Lesley Alderman of the New York Times interviewed a number of doctors and asked them how to control medical costs. My favorite response comes from Jacques Moritz MD: Insure Catastrophes Only.
“The idea of paying a certain monthly fee for insurance that allows you to have most of your routine care covered doesn’t make sense. When you buy auto insurance, you don’t insure yourself for every dent and nick — you insure yourself for serious accidents. This is the way the health insurance system should work. Our current insurance model does not encourage patients to take care of themselves. It doesn’t reward patients for being healthy, it rewards them for being sick. This isn’t good for patients or insurers.”
Jacques Moritz, M.D., director of gynecology, St Luke’s-Roosevelt Hospital Center, New York
Think about all the complaints you hear from the political Left about the administrative overhead and profits of insurance companies. Well, if people paid expenses for minor illnesses out of pocket then all that money wouldn't flow thru insurance companies. It also wouldn't flow thru governments. Even better yet, the payer of the service and the receiver of the service would be the same person. That big change would align interests and cut out interference from third parties. The relationship between doctor and patient would be the primary undiluted relationship when a patient gets treatment.
Another advantage: hypochondriacs and those obsessed with every imaginable treatment would have to fund their own treatments rather than get all insurance payers to fund their desire for overtreatment. Faced with having to spend their own money people would need to ask themselves if they really need medical help.
My ideal: health savings accounts combined with very high deductible medical insurance. When something really serious happens (e.g. accident, cancer, need for a transplant) you'll have the HSA to pay up to the deductible and the insurance to pay beyond the deductible. But this is the opposite of what the Left wants: Single payer where the single payer is government.
The Obama Administration and Congress strive to thumb their noses at the capital market. Only girly men try to be fiscally prudent. Manly men in charge of the US government throw caution to the wind - just like in Latin America.
In its 2011 budget, which the White House Office of Management and Budget (OMB) released Feb. 1, the administration projected a 10-year deficit total of $8.53 trillion. After looking it over, CBO said in its final analysis, released Thursday, that the president's budget would generate a combined $9.75 trillion in deficits over the next decade.
That $9.75 trillion on top of the debt the US government has already accumulated could put federal sovereign debt at about 90% of GDP - and that's assuming economic growth in a business-as-usual fashion. Throw in Peak Oil and the debt will hit well over 100% of GDP (likely 130-150% in my view). At that point the US will suffer a sovereign debt crisis. The US is on course to set a new yearly budget deficit record. Don't you like setting new records? Boldly going where no man has gone before. There's a frontier quality to America's fiscal trajectory.
Also, under the president's budget debt held by the public would grow from $7.5 trillion or 53 percent of GDP at the end of 2009 to $20.3 trillion, or 90 percent of GDP, at the end of 2020, about $5 trillion more than under the assumptions underlying the baseline.
But the debt will be $500 billion worse that even the CBO is saying because the CBO is required to make unrealistic assumptions about the fiscal effects of the health care bill.
That's only at the federal level. The recently passed ObamaCare health care bill sticks the states with new big entitlements requirements. These new burdens on state governments will inevitably force higher taxes at the state level and worsen the financial shape of state governments.
In California, policymakers estimate they will have to come up with an additional $500 million a year to make necessary increases in payments to Medicaid providers.
Across the country, state officials are wading through the minutiae of the health care overhaul to understand just how their governments will be affected. Even with much still to be digested, it is clear the law may be as much of a burden to some state budgets as it is a boon to uninsured consumers.
States with the largest uninsured populations, like Texas and California, might be considered by its backers the biggest winners to emerge from the law, because so many additional residents will have access to health insurance. But because those states are being required to significantly expand their Medicaid programs, they are precisely the ones that will face the biggest financial strains, in many cases magnified by existing budget shortfalls.
Lower tax states are able to be lower tax states in part because they hand out less free health care. But those states have just lost considerable leeway for deciding how much to spend on state-funded health care. Therefore the health bill just passed by Congress will make it harder for citizens to flee high tax states for low tax states.
Upper middle class Mom's cruising Johnnie and Jill to more organized activities to ensure they get into better schools. My sense of this is that these moms are not spending their time or money wisely.
College-educated mothers in the United States are caught up in a "rug rat race." They are going to extremes to secure elite college admission for their kids, say University of California, San Diego economists Garey and Valerie Ramey. Since the mid-1990s, these women have dramatically increased the time they spend coordinating and driving their children to organized activities, trading in nine hours of their own leisure time every week to do so. All in the name of landing their progeny a seat at a top university.
The Rameys dub the phenomenon "the rug rat race" and describe it in a National Bureau of Economic Research working paper of the same name.
The study has an autobiographical inspiration. When the Rameys moved to San Diego's University City neighborhood, they found children's schedules were packed with sports, arts and other classes. Over time, the Rameys, especially Valerie, found themselves caught up in the competition.
