One of the most passionate and well-received speeches at CPAC was not delivered by an American. It was delivered by a proud Brit to barrages of applause. It was a speech that centered on our founding documents, our common heritage, and our potentially disastrous future if the present paths toward bigger government are not abandoned.

This may come as a bit of a shock to many American conservatives, but there is a healthy and robust conservative movement underway in Europe, and Daniel Hannan, MEP from South East England, has become an important voice in this movement. I had the pleasure of spending some time with Mr. Hannan discussing European conservatism and the debt crisis enveloping the Eurozone.

Dr. Whitman: Hello Mr. Hanna, I am Jason Whitman, National Republican Policy Chairman for the Young Republican National Federation. It is an honor to meet you.

Mr. Hannan MEP: We are looking forward to working with you and your organization. As you know, the American Republican is not a particularly popular creature in Europe right now, and we would like to help you with that.

Dr. Whitman: We look forward to working jointly with you on our common goals. As American conservatives, we see a society in the UK that is seemingly being brought to its knees by failed Leftist policies. What are UK conservatives doing to overcome that, and how successful has it been?

Mr. Hannan MEP : We’ve got two outstanding problems in the UK. We’ve got the immediate problem of the massive debt and that creates social problems. It is much easier in times of rising prosperity to make the kinds of reforms you need. In the 1990’s, when the Gingrich welfare reforms were brought in, they were brilliantly successful on every metric. Bills fell, poverty fell, everybody was happy, but it happened at a time of rising prosperity which is not the luxury we have now.

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From the The Telegraph (UK):

The Bank of England and central banks in the United States, eurozone, Japan, Switzerland and Canada have launched co-ordinated global action to ease a growing credit crisis among eurozone banks.

“The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity,” the Bank of England said in a statement.

The central banks are providing liquidity to the financial system by lowering the price on existing dollar swaps, making it easier for banks to get access to dollars.

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On today’s edition of Coffee and Markets, Brad Jackson is joined by Francis Cianfrocca to discuss the exit of Greece’s Prime Minister, the likely resignation of Italy’s Silvio Berlusconi and whether CEO pay is linked to job cuts at America’s large corporations.

We’re brought to you as always by BigGovernment and Stephen Clouse and Associates. If you’d like to email us, you can do so at coffee[at]newledger.com. We hope you enjoy the show.

Related Links:

Euro debt crisis: Greek PM George Papandreou to resign when new coalition government formed
Asia Stocks Fall as Debt Crisis Undermines Greece, Italy Leaders
Silvio Berlusconi: Resignation Rumors ‘Without Foundation’
Excessive CEO Pay and Job Losses: Are They Linked?

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From the Associated Press:

Europe failed to get the leaders of the world’s wealthiest economies to help out with its debt troubles, but everyone left a G-20 summit Friday relieved that at least they forced the Greek prime minister not to hold the world hostage with a bailout vote.

It took a public berating of Greek Prime Minister George Papandreou, and Greece’s politics are in upheaval as a result, but the shaky bailout plan appears back on track for now.

Investors had been hoping the Group of 20 nations would lend the struggling eurozone a helping hand—but the G-20 leaders said Europe needs to help itself first. They said the International Monetary Fund could be beefed up to help more, but not for at least three more months.

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On today’s edition of Coffee and Markets, Pejman Yousefzadeh and Kevin Holtsberry are joined by Peter Ferrara of the Heartland Institute to discuss his new book, which discusses America’s fiscal and economic condition, and possible solutions.

We’re brought to you as always by BigGovernment and Stephen Clouse and Associates. If you’d like to email us, you can do so at coffee[at]newledger.com. We hope you enjoy the show.

