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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 potential merger of Delta and American Airlines, the credit downgrades of nine countries in Europe and the continuing crisis in Greece.

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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I don’t know whether to laugh or cry when I write about insanely stupid government policies. But I know I get more motivated to fight big government.

How can anyone want to give more money and power to politicians, for instance, after reading these comparisons of dumb government policy in the United States and United Kingdom? Or how can anyone think it’s a good idea to expand the public sector after reading these examples of bureaucratic incompetence?

But now I’ve come across something even more amazing, a story of government stupidity that trumps these other examples. And this is not satire. It is not from The Onion.

Believe it or not, the Greek government has decided that pedophiles are “disabled” and therefore deserve money from the government.

And what really makes this boondoggle remarkable is that you’re helping to pay for it thanks to the IMF bailout of Greece. Here’s the link to the AP story, and here are the relevant passages.

…a government decision to expand a list of state-recognized disability categories to include pedophiles, exhibitionists and kleptomaniacs. …The Labor Ministry said categories added to the expanded list – that also includes pyromaniacs, compulsive gamblers, fetishists and sadomasochists – were included for purposes of medical assessment and used as a gauge for allocating financial assistance. …The new list gives pyromaniacs and pedophiles disability pay up to 35 percent.

Maybe I’m just old fashioned, but my first reaction to this story is that child molesters should be in jail, not getting taxpayer-funded handouts.

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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 and Ben Domenech are joined by Francis Cianfrocca to discuss Germany’s failed bond auction, calls for a more politically unified Europe, and the potential end of the Euro.

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:

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Death Spiral in Euroland
Moody’s warns on eurozone debt
Germany, France eye euro zone pact, markets hopeful
How Brussels Stifles Democracy in Europe

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The Congressional “Super Committee” tasked with cutting the debt has failed. Good. Embrace the joy of failure. Sometimes failure works out for the best. Because in this case “failure” leads to the Holy Grail: $1.2 Trillion in forced spending cuts. That’s the best thing that could have ever come out of this unconstitutional “Super Committee.”

Congress is now forced to accept automatic across the board cuts to spending- including defense spending. This is what the GOP should have been aiming for from day one. Play out the clock and force $1.2 Trillion in spending cuts.

But our GOP friends never miss an opportunity to miss an opportunity. They are scared, spineless weaklings. They are actually panicking because there wasn’t a compromise that raised taxes. Could they possibly be this dumb?

The GOP had the perfect campaign message tailor-made for a 2012 landslide. “The GOP stands for smaller government, lower taxes, less spending. Obama is for bigger government, higher taxes, more spending.” The same simple clear contrast that led to a historic Tea Party landslide in 2010. All they had to do was play out the clock and let the spending cuts take effect.

Instead the GOP “super committee” members were so scared of actually forcing real, honest-to-goodness, spending cuts that they desperately tried all last week to compromise with Democrats. They practically begged Democrats to increase taxes on the wealthy (by taking away deductions). The GOP was anxious to sell out every small business owner, homeowner, and GOP contributor in America. Listen carefully- it was the GOP who offered a deal based on Obama’s philosophy to punish successful Americans for their hard work, sacrifice, and financial risk-taking.

Republicans offered a deal to Democrats that included only slightly larger spending cuts versus tax increases. And guess where all the tax increases were aimed- at wealthy taxpayers. Even as GOP Presidential contenders lied to our faces during televised debates, all agreeing they would not even accept a deal of 10-to-1 spending cuts versus tax increases, the GOP Super Committee members attempted to sell out the entire conservative base for close to 1-to-1.

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Greece is about to default on its public debt or ruin the European Union, or both. The Greeks are destroying themselves today much as they did during the Peloponnesian War. This looks like the inevitable result of the welfare statism and entitlement mentality that is destroying the entire Western world. We see similar forces of anarchy at work in the “Occupy” movements in American cities.

An important factor in these movements is the fundamentally anarcho-syndicalist tenor of the union movement, which demands an ever greater share of national income. Public-sector unions like the American Federation of State, County and Municipal Employees have been prominent in the “occupy” movement. Wisconsin AFSCME proudly sent pizzas “in solidarity” with the Wall Street occupiers.