"I was shocked to find moms with graduate degrees who had quit their jobs because they needed more time to drive their children to activities," Valerie Ramey said.
At first, they thought this was just a local fad. But after reviewing data from 12 U.S. surveys describing how people spend their time, from 1965 to 2007, they realized they were onto a national trend.
I'm not surprised by this result after hearing moms I know talking about driving their kids to swimming practices, music lessons, and other appointments. Speaking as someone who usually came home from school to an empty house this is rather foreign to my experience. But I would have benefited far more from a bigger and better selection of books to read.
The moms do not report enjoying their shuttling around the kids. Yet some are quitting jobs in order to put more time into it.
The researchers found that, after three decades of decline, the amount of time dedicated to childcare went up dramatically in the past 20 years, even while the number of children per household decreased. The rise began in the mid-1990s. It was twice as great for college-educated parents and was most pronounced among mothers.
On average, the amount of time college-educated women spent on childcare went up from 13 to 22 hours per week since the mid-1990s. By contrast, the amount went up from 11 to 16 hours for women without a college education. Meanwhile, childcare went up from four to 10 hours for college-educated fathers, and from four to eight hours for fathers without a college education.
Most of the increases came from time spent with older, school-age children – and especially from time spent on taking the kids from one activity to the next.
Ladies, get your kids great books. Also, pay for online college courses while the kids are still in high school. Let them get ahead by learning and earning college credit years sooner. No driving needed. Turn to the web.
Also, live in a more bike-friendly community near places where kids can bike themselves to events.
Just how much of the decay in American culture is due to journalists legitimizing previously (and wisely) stigmatized behaviors and institutions? Newspapers either went along with or led the destigmatization of casino gambling.
Why do some consumption practices become legitimate while others remain stigmatized? A new study in the Journal of Consumer Research looks at the way the public discourse regarding casino gambling has shifted in the last 30 years.
"In the last three decades, casino gambling in the United States has grown from a marginal practice to a thriving industry," writes author Ashlee Humphreys (Northwestern University). In the 1950s and early 1960s, one in nine people in the United States gambled in a casino each year, while in 2004, one in four people gambled at a casino. Casino gambling is now legal in 28 states.
Humphreys looked at the shifts in the way the press has represented casino gambling to explore the historical process of legitimization. She examined all newspaper articles with the word "casino" in the headline or lead paragraph from the New York Times, Wall Street Journal, and USA Today from 1980-2007. From this list of 7211, she chose a sample of 600, which she then coded and analyzed.
"I find that over the 27-year period of the newspaper discourse, four fundamental concepts structure talk about casino gambling: purity, filth, wealth, and poverty," writes Humphreys. "Three legal actions in 1976, 1988, and 1999, however, each mark a moment at which talk shifted due to the influence of some external event or institutional change."
According to Humphreys, before 1988, the categories of purity and filth dominated discussions of casino gambling. But regulatory changes in 1988 prompted a shift to public talk of wealth and poverty. "This reflects the beginning of the incorporation of casinos into dominant institutions of capital and government," writes Humphreys, "but the language of wealth and poverty becomes increasingly used to discuss issues of their establishment and operation."
Humphreys found that regulation and material changes in the environment affected media language. "I find that journalists, because readers interpret their coverage as representing reality, are able to shape consumer perceptions through selection, valuation, and realization."
Does the decay continue? Does it eventually turn around? Why? How?
To get a more accurate annual figure, look at a year in which the bill is fully operational. In, say, 2016, the bill's spending will be about $160 billion (you can find these numbers on page 22 of the CBO report). According to the Center for Medicare and Medicaid Services, total health-care spending that year will be about $3.7 trillion. In other words, the bill's spending is equivalent to about 4 percent of what we'll spend in health care in a year, and it will be covering 30 million people.
But this bill will expand the US deficit by $562 in the next 10 years and the deficit expansion will be larger later in the decade.
The camel's back is already full and the camel is visibly sagging. The latest piling on weighs a lot more than a single straw.
Klein argues that the problem with health care is the 7% annual growth rate. True enough. But where's the will to address that? This latest bill just increases the number of people who are not cost sensitive to how much health care services they consume. So the bill makes the problem worse. Expanding insurance is the exact wrong direction to go. Rather than low deductible insurance we need high deductible catastrophic insurance and health savings accounts so that people feel like they are spending their own money when they for treatment. But Klein's fellow Democrats see high deductibles to their desired ultimate goal of single payer government funded health care.
America has reached a stage of imperial overreach. Too costly military interventions abroad, a massive exporting of debt in exchange for imported goods, a pile of unfunded entitlements liabilities, and now this. Our demographic condition is deteriorating due to both an aging population and importation of tens of millions of poor unskilled peasants whose children do poorly in school and in the work place. America's energy balance has been deteriorating since US peak oil production in 1970. World peak oil is coming in this next decade.
