeed Because They Support Failure?

It will be bad enough if Mitt wins.

But it will just kill me if he wins because the failing austerity policies in Europe do so much damage to our economy that they cost President Obama the election, the same misguided austerity policies that the GOP wants to impose here.

So European economic failure would generate GOP success would in turn would generate American economic failure.  Who’s on first?

So Where Are the High Interest Rates?

From “Money For Nothing,” Paul Krugman, NYT:

“For years, allegedly serious people have been issuing dire warnings about the consequences of large budget deficits — deficits that are overwhelmingly the result of our ongoing economic crisis.

“But a funny thing happened on the way to the predicted fiscal crisis:  instead of soaring, U. S. borrowing costs have fallen to their lowest level in the nation’s history.  And it’s not just America.  At this point, every advanced country that borrows in its own currency is able to borrow very cheaply.

“The failure of deficits to produce the predicted rise in  interest rates is telling us something important about the nature of our economic troubles (and the wisdom, or lack thereof, of the self-appointed guardians of our fiscal virtue).
“Oh, and pay no attention to the warnings any day now we’ll turn into Greece, Greece I tell you.  Countries like Greece, and for that matter Spain, are suffering from their ill-advised decision to give up their own currencies for the euro, which has left them vulnerable in a way that America just isn’t.

“So what is going on?  The main answer is that this is what happens when you have a ‘deleveraging shock,’ in which everyone is trying to pay down debt at the same time.

“But it’s simply crazy to be laying off schoolteachers and canceling infrastructure projects at a time when investors are offering zero- or negative-interest financing.

“You don’t even have to make a Keynesian argument about jobs to see that.  All you have to do is note that when money is cheap, that’s a good time to invest.

“That said, you should be a Keynesian, too.  The experience of the past few years — above all, the spectacular failure of austerity policies in Europe — has been dramatic demonstration of Keynes’s basic point:  slashing spending in a depressed economy depresses that economy further.”

Our Limping Economy

GDP growth in the second quarter was only 1.5%, compared to 2.0% in the first quarter.

Our economy must grow between 2 and 2.5% just to keep unemployment, currently at 8.2%, from rising.

As for the third quarter, forecasts are for growth in the 1 to 1.5% range.

This is all good news for Mitt, and Mitt is bad news for us because he wants British-like austerity that would definitely send us back into recession*:

“The U. K.’s economy suffered a much larger contraction than expected in the second quarter, heightening questions about the pace and effectiveness of the government’s austerity program and fueling the broader debate across Europe about how to tackle the Continent’s economic woes.

“The deteriorating British economy is likely to intensify the debate both within the U.K. and other debt-laden countries in the West about cuts versus stimulus, amid increasing evidence that austerity is proving a major drag on growth.” Emphasis added.

* “U.K. Stumble Fuels Austerity Debate,” Ainsley Thomson and Cassell Bryan-Low, WSJ

 

Quote of the Day

“This economy has no forward momentum and little help from monetary or fiscal policy.  As if that were not enough, ill winds are blowing in from both a contracting Europe and slowing growth in emerging markets.”

Kathy Bostjancic, director of macroeconomic analysis, the Conference Board

I would say no help from monetary or fiscal policy.

But Obama does have one thing going for him — he has Mitt.

The Fourth Reich Is Upon Us

From “Conspiracy Theories Fly As Europe Struggles,” Floyd Norris, NYT:

“Imagine for a moment that two decades ago, a newly unified Germany set out to take over the European Continent, as the previous unified Germany had tried and failed to do half a century earlier.  This time it would use money, not guns, to accomplish the goal.

“There is, let me hasten to note, no evidence of any such conspiracy.  But if there had been, things might have played out more or less as they have.

“Conceivably, Germany learned three things from the 1992 experience [when Germany’s raising of interest rates forced other European countries to do the same, hurting their economies], and mapped out a course with those lessons in mind.  First, absent fixed exchange rates, its export-oriented companies faced the risk of periodic competitive devaluations from the rest of Europe.