Rutgers University labor economist Leo Troy calls public-sector unionism “the new socialism.” The old socialism was based on state ownership of the means of production. The new socialism involves the transfer of an ever greater share of the economy to the public sector. Government at all levels took about 5% of GDP a century ago and 13% on the eve of the Great Depression. The New Deal increased the proportion to one-third by 1960. We are in the forty percent range now, and the full nationalization of health care will put us over half.

Unions have been a primary force in the expansion of state power. Even the reputedly “conservative” American Federation of Labor called for “the abolition of the wage system.” A.F.L. President Samuel Gompers put organized labor’s goal as simply “more” — exactly what Johnny Rocco, the Al Capone-like figure portrayed by Edward G. Robinson in the 1939 film “Key Largo,” explained as his ultimate end. The New Deal’s expansion of state power was based principally on private-sector unionism that began with the “occupy Flint” sit-down strikes of 1936.

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On today’s edition of Coffee and Markets, Brad Jackson and Ben Domenech are joined by Francis Cianfrocca to discuss Rick Perry’s resurgence after his debate stumble this week, the new leaders of Greece and Italy, and we pay tribute to Veteran’s Day.

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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Italy’s Senate approves austerity plans
Stock Futures Jump After Italian Senate Vote
Now For the Battle of France

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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.

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Euro debt crisis: Greek PM George Papandreou to resign when new coalition government formed
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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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The bankruptcy of MF Global demonstrates that the 1% of crony capitalists in America are now subject to the same risks of economic losses as the other 99% of us. Led by former Goldman Sachs Chairman Jon Corzine, MF Global engaged in speculating on the bonds of Portugal, Italy, Greece, and Spain (PIGS) with shareholder money; they then tried to hedge their bets with derivatives called Credit Default Swaps (CDS). The firm relied on Corzine’s inside expectation that crony politicians in Germany and France would stick taxpayers with the cost of bailing-out bondholders, like MF Global. The bet buckled when voters rebelled and demanded bondholders suffer losses. Once subject to capitalist risks, MF Global collapsed.

Jon Corzine made most of his fortune from developing intimate relationships with politicians and government officials. As Chairman of Goldman Sachs, in 1999 he led the effort to convince the Clinton Administration and Congress to repeal the Glass-Steagall Act of 1933. The Act banned commercial banks that receive insurance from the Federal Deposit Insurance Corporation (FDIC) from engaging in speculation and trading in securities. Historians have blamed the start of the Great Depression on massive leveraged speculation by banks in the stock and bond bubbles of the “Roaring Twenties.” Many of the victims of the 1929 crash turned out to be the proverbial “widows and orphans” whose small deposits were wiped-out when trading losses forced their savings institution into bankruptcy.

Goldman Sachs had been a private-partnership for over 100 years when Corzine joined the firm as a bond trader in 1975. Consequently, the capital of partners in Goldman Sachs and the other investment banking firms were at 100% risk for trading losses by their firms. When Jon Corzine became Chairman and CEO of Goldman in 1994, he understood that stocks were legal to leverage by 100%, but U.S. government bonds could be leveraged by 5,000%. Corzine knew his older partners would never be willing to risk their own capital at very high leverage. Corzine set his sights on repeal of Glass-Steagall Act so his partners could get their money out through a public offering and the firm could take advantage of the leverage risk trading on shareholders’ money. (more…)

It is not necessarily true that as goes the Euro, so goes the Dollar, but as goes the EU, so goes the US is as certain as the rising (or setting) sun. At least, if American fiscal policy continues to emulate that of the European spendthrifts.  The EU heads of state had marathon, round-the-clock meetings in Brussels last week, and inked a plan to finesse a Greek default (which is an eventual certainty) in a way that doesn’t immediately plunge the rest of Europe into a financial hell, and quite possibly drag America along with it.  Under the best of circumstances, the picture remains bleak.  Market analysts who focus on short-term stock market movements responded with sighs of relief.

The Germans, understandably, wanted those who have loaned Greece money (primarily, the European banks) to take a loss of about half of the value of their loans in order to ease the extremis in which Greece finds herself.  France, whose banks are holding a lot of Greece’s debt, preferred to rely more heavily on a pumped up bailout fund to ease the burden on Athens.  Given that the German taxpayer is certain to be the biggest funder of the proposed additional bailout, it is not hard to understand the rising tensions on the continent.