The pull back from our overextension will come in a sovereign debt crisis and economic downturn that be much more severe and harsh than what the current recession has done so far.
The Guardian newspaper picked this up recently, and it also makes an appearance in the most recent issue of Conservation magazine: people who buy green products may be, on the whole, more likely to steal and cheat when given the chance.
This claim comes by way of two researchers at the University of Toronto, who were probing a more widely known psychological phenomenon in which people who pat themselves on the back for a good deed often feel entitled to a bit of selfishness later on.
Imagine a guy buying a Toyota Prius as a way to convince himself it is okay to kill his wife. Or a married woman will buy a refrigerator with an Energy Star EPA rating to help her justify starting to cheat on her husband. And trash recycling? How much tax fraud and plagiarism have those green trash cans caused?
In a New York Times Op-Ed Douglas Holtz-Eakin, a former director of the Congressional Budget Office, explains the fantasy financial numbers underlying the Democrats' big health care reform bill. This bill is a fiscal disaster piled on top of the existing much larger fiscal disaster.
ON Thursday, the Congressional Budget Office reported that, if enacted, the latest health care reform legislation would, over the next 10 years, cost about $950 billion, but because it would raise some revenues and lower some costs, it would also lower federal deficits by $138 billion. In other words, a bill that would set up two new entitlement spending programs — health insurance subsidies and long-term health care benefits — would actually improve the nation’s bottom line.
Could this really be true? How can the budget office give a green light to a bill that commits the federal government to spending nearly $1 trillion more over the next 10 years?
I certainly suspected the CBO cost and revenue figures over the next 10 years for something this massive couldn't possibly be plausible. Turns out they're not.
The answer, unfortunately, is that the budget office is required to take written legislation at face value and not second-guess the plausibility of what it is handed. So fantasy in, fantasy out.
In reality, if you strip out all the gimmicks and budgetary games and rework the calculus, a wholly different picture emerges: The health care reform legislation would raise, not lower, federal deficits, by $562 billion.
Please click thru and read the details of this political and financial fraud. It is amazing.
This bill, which at the time of this writing looks set to pass, will accelerate the coming US sovereign debt crisis. Much higher taxes for the middle class and severe cuts in entitlements lie in our future. This bill represents a high point in the push for ever growing entitlements. The overreach of the US government now has reached a point where a sovereign financial crisis is inevitable. That crisis will make the crisis of 2008 seem small in comparison.
The 153-page fix-it bill assumes that future Congresses will not only be willing to cut Medicare payments to doctors and hospitals by 21 percent immediately but to cut them even more in the future. No Congress has ever demonstrated any willingness to take such actions, according to Joseph Antos of the American Enterprise Institute (AEI) and formerly of the CBO.
Further, in order to pay back the labor unions for their support, the bill moves the trigger date for a tax on Cadillac health-insurance policies to 2018, per an agreement hammered out with President Obama during closed midnight negotiating sessions at the White House in January. But the lost revenues are made up by indexing the tax on these high-end insurance plans at the rate of inflation (instead of inflation plus one percent), meaning the tax will affect more plans, more quickly.
Update III: BTW, want a health care system more like some European countries? Better hope you do not get cancer.
Obama's not the big preemptive unilateral military force user unlike his Republican tough guy frat boy predecessor. Right? So then why is the US is building up for a preemptive attack on Iran's nuclear weapons development facilities?
The Sunday Herald can reveal that the US government signed a contract in January to transport 10 ammunition containers to the island. According to a cargo manifest from the US navy, this included 387 “Blu” bombs used for blasting hardened or underground structures.
Experts say that they are being put in place for an assault on Iran’s controversial nuclear facilities. There has long been speculation that the US military is preparing for such an attack, should diplomacy fail to persuade Iran not to make nuclear weapons.
You might think China would oppose this attack. But a preemptive attack against Iran isn't just to help Israel. The Persian Gulf Arab leaders don't want to see a nuclear Iran either. with Saudi Arabia now providing China with a quarter of Chinese oil imports Saudi desire to stop Iran might sway China to acquiesce.
Brad Bourland, a former State Department official who heads research at Jadwa Investment in Riyadh, said: “Saudi Arabia used to be very much an American story, but those days are gone forever. That’s just a reflection of a globalized world and the rise of Asia. They now see their relationship with China as very strategic, and very long term.”
Some energy and security experts have pointed out that the Saudi government is keen on displacing Iranian oil sales to China to persuade Beijing authorities to back tougher sanctions against Iran’s nuclear program, a position that has the support of the United States.
“We know the Saudis and others have delivered the message to the Chinese that instability in the gulf is not in their interest,” Douglas C. Hengel, the deputy assistant secretary for energy, sanctions and commodities at the State Department, said last week during a conference in Houston.
