Bailout, Bailins, and the Greeks' Trojan Horse

Istanbul Archeological Museum Trojan Horse (Wikipedia)

While Americans are eagerly signing petitions to ban the American flag on the heels of Louis Farrakhan’s Nation of Islam leader call to ban the Stars and Stripes “due to its links to racism” or are busily banning anything attached in any way to the Confederate flag and our history, the United States and the world are in serious financial trouble driven by out-of-control debt, particularly the most visible nation of all, Greece.

Healthcare for illegals, gay marriage, and other non-stop crises occupy the American overwhelmed minds, while the Trojan Horse of huge national debt and loss of sovereignty to the globalist Transpacific Partnership (TPP) mystery “committee” are ignored.

Greece is bringing to the forefront the issue of debt, what happens when it spends 60 percent of GDP, lives from borrowed billions, and refuses to curtail spending on entitlements, expecting more bailouts from the EU, essentially Germany.

Banks and the stock exchange are closed for the week, issuing a 60 euros limit per withdrawal. Not unexpectedly the euro fell against the dollar and the British pound. Sky News reported Prime Minister Tsipras as blaming the European partners and the European Central Bank for the debacle because creditors “have refused a request to extend Greece’s international bailout beyond Tuesday, until after the referendum.” The move risks a Greek default on 1.5 billion euros payment to the International Monetary Fund.

Tsipras claims that the bank deposits of the Greek people are fully secure and the payments of wages and pensions are guaranteed. I am not so sure that is the case since Greece is carrying a government debt load of over 175 percent of its GDP.  Countries cannot service such level of debt without printing money. http://www.tradingeconomics.com/greece/government-debt-to-gdp

The European Central Bank will maintain its “emergency cash lifeline to Greece’s banks” without an increase. The Emergency Liquidity Assistance (ELA) on which Greek banks depend, if lowered, may force the country out of the Eurozone.

There were many economists, of course, who questioned the wisdom of accepting Portugal, Italy, Greece, and Spain into the EU because their monetary policies were plagued by high inflation. Others believe that a return to the drachma may not be such a bad idea.

Expecting the worse after banks announced closings, Greeks stood in long lines to withdraw cash from ATMs and many horded gasoline and food. After five years of various bailouts, demonstrations, protests, refusals to adopt more austerity measures, negotiations between the leftist government of Prime Minister Alexis Tsipras and Brussels creditors have broken down. For months economists have predicted Greece’s pull out from the Eurozone.

In preparation for the national referendum on July 5, police patrols are more visible especially around ATMs. Tsipras asked voters for a “yes” or “no” vote on the bailout proposal considered by his government as confiscatory. The plan would “raise taxes and hurt pensioners,” forcing Greeks to “an endless cycle of austerity.” But the Greeks have been told few details of the deal – nobody really knows the implications of a “yes” vote or a “no” vote and everyone fears they “would become Venezuela.”

But the well-off Greeks, fearing the election of the leftist Syriza, have already moved money out of Greece or took cash out and stored it elsewhere.

The Tsipras government favors a “no” response to the referendum because the bailouts terms are “humiliating” and would deepen Greece’s economic recession. But without bailouts, “most Greek banks would have totally collapsed by now.” http://www.dailymail.co.uk/article-3141480/Hundreds-queue-outside-banks-fears-Grexit-grow-ahead-MPs-vote-bailout-referendum.html

It has been reported that withdrawals of 500-600 million euros have emptied more than 2,000 ATMs.  When the austerity referendum was announced, people started withdrawing money. When the Greek banks reopen, would they need bail-ins like the Cypriot banks? Would the depositors be forced to accept worthless I.O.U.s for their cash?

The European Union has required its member countries to enact bail-in legislation. Bail-ins force creditors and shareholders to rescue troubled banks. Cyprus citizens holding private bank accounts had to take “haircuts,” a form of wealth confiscation. Private pension funds were raided in Poland. http://www.dcclothesline.com/2013/09/25/cyprus-style-wealth-confiscation-is-now-starting-to-happen-all-over-the-globe/

Bailouts forced taxpayers to financially rescue big banks that had engaged in risky financial activity, using the infamous “too big to fail” excuse.

How much longer can Germany sustain the very shaky European Union? Should they bring back their own currency, the Deutsche Mark? As more large deposits and capital leave Greece when banks reopen, corporate asset controls may emerge. The Greek market may be shocked and defaults of various debt instruments may emerge.

A Romanian friend, Florina, explained the Greek crisis in terms that most people can understand. “I loaned money to a family in a time of financial crisis so that they can survive, and the family did not curtail their spending, they blew the money on unnecessary stuff; now the family is holding a meeting to vote if they are going to pay me back or not. That’s Greece now.”