“Second, a currency union could help German exports if the euro’s value were held down by less competitive economies.

“Finally, if Germany adopted a low-interest-rate policy, and superlow rates arrived in European nations accustomed to high rates, banks could open the credit spigot and create a debt-financed boom in much of Europe.  That would invite a mushrooming of imbalances.  Ultimately, deeply indebted countries would face a crisis, one that they could solve only if they acquiesced to German policies and surrendered a large part of national sovereignty.

“The endgame may be approaching.  Troubled countries are facing an increasingly clear choice.  They can stay in the euro zone, and face years of endless recession.  They can abandon the euro, perhaps bringing catastrophe but giving them the freedom to devalue their new currencies.  Or they can accept the German offer:  Surrender sovereignty.  Accept German leadership and domination of a unified Europe.  Then we will bail you out.”  Emphasis added.

Friedman Links Messes in Europe and Mideast

From “Two Worlds Cracking Up,” Thomas Friedman, NYT:

“In Europe, the supranational project did not work, and now, to a degree, Europe is falling back into individual states.  In the Arab world, the national project did not work, so some of the Arab states are falling back onto sects, tribes, regions and clans.

“In Europe, the supranational project did not work because the European states were never ready to cede control over their budgets to a central authority that would ensure a common fiscal policy to back up a common currency.

“In the Arab world, the national project did not work — in many, but not all cases — because the tribes, sects, clans and regional groups that make up these Arab states, whose borders were drawn up by colonial powers, were unwilling or unable to meld genuine national communities.”  Italics in original.

And all timed to determine the outcome of America’s presidential election!

 

Piecemeal Approach to Euro Cuts Europe to Pieces

For a quick and clear explanation of the mess that is Europe, check out “Why the Bailout In Spain Won’t Work,” Andrew Ross Sorkin, NYT.  Some excerpts:

“By now, it should be apparent that the [Spanish] bailout has failed — or is at least on its way to failing.

“Indeed, it now appears that the bailout could make things in Spain worse, not better.  And market indicators for the next domino in line for a bailout, Italy, point in the wrong direction.

“This was bound to happen.  That’s because bailing out the banks in each European country individually is a fool’s errand.

“Experts often cite — wrongly — that TARP, the Troubled Assets Relief Program that pumped $700 billion into the banking system in the United States, arrested the financial crisis in 2008.  TARP, to some degree, has become the model for Europe.

“But we forget history:  TARP was only one component of the bailout.  Perhaps more important — consider it the unsung hero of the financial crisis — was the government’s unilateral moves to raise the amount of money the Federal Deposit Insurance Corporation could insure, increasing the account limit to $250,000 from $100,000 and fully backstopping the entire money-market industry.

“Investors and bank customers who were considering taking their deposits and running in 2008 no longer had reason to do so….

“That is not the case in Europe.  Customers of Spanish banks still have reason to worry about the solvency of their banks — and their country — making it reasonable for them to take their money from Spanish banks and send it to banks in safer countries like Germany.  Indeed, the bailout makes it less likely Spain can pay back its debts because the new loan of up to $125 billion was just added to its huge debt pile.

“As a result, it could be argued that it would be irresponsible for an individual or company, which has a fiduciary duty to shareholders, not to move its money out of Spanish banks.

“Ultimately, the only real way to begin to ensure the safety of the banks in Spain — and all of Europe — is to create a euro zonewide deposit guarantee system….

“Oddly enough, such a deposit guarantee would probably be pretty cheap.  The psychological effect of such a guarantee would most likely insure the solvency of more banks than the guarantee would ever have to pay out.

“Of course, there a catch.  A euro zonewide deposit guarantee would require agreement from all 17 member countries, which is something the leaders there seem incapable of reaching….

“And here’s another problem with a euro zonewide deposit guarantee:  Unless you believe the euro is going to remain the standard…even the guarantee might not be enough, unless the guarantee holds for all currencies.  For example, if a Spanish bank customer is worried that his euros might one day turn into pesetas — even with a deposit guarantee in place — he might well move his money.”  Emphasis added.