What are the Chinese thinking? Surely the Chinese do not want nuclear bombs contaminating oil fields. But are they worried about what Iran might do? The Chinese badly need oil imports. Suddenly they are faced with the same strategic concerns about Middle Eastern oil as the US has worried about for decades.
WASHINGTON – U.S. companies are getting squeezed out of the big Chinese wind-power market even as Dallas investors are bringing Chinese firms here via a big wind farm in Texas, according to a new industry report.
"They've used every measure you could possibly think of to enhance production of renewable energy equipment in China," said report author Alan Wolff of the trade law firm Dewey & LeBoeuf LLP.
I want to know for which industries will the Chinese government allow foreign companies to compete in the long run? Which industries will suddenly get targeted for Chinese domination the way wind turbines have been?
Chinese wind turbine developers will build up expertise in their protected domestic market that they can use to penetrate other markets.
Six years ago, foreign wind turbine manufacturers held 82 percent of the Chinese market, but they now have a 10 percent share, according to the Dewey & LeBoeuf study.
The Chinese government is strongly mercantilist. They have a large and growing market of 1.3 billion people. Enforcement of the "One Child" policy is weakening and might even be phased out. So they change achieve very high economies of scale while flaunting world trade rules. How will the Western nations respond as China's mercantilist policies cost more Western corporations their leading positions in a growing variety of industries?
I realize you can't see the elephant. But it is there. A Wall Street Journal article illustrates the total mystery which the mainstream media and political elites encounter when trying to figure out why students in some countries learn at much faster average rates than Americans. What could it be?
High-school students here rarely get more than a half-hour of homework a night. They have no school uniforms, no honor societies, no valedictorians, no tardy bells and no classes for the gifted. There is little standardized testing, few parents agonize over college and kids don't start school until age 7.
Yet by one international measure, Finnish teenagers are among the smartest in the world. They earned some of the top scores by 15-year-old students who were tested in 57 countries. American teens finished among the world's C students even as U.S. educators piled on more homework, standards and rules. Finnish youth, like their U.S. counterparts, also waste hours online. They dye their hair, love sarcasm and listen to rap and heavy metal. But by ninth grade they're way ahead in math, science and reading -- on track to keeping Finns among the world's most productive workers.
Could the cause be something unmentioned in the article? Oh what oh what could it be?
Why do the Finnish kids love to read? Why don't more American kids derive pleasure from reading? What could explain this? Anyone?
One explanation for the Finns' success is their love of reading. Parents of newborns receive a government-paid gift pack that includes a picture book. Some libraries are attached to shopping malls, and a book bus travels to more remote neighborhoods like a Good Humor truck.
What could explain this? The Finnish are deficient in diversity. They don't get much sunlight in the winter. They have really cold winters. They have so many things going against them. How can they do so well in school in spite of their handicaps?
Update: On our Flat Earth we are very puzzled as we attempt explain why the Sun comes up in the East and goes down in the West and why the stars go thru such convolutions in the sky. On our Flat Earth as we understand it here in the Middle Ages humans were created equal (and just a few thousand years previously). God made us all with souls that do our thinking for us. Therefore we all should be able to do just as well at learning thinking. So as we look at the stories about school children coming to us from distant Finland we suspect maybe these stories are myths or fabrications. Here on our thoroughly Flat Earth (and anyone who says otherwise is evil of course) humans have equal abilities and so there must be some other explanation for what we see besides the heretical idea that the Earth is a revolving globe or that humans differ. We must keep up the search for this other explanation.
How else to explain the Finns?
Update II: What is really happening here? Read about the Voldemort View: the View That Must Not Be Named.
China is playing us and we are letting the Chinese government do it. We sure have stupid leaders in both major political parties in the United States. America's decline is evident in its bad leadership.
China had a $198 billion trade surplus with the rest of the world last year, with its exports to the United States outpacing imports by more than four to one. Despite that, in the last 12 months, Beijing has filed more cases with the W.T.O.’s powerful trade tribunals in Geneva than any other country complaining about another’s trade practices.
In addition, Beijing has worked to suppress a series of I.M.F. reports since 2007 documenting how the country has substantially undervalued its currency, the renminbi, said three people with detailed knowledge of China’s actions.
How about a new change to World Trade Organization rules that states any country that runs a trade surplus in excess of 1% of GDP can't file complaints about the behavior of other countries before the WTO?
A Saudi Arabian lawyer has threatened to use British courts to overturn a Danish free speech ruling by bringing a defamation case over cartoons of the Prophet Mohammed that depicted Islam's founder as a terrorist.
Faisal Yamani, a Jeddah based lawyer, is planning to take a case to London's libel courts on behalf of over 90,000 descendants of Mohammed who have claimed that the drawings have defamed them and the Islamic faith.
