Europe Really Needs to Step Up

President Obama will ask Congress for another $1 billion to improve security in Europe against the threat from Putin.  I have no problem with this.

What I do have a problem with is how little the Europeans do for themselves.  NATO’s members promised in 2006 to spend at least 2% of their GDP on their militaries, but of 28 members, only Britain, Greece, and Estonia, besides of course the U. S., have met that low standard.  Everyone talks about the great trains and inexpensive health care in Europe.  Well, that’s because they spend next to nothing on defense, relying too much on us, while our infrastructure is falling apart.  If they’re so worried about Putin, they need to stop building their houses of straw and sticks, while we get stuck providing the bricks.

I’m especially looking at you, France.  While the French can’t be bothered to defend themselves (again), they also won’t cancel their $1.6 billion sale of warships to Putin.  So they make our job tougher and more expensive.  You know, Mesdames et Messieurs, it’s your damn continent.  We just come over now and then (like 70 years ago today, when our soldiers got slaughtered on your Normandy beaches, while you all hung out in cafes in Paris) to save your sorry behinds.

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Prepare to Bump Your Head on the Debt Ceiling

Sen. Minority Leader Mitch McConnell (R-Kentucky) said today:  “The tax issue is finished, over, completed.  That’s behind us.  Now the question is what are we going to do about the biggest problem confronting our country and our future, and that’s our spending addiction.”

Then for good measure McConnell threw in the Greece canard, which is very effective in scaring people, but is irrelevant to our situation.  Greece’s problem is not having its own floating currency and its own central bank.

I agree that we need to cut spending (How about getting out of Afghanistan ASAP?), but you cut spending by negotiating on stuff you haven’t bought yet.  You don’t demand spending cuts by refusing to pay for the things you’ve already bought.  And we need to balance spending cuts by reforming the tax code to get additional revenue.

If the GOP were so concerned about the national debt, they wouldn’t be willing to mess with our credit rating, driving up borrowing costs and throwing away money on interest payments.

 

Krugman Scolds the Deficit Scolds

From “Fighting Fiscal Phantoms,” Paul Krugman, NYT:

“But we’re not  Greece, and it’s almost impossible to see how this [a run on Treasuries, a spike in interest rates and a return to recession] could actually happen to a country in our situation.

“For we have our own currency — and almost all of our debt, both private and public, is denominated in dollars.  So our government, unlike the Greek government, literally can’t run out of money.  After all, it can print the stuff.

“But if the U. S. government prints money to pay its bills, won’t that lead to inflation?  No, not if the economy is still depressed.

“Still, haven’t crises like the one envisioned by deficit scolds happened in the past?  Actually, no.  As far as I can tell, every example supposedly illustrating the dangers of debt involves either a country that, like Greece today, lacked its own currency, or a country that, like Asian economies in the 1990s, had large debts in foreign currencies.

“For years, deficit scolds have held Washington in thrall with warnings of an imminent debt crisis, even though investors, who continue to buy U. S. bonds, clearly believe that such a crisis won’t happen; economic analysis says that such a crisis can’t happen; and the historical record shows no examples bearing any resemblance to our current situation in which such a crisis actually did happen.”

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.”

Samaras Becomes New Greek Prime Minister

A right winger now has the job nobody in their right mind would want.  New Democracy’s Antonis Samaras was sworn in as Greece’s prime minister today, after forming a coalition with Socialist PASOK and the tiny Democratic Left party.

Samaras went to Harvard Business School, just like Mittens.  He is from a wealthy family, just like Mittens.

Either New Democracy or PASOK has run Greece for the last four decades, so they represent the establishment.  To show you how cliquish Greece is, Samaras was roommates at Amherst College with George Papandreou, who led one of the PASOK governments.

Leftist Syriza, and its young anti-austerity leader Alexis Tspiras, which finished behind New Democracy by less than 3% in this weekend’s voting, is waiting in the wings for this coalition to fail.  And it will.  I’ll be shocked if it lasts six months.

Unfortunately, I Think He’s Right

From “One Wall Street Seer Says The Greek Tragedy Is Near,” Andrew Ross Sorkin, NYT:

“If you want to be scared, truly terrified, listen to Mark J. Grant.  He might be right.

“For the last two years, Mr. Grant, a managing director at a regional investment bank in Florida, has been predicting the bankruptcy of Greece and a cascade of chaos across the global economy.
“‘Greece will default because there is no other choice regardless of anyone’s politics.’

“Mr. Grant in a Jan. 13, 2010 report forecast that Greece would default on its government debts, one of the first to publish such a prognostication.

“The January 2010 report, written two years before Greece did indeed default, has made him the go-to forecaster for some of the world’s largest investors.

“Sadly, Mr. Grant is not predicting the default of just Greece, he’s already on to Spain (he reached that conclusion before many others, too).

“He has convinced himself that Germany, the only country in a position to help, will not come to the rescue.  ‘You can bank on one thing if nothing else; the Germans will not allow their cost of funding to rise or their standard of living to decline to help the nation that have gotten themselves in trouble.  You can count on this!’

[W]e are headed for a bad recession with lots ‘of shocks to the system.’  He says this will likely happen in the next four months or ‘it could come sooner.’”  Emphasis added.

 

In Chicago, they’re hoping to keep the sick men of Europe alive till the second week of November; in Boston, they want to remove life support ASAP.

 

 

Different Approaches, Same Result

If the far-left Syriza party had won in Greece, they were going to tell Angela Merkel where she could stick the harsh terms of her bailout.  The conservative New Democracy party, which will form a coalition with the Socialist PASOK for 162 seats in the 300-member Parliament, will tell Merkel they support the bailout, but ask “pretty please” if she can just ease the terms.

Different approaches, but the same result.  Merkel isn’t going to save Greece.

Greeks hope the election results can lead to further negotiation because they fear the unknown of leaving the euro.  Bad as things are, they fear making them worse, although worse seems unavoidable.  But trying to negotiate with Merkel fiscally is like trying to negotiate with Hitler militarily.  The only way Merkel will help is if Greece completely cedes its fiscal sovereignty to the EU Germany.

It seems inevitable that at some point soon Syriza will take power.  It finished a close second to New Democracy with 27% of the vote, having won only 12% in the May election.  New Democray and PASOK, the “mainstream” parties, have brought Greece to her knees and five years of recession.