One can’t blame the banks for their reluctance to dance at this party.  Based on commitments the EU countries made, to keep their debt to no more than 60% of GDP and their deficits to no more than 3% over the prior year, Europe’s banks became major financiers of the new Euro countries.  But many of the European countries that were financially irresponsible prior to the advent of the Euro had no intention of changing their ways subsequent to exchanging their old currencies for the new Euro.  Greece flat out misrepresented its financial condition when it applied to become a member of the Euro Zone.

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Jerry Brown, California’s quirky Governor, has made a credible first step on the road to reforming the State’s insolvent public pension plans. The state is the global leader for financially irresponsible government by racking-up $350 billion in unfunded pension liabilities. But with the threat of California’s credit rating being cut to the same “junk” level that is destroying Greece; the Governor has offered a 12 step recovery program to begin the long journey back to solvency.

The new urgency to reform California’s public pensions is being driven by the Government Accounting Standards Board (GASB) new public sector accounting rules that will require the State of California and local governments to triple their annual pension contributions. There is no law that can force California to comply with GASB; but failure to do so will result in the State’s auditor issuing a “qualified opinion” regarding the reliability of the state’s financials. Eighteen months ago Greece’s auditors issued this type of opinion. The credit rating agencies downgraded Greece’s debt; causing borrowing costs rise above to 20% and destroy the nation.

California first enacted its public sector defined benefit pension plan in 1932, shortly before the enactment of Social Security. The legislation, just like Social Security, was designed to require work until age 65, when average life expectancy of Americans was only 60 years of age. Consequently, the average public employees, just like Social Security, were both required to contribute for decades for retirement payments they would never receive. But through labor union negotiations, the average age of retirement eligibility was whittled down to 53.75 years of age from 65; while the life expectancy rose from to 78.2 years. When the average California public employee retires today they should expect initially receive $35,000 a year pension payment that is expected to rise by a 3% cost-of-living increases for the next 24.5 years. The income steam necessary to pay for the combination of today’s public sector early retirement eligibility and longer expected lifetime to receive payments has driven the costs of pension payments up from $573,484 to $1,277,445.

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It was a year and a half ago (May 17, 2010) when we first warned about Greece and hypothesized just how close France and the UK might be to the continental vortex we thought was in the process of spinning out of control. We also warned that we could expect the same result here if we persisted on pursuing the same economic model in the United States. Well, things have not improved.  Not there, and not here. Things have only gotten worse.

Greece is in violation of the covenants that were imposed as conditions of the first tranche of the bailout it received just last July. Italy just experienced a severe downgrading of its debt as did two of the three largest banks in France, with France’s largest bank having been placed on a negative watch list by the rating agencies. A major French/Belgian-owned bank is in a state of near collapse over its exposure to Greek debt as we write this. Concurrently, The Fed has embarked on what can be described as “QE 3 light” (…if at first — or second — you don’t succeed…), with Chairman Bernanke warning just last week that the US economy “is close to faltering.”

Let’s review the anatomy of the persistent and growing dilemma in Europe as well as the vacuous, if not clueless, approach the White House is pursuing to deal with our own deteriorating situation in the United States.

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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 plan for a plan to save the Euro Zone, the possibility that high unemployment is here to stay, and the impending death of America’s middle class.

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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The concept that seventeen independent rich and poor European countries could come together in a monetary union and perpetuate the “euro” currency has always been a fraud. The real story behind the formation of the euro was the “Grand Bargain”. The governments of the PIGS (Portugal, Italy, Greece, and Spain) receive colossal bribes in the form of the ability to borrow unlimited amounts of money at the same low interest rates the Germans pay; for agreeing to buy enormous amounts of German goods. The PIGS generously performed their side of the bargain. It is the Germans that after running-up vast surpluses are now economically destroying the PIGS by terminating the bargain.

The European sovereign debt crisis did not start 18 months ago when Greek borrowing costs began rising from 3% to the current 75%. The crisis began in 2009 when German politicians passed a constitutional balanced-budget “Golden Rule” at the height of the global credit crisis. The Golden Rule prohibits German politicians from passing a budget with a deficit of more than 0.35% of Gross Domestic Product (GDP). This was a radical departure from the unenforceable “Stability and Growth Pact” of the seventeen nation euro that limits deficits to 3% of budgets.