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Buy America’s Ticking Bankruptcy Bomb: How the Looming Debt Crisis Threatens the American Dream-and How We Can Turn the Tide Before It’s Too Late on Amazon
Peter Ferrara at Heartland Institute

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On today’s edition of Coffee and Markets, Brad Jackson and Ben Domenech are joined by Francis Cianfrocca to discuss the fallout from last week’s Eurozone deal, the impact of the debt crisis on Social Security and the weekend’s winter storm in the Northeast.

We’re brought to you as always by BigGovernment and Stephen Clouse and Associates. If you’d like to email us, you can do so at coffee[at]newledger.com. We hope you enjoy the show.

Related Links:

The Merkel-Sarkozy Bailout Plan: Europe’s Markets on the Morning After
Zombie Angela Merkel
The debt fallout: How Social Security went ‘cash negative’ earlier than expected
Occupy Wall Street Shrugged

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From James Pethokoukis in Reuters:

And it may be about to get a whole lot worse for the Obama 2012 campaign. The White House’s worst-case scenario for the economy on Election Day next year has become Wall Street’s baseline scenario. After looking at a string of weak economic reports and Europe’s growing fear of debt meltdown and contagion, JPMorgan – led by Obama pal Jamie Dimon – has just come out with a politically poisonous forecast.

The megabank now thinks the economy won’t grow much faster over the next 12 months than it did during the first half of this year — and that’s assuming Europe doesn’t go all pear shaped. It sees GDP growth at just 1.5 percent this year, 1.3 percent next year with unemployment at … 9.5 percent heading into the final days of the election season. “The risks of recession are clearly elevated,” the bank said. Here’s its reasoning:

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The corporate media is panicking about the debt crisis. The politicians are squabbling over entitlement reforms and tax increases. The capitalist ratings agencies are warning about a downgrade in the U.S. credit rating. Americans are worrying about their jobs, their homes, their possessions–everything. The government wants to print more money, and the people can’t find enough money to buy basic goods. We are told to be afraid.

But those of us who have always struggled for social justice, for a truly free and humane society, know there is nothing to fear. FDR was wrong: we need not even fear fear itself! For the imminent collapse of the American economy is not just proof that the critique of capitalism was right all along. It is also an opportunity to replace an oppressive system with a revolutionary one–more efficient and democratic than last century’s attempts.

Lenin in Atlantic City. Source: Vernon Ogrodnek, AP

Comrades! This is our moment. The extraordinary confluence of the debt crisis in the U.S. and the debt crisis in the European Union is the surest sign that the globalized capitalist empire itself is crumbling, defeated by its own internal contradictions. Yes, the Soviet Union fell because it could not match capitalist production. But the United States will fall because it cannot afford capitalist consumption–neither private nor public. (more…)

It all seems so remote, not just in geography, but as a unique economic issue affecting only Greece and, perhaps, the rest of the EU.  But it isn’t.  The world is very interconnected.  Many Americans directly or indirectly (through their banks or money market funds) hold Greek debt instruments, which are probably never going to be repaid, or, in some cases, Americans may be invested in funds that hold debt instruments that are, in turn, insured by European banks that have sizeable exposure to a Greek default or restructuring.

A default, restructuring or further downgrading of Greek debt or of the banks that have Greek debt exposure can ricochet through American financial institutions.  European finance ministers and the European Central Bank (ECB) have been wrangling over whether or when to release the final installment of the $157 million bailout loan granted last year when certain austerity measures were imposed on Greece.  Keep in mind that this final disbursement will only carry Greece into mid‑September.  The bigger issue is a fresh bailout loan of $100+ billion Euros, almost the same as the first loan.  In other words, this, in gambling terms, is a double down bet.  Few financial analysts, if any, believe Greece is going to escape an eventual default. So what is going on here? This is Extend and Pretend writ large.

Last year’s package depended on Greece enacting major spending cuts, and cracking down on tax evaders.  Instead the public took to the streets.  Prime Minister Papandreou has based his political future on ramming through a new and more draconian austerity budget, but he has only a five seat parliamentary majority and some members of his party have been on the fence.  Greek debt is now at a staggering 150% of its GNP.