 

 

Austerity, Sub-Prime Lending, and the Safety of Savings Accounts

“It is hard to imagine a more stupid or more dangerous way of making decisions by putting those decisions in the hands of people who pay no price for being wrong.” – Thomas Sowell

Austerity has not worked well in the EU if you ask Keynesian economists and supporters; they will tell you that austerity does not work, citing the EU experience. Italy, Greece, Portugal, Spain, and the U.K. governments claimed that austerity measures resulted in stratospheric unemployment rates and slow economic growth.

Jeffrey Dorfman, using data from Eurostat, the official statistics agency of the European Union, and calculating government spending in EU countries between 2008-2012, found that only eight of the 30 countries listed have actually reduced government spending (austerity), most prominently Iceland and Ireland. The elected officials responded to rallies, protests, sit-ins and strikes, by spending more money to appease the masses.  Dorfman reported that the average spending increase has been 4.9 percent, with Greece at 8.3 percent, Spain at 13.3 percent, and Portugal at 5.8 percent. In European countries which have reduced government spending, Iceland, Ireland, Bulgaria, Latvia, Lithuania, Hungary, Poland, and Romania, their specific austerity measures have worked. Dorfman concluded, “Austerity cannot have failed in countries where it was never tried.” http://www.forbes.com/sites/jeffreydorfman/2013/08/01/austerity-in-europe-it-will-work-if-its-ever-tried/

As far as Greece is concerned, President Obama, following his meeting with the Prime Minister Samaras, downplayed austerity measures. “We cannot simply look to austerity as a strategy. It’s important that we have a plan for fiscal consolidation to manage the debt, but it’s also important that growth and jobs are our focus.” Not to be outdone, Samaras blamed Greece’s economic problems on illegal immigration, “I believe that the problems have to do with illegal immigration, internal turbulence in various countries, and even, unfortunately, the problem of terrorism.” According to Craig Bannister, Samaras called for the U.S. and Europe to “liberalize” their economic potential. http://cnsnews.com/mrctv-blog/craig-bannister/ironies-abound-comments-obama-and-greek-prime-minister

The EU countries continue to be prisoners of the Euro, the common currency of 27 countries that gave up their monetary policy making powers to Brussels and no longer have the luxury to print their own money to extricate themselves from over the top government spending.

The Cyprus lawmakers were confiscatorily creative with their citizens’ money deposited with the Bank of Cyprus. Lawmakers agreed to receive a 13 billion euro loan from the European Commission, the International Monetary Fund, and the European Central Bank, dubbed the Troika, to bail out Cypriot banks that engaged in poor betting on Greek sovereign debt.

According to Robert Romano, the loan represented 20 percent of Cyprus’ 66.8 billion euro in deposits. Depositors were levied (confiscated) 37.5 percent of savings, with another 22.5 percent confiscation at a later date, in exchange for shares in the Bank of Cyprus. Depositors did not want shares in the Bank of Cyprus that acted so irresponsibly in its financial dealings but had no choice but to accept. http://netrightdaily.com/2013/05/cyprus-lawmakers-finally-agree-to-steal-17-1-billion-of-savings-deposits/

John Kemp said, “Bailing-in depositors with banks in Cyprus is a serious policy error that will destabilize the European banking system and threatens to accelerate bank runs in future.”

http://www.reuters.com/article/2013/03/18/us-column-kemp-cyprus-bailout-idUSBRE92H0CT20130318

Jose Manuel Barosso, current President of the European Commission, Herman van Rompuy, President of the European Council, and Dalia Grybauskaite, President of Lithuania, unveiled on August 1, 2013, the new EU plan to deal with the possibility of a bank collapse. 

The German Economic News (Deutsche Wirtschafts Nachrichten) reported on August 7, 2013 that, under this plan, if a bank goes bankrupt, small depositors can only get their money out of the bank after 20 working days, withdrawing in the interim only 100-200 euros per day. The limit on daily withdrawals “may last up to three weeks.” Depositors with accounts larger than 100,000 euros can withdraw their money in full in five days. The EU Council President, Herman von Rompuy, had proposed to let savers wait 4 weeks for their money. http://deutsche-wirtschafts-nachrichten.de/2013/08/07/neue-eu-regel-sparer-muessen-um-guthaben-unter-100-000-euro-bangen/

The article, “Neue EU-Regel: Sparer müssen um Guthaben unter 100.000 Euro bangen” (New EU Rule: Savers must fear credit under 100,000 euros) warned people who were planning on making major purchases, ran a business, the elderly with big medical expenses, or those who liked to have cash available.

The agreement did not address the contribution of banks into the EU deposit insurance. It is easy to see why Europeans who are informed are spooked about this new infringement into their right to keep the money they’ve earned.

According to John Ward, the new banking rules were implemented “to help protect the taxpayer and move the burden of bailing out the banks onto shareholders and junior debt holders.” It is evident that the junior debt holders would be the depositors who saved their money for a rainy day. Ward calls it “global looting.”