Blame the European Union. Or blame the various governments who foolishly signed up to an EU treaty that makes this sort of thing possible.
Danish politicians and publishers are furious that European Union rules reward "libel tourism" by enforcing British defamation rulings across Europe.
The people of the European Union countries need better speech protections in their national constitutions. They also need an end to Muslim immigration.
Practice makes perfect. US forces are going to try to gain control of Kandahar again.
In theory, the Afghan government is in place in Kandahar, but its authority is nominal. Bombings and assassinations have left the government largely isolated behind concrete barricades and blast walls. In the latest burst of violence, a suicide squad struck across the city late Saturday, detonating bombs at a recently fortified prison, the police headquarters and two other sites, the Associated Press reported. At least 30 people were killed.
For the first time in years, however, the U.S. military again has Kandahar in its sights.
American troops are seeking to reclaim the city and surrounding province, where the Taliban has proved resurgent, more than eight years after the U.S.-led invasion forced the group from power. But a visit here last week made clear that American forces will face an insidious enemy that operates mainly in the shadows and exercises indirect control through intimidation and by instilling fear. The provincial governor remains mostly behind barricades. The provincial council has trouble convening because many members have fled to Kabul. The police are viewed as ill-trained, corrupt and possibly in league with criminal gangs.
"We will begin that transition no later than July 2011, but the pace will depend also on conditions on the ground," Gates said after watching training exercises at Camp Blackhorse, where U.S. and British forces train Afghan soldiers.
Also, the violence in Afghanistan today is far less severe than it was in Iraq. Before the troop surge in 2007, more Iraqi civilians were killed every month than have been killed from war-related violence in Afghanistan each year. In other words, Afghanistan is less than a tenth as violent as the Iraq of 2004-07. Communities were displaced and sectarian tensions were inflamed far more in Iraq than they have been in Afghanistan.
But low level violence is more business as usual in Afghanistan than it is in Iraq.
The major US goal in Afghanistan appears to be to leave a government in power that won't be overthrown by the Taliban when the US leaves. I do not see how the US can accomplish that goal. The Taliban families make new babies in large numbers. Defeat them now and in a few years a new generation will be old enough to take up the fight.
Why should defeating them this time be more effective? The creation of the Afghan Army is supposed to be the crucial difference that will allow US and NATO forces to withdraw. But will that army become an effective and loyal fighting force?
The Marine approach -- creative, aggressive and, at times, unorthodox -- has won many admirers within the military. The Marine emphasis on patrolling by foot and interacting with the population, which has helped to turn former insurgent strongholds along the Helmand River valley into reasonably stable communities with thriving bazaars and functioning schools, is hailed as a model of how U.S. forces should implement counterinsurgency strategy.
But the Marines' methods, and their insistence that they be given a degree of autonomy not afforded to U.S. Army units, also have riled many up the chain of command in Kabul and Washington, prompting some to refer to their area of operations in the south as "Marineistan." They regard the expansion in Delaram and beyond as contrary to the population-centric approach embraced by Gen. Stanley A. McChrystal, the U.S. and NATO commander in Afghanistan, and they are seeking to impose more control over the Marines.
This report relays complaints from US Army officers and other nations that the US Marines are doing their own thing. But if all the military forces follow the same strategy then only one strategy can be tested at once. Better the Marines try something different in case the main approach fails.
All crises end – this is actually Larry Summers’s famous line. We avoided a Great Depression primarily because, compared with 1929-31, we have a government sector that is large relative to the economy – and which does not collapse when credit goes into freefall. What exactly did the Obama administration do in ending the crisis that a Clinton or McCain administration – or even Bush – would not have done? The most plausible answer is: Nothing.
Geithner insists, according to John Cassidy, that the Obama administration has “proposed the biggest regulatory overhaul in seventy-five years.” This is the worst conceit. The sad and unfortunate truth is quite the opposite – because Mr. Geithner and his colleagues refused to seize the moment and didn’t break the economic and political power of anyone who mattered, they have doomed us to re-run the same horrible credit loop as before. Legislation may tweak the details, but the regulation and control of systemic risk remains just as weak as before.
Johnson believes that since the "too big to fail" banks are becoming even bigger we are setting up for a far larger crisis that might exceed the capacity of the US government to handle in a crisis.
If we continue to allow banks to grow, as they have over the last 30 years – and did again through the latest boom-bailout-rescue cycle – we head towards a day when Mr. Geithner or his successor will try to save the financial system and will fail.
You might think that is a good thing and for sure it will bring on a big change in creditor attitudes and presumably much stronger regulation. But, just as in the 1930s, first we will have to dig out from under a lot of economic rubble – and we’ll lose a lot more than 8 million jobs.
In a post entitled "Way Too Big To Save" Johnson argues that in the next financial crisis we might find ourselves faced with bailing out a future Citigroup that has assets equal to 100% of the US GDP.