As The Wall Street Journal notes, this is not a liquidity problem but a solvency crisis and that is not a difference without a distinction. Greece isn’t merely having cash flow problems.  Greece is insolvent, i.e., it currently has no prospect of meeting its obligations.

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Recently, Portugal officially requested a $116 billion bailout from the European Union and the International Monetary Fund. This makes Portugal the third European nation to seek such a bailout in the past year (Greece got $157 billion; Ireland $122 billion). What most people don’t realize is that the U.S. is the largest contributor to the IMF. Therefore, U.S. taxpayers are paying for Portugal’s bailout which – like the earlier bailouts of Greece and Ireland – was caused by too much government spending and borrowing.

Last year, here at BigGovernment.com I warned how the Obama Administration was making a Greek bailout more likely by agreeing in advance that U.S. taxpayers would help foot the bill. Later, the IMF set up a $356 billion bailout fund for European governments with the consent of the Obama Administration– even though the fund will likely cost U.S. taxpayers between $50-100 billion and possibly more – all without a Congressional vote or consultation.

On April 29, 2010, Rep. Mike Pence (R-IN) and I wrote a letter to Treasury Secretary Tim Geithner warning of the dangers of U.S. participation in a Greek bailout. “The Obama Administration needs to understand that bailing out Greece will not solve Greece’s problems,” I said at the time. “It will only create a moral hazard that gets America more involved in the gathering storm of European bailouts.” That storm has since consumed Ireland and Portugal and others may be on the way.

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From Bloomburg:

Illinois lawmakers will try this week to accomplish in a few days what they have been unable to do in the past two years — resolve the state’s worst financial crisis.

The legislative session that begins today will take aim at a budget deficit of at least $13 billion, including a backlog of more than $6 billion in unpaid bills and almost $4 billion in missed payments to underfunded state pensions.

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The U.S. Federal Reserve was brutally criticized last week for initiating Quantitative Easing II (QE II) – a new $600 billion dollar scheme to inflate the money supply and stimulate the economy.  Was Fed Chairman Ben Bernanke’s already aware that the $600 billion dollar European Financial Stability Facility (EFSF) was about to be tapped out.

In May, the European Union gathered in a show of strength to halt the continental debt crisis with the “shock and awe” of a $145 billion cash rescue of Greece.  Predominately funded by Germany and France, the EFSF was trumpeted as guaranteeing a decade of fiscal solvency for the infamous PIIGS: Portugal, Ireland, Italy, Greece, and Spain.  Sovereign debt markets rallied and the media extolled the virtues of 450 Europeans banding together to prevent the debt crisis’ contagion.

Six months later European bond markets are once more in shambles, as interest rates paid by the PIIGS has again skyrocketed.  Ireland is the latest casualty in this game of dominos, after investors began the massive dumping of Irish bonds and pulling money out of Irish banks.

No longer is the tell tale sign of bank run evidenced by lines of desperate depositors waiting for the doors of the local bank to open.  In 2010 a click of a mouse key can move billions of dollars from one country to the next.  The graph below demonstrates why there are probably millions of mouse keys clicking all over Europe right now.

Although Ireland denies any intention to seek a Greek style bailout, teams of bankers from the European Union, European Central Bank and the International Monetary Fund arrived last night to discuss how to “stabilize” the Irish state-guaranteed banks.  If stabilize is the new code word for preventing immediate default, is “QE II” the new code word for the U.S. bailout?

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The European debt crisis appears to be getting worse. As Big Government readers know, the crisis playing out with the Euro is simply a foreshadowing of things to come here. It won’t be pretty.

U.S and world stock markets are slumping badly as intensified systemic risks from the Greek and European debt-default contagion continue to spread. Disciplinarian markets of stocks, bonds, gold, and currencies are signaling the inadequacy of European Union rescue plans and the global fear that economic recovery will be blunted.