For a monetary union to be sustainable, it must be operated on the basis of ‘symmetrical obligations’ among the members. Germany’s decision to cut-off spending of its trade surpluses to finance the PIGS trade deficits has created a deflationary spiral in Europe. Over the last two years there have been numerous incremental European bail-out programs aimed at stopping the Greek debt crisis from spreading to the other PIGS. Each successive program forced deeper “reform” cuts to PIGS spending. “No reforms, no bond purchases” has been the message of the German controlled European Central Bank (ECB) and the German controlled European Financial Stability Fund (EFSF).

Following periods of short term relief, each program failed.

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On today’s edition of Coffee and Markets, Brad Jackson and Ben Domenech are joined by Francis Cianfrocca to discuss Nobel-winning economist Robert Lucas, the continued financial mess in Europe and the potential end of the Euro, plus it’s launch day for Boeing’s 787.

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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From the Associated Press:

Greece is relying on rescue loans to remain solvent. But lagging efforts to tame a bloated budget deficit and enforce reforms are threatening that lifeline, which is conditional on fiscal progress.

Athens is trying to convince international creditors that it deserves to get the next, sixth tranche of money due from a bailout fund. Government spokesman Elias Mossialos said late Monday that Greece will get the bailout money.

Despite over 20 months of austerity and two international bailouts each worth about euro110 billion ($150 billion), Greece’s finances remain in a parlous state.

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“Men of experience succeed even better than those who have theory without experience…If, then, a man has the theory without the experience, and recognizes the universal but does not know the individual included in this, he will often fail to cure; for it is the individual that is to be cured.” –Aristotle

Aristotle’s wise words from 2,500 years ago gives us the precise reason why the president’s statist economic policies are failing miserably. Keynesian economists like New York Times columnist and Nobel Prize winner Paul Krugman believe that during times of economic slowdown, it is the government’s responsibility to jump start the economy and spur economic growth by the government itself spending large sums of borrowed money – usually on make work public works projects. The theory goes that when the government spends large sums of money during a slowdown, this will somehow motivate businesses and consumers to spend money as well.

Two years after the president’s ’stimulus’ plan, with consumer confidence at all time lows and with unemployment at 9.2% and rising, the plan has obviously been a failure. That is why it is difficult to understand why someone of Krugman’s stature, as late as July of  this year, would argue for more stimulus spending and downplay the need to address our massive national debt when it’s obvious that the stimulus package has failed:

“What I keep hearing from Washington is one of two arguments: either (1) the stimulus has failed, unemployment is still rising, so we shouldn’t do any more, or (2) the stimulus has succeeded, G.D.P. is growing, so we don’t need to do any more. The truth, which is that the stimulus was too little of a good thing — that it helped, but it wasn’t big enough — seems to be too complicated for an era of sound-bite politics.’

“So no, I mean, the deficit doesn’t matter. The economy matters. And that’s why somehow or other, Obama has got to get jobs being created.”

Again:

“Men of experience succeed even better than those who have theory without experience”

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In my speeches, especially when talking about the fiscal crisis in Europe (or the future fiscal crisis in America), I often warn that the welfare state reaches a point-of-no-return when the number of people riding in the wagon begins to outnumber the number of people pulling the wagon.

To be more specific, if more than 50 percent of the population is dependent on government (employed in the bureaucracy, living off welfare, receiving pensions, etc), it becomes rather difficult to form a coalition to fix the mess. This may explain why Greek politicians have resisted significant reforms, even though the nation faces a fiscal death spiral.

But you don’t need me to explain this relationship. One of our Cato interns, Silvia Morandotti, used her artistic skills to create two images (click pictures for better resolution) that show what a welfare state looks like when it first begins and what it eventually becomes.

These images are remarkably accurate.

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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 worsening debt crisis in Greece, it’s spread to Italy, and the latest on the debt negotiations here in the U.S.

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 Zone Debt Crisis: Italy, Spain Will Mean More ‘Carnage’
Stocks Fall at Open Amid European Jitters
Obama Challenges Republicans for Debt-Plan Details
No big budget deal? Blame Obama, not Boehner

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