Let’s take that leap of faith and say we use the favorite scheme of Gerald Corrigan from Goldman Sachs – he is widely promoting conservatorship as a transition to wind-down for large complex financial institutions – and let’s say that it “works”. Presumably this would mean something like the situation with AIG since September 2008, run somewhat more effectively –perhaps without the obnoxious bonuses. But would that really lower the fiscal costs of stabilizing the economy in the face of a major financial shock? And could we afford those fiscal costs?
Maybe. But the experience in Europe is definitely not encouraging. The Irish state is in serious trouble because major banks failed and were “saved”; let’s not even talk about Iceland (where banks assets peaked around 11-13 bigger than GDP, i.e., the size of the entire economy). And Switzerland faces serious risks – with banks that had peak assets over 8 times GDP – that the international community apparently just wants to ignore (perhaps because Switzerland is not in the G20 or the even the European Union).
In the UK, one bank (RBS) had assets that were more than GDP (1.25 times, by some estimates). Ask yourself this: if Citigroup, which was around $2.5 trillion before the crisis (including the off-balance sheet commitments, let’s call that just under 20 percent of GDP) had actually been $5 trillion, would our problems now be larger or smaller? What if Citigroup – or whoever becomes our biggest bank – reaches $10 trillion or $15 trillion in today’s dollars and then fails, how would you feel about that?
What would US government policy makers do? The Federal Reserve would be tempted to inflate away the debt. We could experience 20+% inflation for a few years. Debt holders would be forced to take a very big haircut as a way to avoid an explicit national bankruptcy.
When Peak Oil hits what I would like to know: Will the resulting downturn be inflationary or deflationary? With declining tax revenues and mounting sovereign debt I expect governments to heavily pressure their central banks to expand their money supplies so as to allow inflation to cut the cost of paying interest on existing debt. A government wanting could prepare for the Peak Oil financial crisis by issuing debt with longer maturity dates. That way when monetary policy becomes inflationary and the market demands higher interest rates a government can ride along paying low interest rates on debt issued before the crisis.
Peter Boone and Simon Johnson lay out arguments for why the Greek debt crisis is not in our rear view mirror.
By the end of 2011 Greece’s debt will around 150% of GDP (the numbers here are based on the 2009 IMF Article IV assessment; we make some adjustments for the worsening economy and the restating of numbers since that time – for example, the fiscal deficit in 2009 will likely turn out to be about 8 percent, which is double what the IMF expected until recently). About 80 percent of this debt is foreign owned, and a large part of this is thought held by residents of France and Germany. Every 1 percentage point rise in interest rates means Greece needs to send an additional 1.2 percent of GDP abroad to those bondholders.
What if Greek interest rates rise to, say, 10% – a modest premium for a country which has the highest external public debt/GDP ratio in the world, which continues (under the so-called “austerity” program) to refinance even the interest on that debt without actually paying a centime out of its own pocket, and which is struggling to establish any sustained backing from the rest of Europe? Greece would need to send at total of 12% of GDP abroad per year, once they rollover the existing stock of debt to these new rates (nearly half of Greek debt will roll over within 3 years).
This is simply impossible and unheard of for any long period of history. German reparation payments were 2.4 percent of GNP during 1925-32, and in the years immediately after 1982, the net transfer of resources from Latin America was 3.5 percent of GDP (a fifth of its export earnings). Neither of these were good experiences.
Boone and Johnson say the Greeks and other European countries have got to decide whether they are willing to pay the price to keep Greece in the Euro currency zone. Without guarantees by Germany, France, or the IMF on Greece's debt the debt interest costs will go too high and Greece will default.
But I'm less clear on how abandonment of the Euro helps. A withdrawal of Greece from the Euro zone could happen before or after a default. If Greece withdraws then its debt servicing problem remains. Greece would still have lots of outstanding debt denominated in Euros and the Greek drachma currency would drop against the Euro - making payment of existing Euro-denominated debt even harder.
What's interesting about their claims: They portray the European leaders as deceptive for pretending that the crisis is easing. They see the basic financial numbers as so bleak that the crisis looks set to escalate.
Tyler Cowen calls the article a a grim but realistic report. Paul Krugman argues that if the markets were willing to treat Greece as a very low default risk then Greece could easily afford to pay much lower interest costs on 150% GDP debt. So the question becomes: Can Greece convince the markets to treat it as a low default risk? If the markets decide Greece is a high default risk then Greece really is a high default risk.
I see another problem here: How can the Greek government maintain popular support for the austerity measures needed to prevent even higher debt accumulation if the markets decide to treat Greece as a low default risk? Absent a crisis various political factions in Greece will push for more spending for their benefit. Then the market will once again see Greece as high default risk. Interest rates demanded on new Greek debt issues will force Greece back down the path toward default.