Europe is the main source of the current upheaval. Specifically, the biggest issue right now is short-term funding. Key funding risk indicators, such as LIBOR and various short-term swap spreads, are showing credit and liquidity stress in Europe. Interbank funding looks increasingly sloppy and worrisome. These are dangerous market signals.

The repo market for bank-to-bank loans was the source of the credit freeze back in the fall of 2008. And while today’s funding risks are not even remotely as bad as they were back then, liquidity stresses seem to worsen with the passing of each day. If these funding problems keep worsening, along with stock markets that keep declining, all hell will break loose. Another meltdown is possible.

So I have a thought.

In the autumn of 2008, when financing markets completely froze up during the very worst of the credit meltdown, the FDIC guaranteed all bank debt, from 30 days out to 30 years. In addition, the Fed and Treasury essentially guaranteed overnight lending in the repo market and the commercial-paper market for bank debt. It worked.

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From the Associated Press:

Deadly riots over harsh new austerity measures engulfed the streets of Athens on Wednesday, killing three bank workers as angry protesters tried to storm parliament, hurled Molotov cocktails at police and torched buildings.

Tens of thousands of people took to the streets as part of nationwide strikes to protest new taxes and government spending cuts demanded by the International Monetary Fund and other European nations before heavily indebted Greece gets a euro110 billion ($141 billion) bailout package of loans to keep it from defaulting.

The three bank workers—a man and two women—died after demonstrators set their bank on fire along the main demonstration route in central Athens. As their colleagues sobbed in the street, five other bank workers were rescued from the balcony of the burning building.

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The ink was barely dry on the $150 billion EU/IMF bailout of Greece when world stock markets tanked on two major fears. First, financial analysts are concerned that the bailout money won’t be enough to cover Greece’s borrowing needs from its out-of-control budget deficit. Second, there are fears that the EU/IMF deal will not be approved by the German parliament in a vote scheduled for Friday.

Additionally, there are new worries that the Greek debt contagion will spread to Spain and elsewhere in Europe. The looming specter of debt default and deflation is heavy in the air for investors worldwide.

Making market matters even riskier, German chancellor Angela Merkel faces key regional elections this Sunday in populous North Rhine-Westphalia, including the conservative areas of Cologne, Bonn, and Stuttgart. These cities hate government debt and overspending as much as the rest of Germany, if not more so.

The great postwar German leader Konrad Adenauer came from Cologne. He was a conservative Catholic who despised Nazism and Soviet communism. He also was an inflation fighter. To stop hyperinflation in the postwar period, Adenauer sponsored the new German mark and linked it to the dollar, which in those days was as good as gold.

Today, all of Germany still hates inflation.

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As the Greek Debt Crisis continues, President Obama needs to stand firm: American tax dollars should not be used to bail out Greece – or any country – that engages in reckless government spending and deficits.  And yet, a bailout paid for by U.S. taxpayers remains a real possibility.

This week, leaders of the European Union will be meeting to consider aid for Greece. But instead of using their own money to bail out Greece, it’s more likely the EU will adopt Germany’s proposal to use money from the International Monetary Fund. That way U.S. taxpayers – not just the European Union – will be on the hook for an international bailout.

U.S. tax dollars already pay for 17% of the IMF’s liquidity. And any bailout by the IMF would have to be approved by the U.S. government. According to the IMF’s rules, major decisions require an 85% supermajority. And the U.S. is the only country with the power to block a supermajority on its own.

Therefore, President Obama has the power to either approve or reject a bailout of Greece. So far, he has been quiet. But instead of waiting while storms gather, the President should be vocal that U.S. taxpayers will not bail out Greece. The European Union may be tempted to pass the buck to the U.S. by requesting IMF “help.” If the Presidents tells them ahead of time that such “help” will not be forthcoming, he will make it more likely that the E.U. will meet its responsibilities.

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