I encourage you to read the whole column.  I think we know whose side Mitt is on here.

We’re going to look back and wonder why solutions like this weren’t put in place before everything fell apart.  In hindsight, it will look so obvious and so easy compared to all the fallout.

 

 

 

Fifty Shades of Sado-Monetarism

From “Another Bank Bailout,” Paul Krugman, NYT:

“Most notably, last week the European Central Bank declined to cut interest rates. This decision was widely expected, but that shouldn’t blind us to the fact that it was deeply bizarre. Unemployment in the euro area has soared, and all indications are that the Continent is entering a new recession. Meanwhile, inflation is slowing, and market expectations of future inflation have plunged. By any of the usual rules of monetary policy, the situation calls for aggressive rate cuts. But the central bank won’t move.

“And that doesn’t even take into account the growing risk of a euro crackup. For years Spain and other troubled European nations have been told that they can only recover through a combination of fiscal austerity and ‘internal devaluation,’ which basically means cutting wages. It’s now completely clear that this strategy can’t work unless there is strong growth and, yes, a moderate amount of inflation in the European ‘core,’ mainly Germany — which supplies an extra reason to keep interest rates low and print lots of money. But the central bank won’t move.

“Put all of this together and you get a picture of a European policy elite always ready to spring into action to defend the banks, but otherwise completely unwilling to admit that its policies are failing the people the economy is supposed to serve.

“Still, are we much better? America’s near-term outlook isn’t quite as dire as Europe’s, but the Federal Reserve’s own forecasts predict low inflation and very high unemployment for years to come — precisely the conditions under which the Fed should be leaping into action to boost the economy. But the Fed won’t move.

“What explains this trans-Atlantic paralysis in the face of an ongoing human and economic disaster? Politics is surely part of it — whatever they may say, Fed officials are clearly intimidated by warnings that any expansionary policy will be seen as coming to the rescue of President Obama. So, too, is a mentality that sees economic pain as somehow redeeming, a mentality that a British journalist once dubbed ‘sado-monetarism.’

“Whatever the deep roots of this paralysis, it’s becoming increasingly clear that it will take utter catastrophe to get any real policy action that goes beyond bank bailouts. But don’t despair: at the rate things are going, especially in Europe, utter catastrophe may be just around the corner.”  Emphasis added.

And that utter catastrophe may put Mitt in the White House.  Catastrophe squared!

Obama’s Luck May Be Running Out

The latest Real Clear Politics average shows President Obama ahead of Mitt by 1.4%, so the race is essentially tied.

What troubles me is that I think the people who have already decided to vote for Mitt are unlikely to change their minds.  I’m not expecting some big shocking revelations about him between now and November.   You either care about Bain, his Massachusetts record, Romneycare, the flip flops and phoniness, his inability to identify with and connect to average working people, or you don’t.

As the challenger, events that unfold in the next few months, like the disaster that is Europe, won’t take votes away from Mitt. But as the incumbent, Obama has to take responsibility for whatever happens on his watch, even when it isn’t really his fault and is beyond his control.  He may not have championed the euro 20 years ago as a brilliant idea, but its demise will hurt him.  To paraphrase Harry Truman, “The euro stops here.”

I believe Mitt is likely to pick up votes from current Obama voters as well as most undecideds.  We know the economy isn’t about to take off any time soon, things are likely to get worse before they get better.  I can see a scenario where the stock market tanks as the price of filling our tanks  soars, where events seem to be spinning out of control and no one knows where the bottom is, so that voters flee Obama and rush into the waiting wooden arms of Mitt, not out of love, but out of fear, that other extremely powerful human emotion.

Europe isn’t going to crash and burn in time for the effects to fade before the election, but Europe won’t wait till mid-November either.

I would say the calendar favors Mitt.  He’s not likable?  We elected Richard Nixon — twice.