Plans for a bailout for Greece totalling €20 to €25 billion will be put to a meeting of Eurozone finance ministers on Monday.
A system of co-ordinated bilateral moves has been agreed behind the scenes by major players among the 16 countries in the single currency, led by Germany. They will step in as a last resort if Greece requests help in meeting its huge sovereign debt repayments.
The package has been formulated to work around a "no bailout" clause in EU rules, and would amount to an agreement to facilitate loan guarantees if Athens finds the price of selling its debt pushed too high by speculators.
But this doesn't kick in immediately. The goal here appears to be to discourage the markets from driving up the interest rate of new Greek debt issues.
Wolfgang Schauble, German finance minister, has a surprisingly sensible op ed in today’s Financial Times. As we suggested yesterday, first the relevant Europeans should decide if they want to keep the euro - more precisely, who stays in and who leaves the currency union – then policy must be adjusted accordingly.
Mr Schauble is obviously correct that existing economic self-policing mechanisms are badly broken; the eurozone can only survive if there are effective monitors and appropriate penalties for fiscal and financial transgression. He is also right to fear that involving the IMF in Greece would necessarily give the Fund greater rights to kibbitz on European Central Bank monetary policy. Given the fear and loathing expressed for the IMF’s “4 percent inflation solution” (or is it 6 percent?) in eurozone policy circles, you can see why this gives the Greek prime minister some bargaining power – the Germans will do whatever it takes to keep him away from the IMF in the short-term.
If the Greeks do not get bailed out and the market senses they are going to default then the EU's rules allowing free movement of capital will allow a huge flight of capital out of Greece due to fear that Euros will get converted into Drachma. If I was a Greek right now I'd be opening a bank account outside of Greece and maybe even outside of the EU. Time to get money out of the reach of a desperate government.
JALALABAD, Afghanistan — Six weeks ago, elders of the Shinwari tribe, which dominates a large area in southeastern Afghanistan, pledged that they would set aside internal differences to focus on fighting the Taliban.
This is Afghanistan which is part of the planet Earth and we are all in a Global Village and all really similar to each other. Anyone who dares to say differently will get called bad names. We are all really similar. We can all just get along, live in the present, imagine all the people, and so on.
But something went wrong? How could that be?
This week, that commitment seemed less important as two Shinwari subtribes took up arms to fight each other over an ancient land dispute, leaving at least 13 people dead, according to local officials.
The story includes accusations of police giving weapons to one of the factions. The disagreement degenerated into the use of rocket-propelled grenades and mortar launchers. Obviously Afghanistan needs gun control. Probably a government program to control gang violence too.
Official US policy has been damaged by this incident. Oh my.
The fighting was a setback for American military officials, some of whom had hoped it would be possible to replicate the pledge elsewhere. It raised questions about how effectively the American military could use tribes as part of its counterinsurgency strategy, given the patchwork of rivalries that make up Afghanistan.
The US government wouldn't make policy for a country based on unjustified asumptions about human nature, would it?
According to the report, Lehman used what amounted to financial engineering to temporarily shuffle $50 billion of troubled assets off its books in the months before its collapse in September 2008 to conceal its dependence on leverage, or borrowed money. Senior Lehman executives, as well as the bank’s accountants at Ernst & Young, were aware of the moves, according to Mr. Valukas, the chairman of the law firm Jenner & Block and a former federal prosecutor, who filed the report in connection with Lehman’s bankruptcy case.
Richard S. Fuld Jr., Lehman’s former chief executive, certified the misleading accounts, the report said.
Are these actions illegal? If so, will anyone do jail time for their role in the deception?
Mosab Hassan Yousef, son of Hamas founder Sheikh Hassan Yousef, secretly converted to Christianity and became a secret agent for Israeli intelligence agency Shin Bet. In a Wall Street Journal profile he makes a great point about the problem with Islam.
Do you consider your father a fanatic? "He's not a fanatic," says Mr. Yousef. "He's a very moderate, logical person. What matters is not whether my father is a fanatic or not, he's doing the will of a fanatic God. It doesn't matter if he's a terrorist or a traditional Muslim. At the end of the day a traditional Muslim is doing the will of a fanatic, fundamentalist, terrorist God. I know this is harsh to say. Most governments avoid this subject. They don't want to admit this is an ideological war.
"The problem is not in Muslims," he continues. "The problem is with their God. They need to be liberated from their God. He is their biggest enemy. It has been 1,400 years they have been lied to."
The problem with Islam is in the base texts. We do not have even more problems with Islam only because most Muslims are less than total in their embrace of Islam.
The country may have started its long haul back to economic recovery--if recent news that consumer spending increased slightly in January is any indication. But even so, most Americans still aren't ready to brag about their paychecks.
Except, perhaps, in Loudoun County, Va., where median household incomes are higher than anywhere else in the country. This affluent suburb of Washington, D.C., where families take home a median $110,643 annually, tops our list of America's 25 richest counties.
Many of America's wealthiest counties are centered around Washington DC.
Like Loudoun, a number of the country's wealthiest households are tightly concentrated in counties around the nation's capital. Six of the richest counties lie on the outskirts of Washington: Fairfax County, Va., Arlington County, Va., Stafford County, Va., Prince William County, Va., Charles County, Md., and Alexandria City, Va.
I would prefer that our wealth was concentrated around more wealth-producing areas of the country. But I'm old fashioned.
The New York Times reports that Toyota has done no recalls in Japan for car unexpected acceleration problems.
Toyota has recalled eight million cars outside Japan because of unexpected acceleration and other problems, but has insisted that there are no systemic problems with its cars sold in Japan. The company recalled the Prius for a brake problem earlier this year.
Critics say many companies benefit from Japan’s weak consumer protections. (The country has only one full-time automobile recall investigator, supported by 15 others on limited contracts.)
One lady in the article came under pressure by police to sign a document stating that her car accident was caused by her mistakenly stepping on the gas pedal. She claims she didn't make that mistake.
Japan's equivalent of Ralph Nader was convicted of blackmail for his efforts to force Japanese car companies to fix their safety defects.
The most active was the Japan Automobile Consumers Union, led by Fumio Matsuda, a former Nissan engineer often referred to as the Ralph Nader of Japan. But the automakers fought back with a campaign discrediting the activists as dangerous agitators. Mr. Matsuda and his lawyer were soon arrested and charged with blackmail. They fought the charges to Japan’s highest court, but lost.
The willingness of Japanese to conform has costs as well as benefits. One of the costs is weak consumer protection. The Japanese government is just now taking some steps toward more monitoring and investigation of Japanese car companies. This comes 40+ years after the US government got serious about car design defect problems. Ralph Nader didn't have to become a convicted felon in order to spark that change.
An article in the Wall Street Journal about whether Germany will bail out Greece mentions that the Germans have imposed a constitutional cap on the size of their federal government's deficit. The United States should do the same.
Germans grumble at the prospect of shoveling money at Greece at a time when Berlin is preparing to knuckle down with stiff austerity measures of its own.Germany has imposed a constitutional debt cap that requires the government to reduce its structural deficit to no more than 0.35% of gross domestic product by 2016, equivalent to spending cuts of €10 billion ($13.56 billion) annually from next year.
"Germany is the only country which has written into its constitution during the difficult economic and financial crisis a debt cap rule," Ms. Merkel said Sunday. "This means we know solid budgets are indispensable for the future the sustainability of our country."
The US has reached a state of fiscal insanity. While running a 10% of GDP budget deficit the US Congress is debating a huge new entitlements program for health care. The idea of finding ways to do savage cost cuts does not figure prominently since the goal is to expand coverage. We need to change the political calculus in Washington DC in a drastic way. Only a severely hobbled ability to run deficits will do the job.
Watch the recent Peterson-Pew Commission On Budget Reform. Former directors of the Congressional Budget Office propose less powerful approaches to the problem of chronic deficits. I find the whole discussion woefully inadequate. We need bigger guns to kill this problem. A constitutional amendment is the only gun big enough.
Absent a constitutional amendment I expect the US won't take needed measures until foreigners become unwilling to buy more US Treasury bonds and a full blown sovereign debt crisis suddenly hits. I'd like to avoid that outcome. Time for a solution that can work.
A balanced budget amendment can have clauses in it for emergencies. A supermajority of Congress (60% or perhaps 66%) could enable a larger deficit. Absent a supermajority vote we'd need a mechanism for how to cut spending. Would Congress be required to include language in any spending legislation specifying what to cut if revenue gets more than, say, 1% below spending? How to make a balanced budget amendment work?
Concepcion, Chile (CNN) -- The drive into Concepcion couldn't have been more dramatic. We turned the corner through a dense morning fog onto a main street and a small crowd moved into the streets against traffic. It's just two days after an 8.8-magnitude earthquake toppled walls and collapsed buildings, but people are looting.
Young men ducked beneath gates and smashed windows, yanking out boxes holding appliances and grabbing cell phones and clothes. Grown women slid between window bars and ran down streets with bags full of booty.
Residents in Concepcion said they were organizing groups to defend their properties from robbers and looters, who the city's mayor said on Monday were becoming more organized.
That the citizens can bring themselves to organize is a promising sign.
Natural disasters in Japan do not lead to looting. The Japanese are extremely well behaved. Kobe Japan in 1995 provides a contrast with Chile.
Even though there were rumors to the contrary and goods were available for the picking in the shattered store windows there was little or no looting in Kobe. Jewelry stores were unprotected yet no one took anything. People waited patiently in lines with the only arguments coming from people who insisted that others go before them.
Peoples are different in important and fundamental ways.