Meanwhile, across the Atlantic, President Obama’s Residential Mortgage Backed Securities Working Group (set up last year) is going after “prosecutions of fraudulent underwriting activity by banks that contributed to the financial crisis.” Criminal investigations of ‘too big to fail banks’ include JP Morgan Chase and Co. and Bank of America who allegedly “failed to disclose risks embedded in $850 million in mortgage-backed securities issued in 2008.”

New York Attorney General, Eric Schneiderman, the co-chair of the Working Group, pointed out the “efforts to hold banks accountable for the crash of the housing market and the collapse of the American economy” five years after the fact.  (Greg Farrell, Phil Mattingly, and Karen Gullo, Moneynews, August 9, 2013)

When Fannie Mae and Freddie Mac required bailouts after the housing market crash, Fannie and Freddie were bought by the Treasury for $188 billion and the FDIC (a private insurance corporation that insures ‘each depositor to at least $250,000 per insured bank’) absorbed the losses of smaller failed banks.  The biggest banks were bailed out by the Treasury and the Federal Reserve System.

President Obama’s Mortgage Initiative’s goal is to get banks to use depositor and investor funds to write 30-year fixed-rate mortgages at affordable rates, assuming the risks the government now bears. According to Peter Morici, the President “won’t admit that in today’s economy mortgages are simply too risky for private investors” who are unwilling to lend to people with less than stellar credit. (Peter Morici, The Hidden Agenda Behind Obama’s Mortgage Initiative, August 9, 2013)

This leaves the possibility of retirement accounts confiscation to solve any financial crisis the government may encounter. Experts agree that there are at least $19.5 trillion in retirement accounts. Some argue that Executive Order 13603, National Defense Resources Preparedness, signed on March 16, 2012, provides the opportunity, the authority, and the framework to allocate any resources, if a national emergency is declared. This executive order gives the President power to allocate commodities, all forms of energy, civil transportation, usable water from all sources, health resources, labor such as military conscription, and “federal officials can issue regulations to prioritize and allocate resources.” Allocation could include savings as a resource since the definition of national emergency is very vague.

Sen. Phil Gramm (R-Texas) wrote in The Wall Street Journal that presidential candidate Bill Clinton suggested in 1992 to use “private pension funds to ‘invest’ in government priorities, such as affordable housing, to generate long-term, broad-based economic benefits.” Gramm continued that Clinton’s radical proposal eventually led to the sub-prime mortgage disaster. “Seldom has such a radical proposal been so ignored during a campaign only to later lead to such devastation consequence,” the financial crisis of 2008, the result of “a lot of banks making a lot of loans to a lot of people who either could not or would not pay the money back.” There is plenty of additional blame for the greedy and unscrupulous brokers and realtors who knew they were selling homes to people who did not qualify for a loan and to the Americans who sought the loans they knew they could ill-afford. http://online.wsj.com/article/SB10001424127887323477604579000571334113350.html

Could holding money into retirement accounts be deemed “hoarding?” President Franklin D. Roosevelt signed Executive Order 6102 on April 5, 1933, “forbidding the Hoarding of gold coin, gold bullion, and gold certificates within the continental United States.

Roosevelt’s order criminalized the possession of monetary gold by any individual, partnership, association, or corporation” under the excuse of hard times. Artists, jewelers, owners of rare collections, and dentists were exempt. Violations of the order were punishable by fines up to $10,000. The Executive Order 6102 was revoked and superseded by Executive Orders 6260 and 6261 of August 28 and 29, 1933 but the confiscation had already taken place.

Because the price of gold for international transactions was set by the Treasury at $35 per ounce, everyone who was forced to surrender personal gold incurred an immediate loss. The government profit which resulted from this confiscation of gold funded the Exchange Stabilization Fund under the Gold Reserve Act of 1934.

Woodrow Wilson’s Executive Order 2697 passed on September 7, 1917, gave the Federal Reserve Bank and the Secretary of the Treasury the authority to regulate the exportation of coin, bullion, and currency, and the Federal Reserve Bank to make decisions whether such exportation is “compatible with the public interest.” How is the “public interest” decided and where does it stop?

How safe is your money? Considering the massive redistribution of wealth in the last five years, the loss of value of savings and pension funds due to low interest rates and the deliberate devaluation of the dollar following endless quantitative easings by Bernanke and the Fed, the picture is not very rosy. The Stock Market is doing well (15,000 level); the Fed purchase of $85 billion worth of bonds every month is artificially propping up the stock market and does not reflect the actual economy.

 

Spending and Demographics

House Speaker John Boehner criticized President Obama’s “failed policies and hostility toward job creators.” The current administration established a “new normal” for Americans: fewer jobs, higher unemployment, more spending, higher prices, and bigger deficits. The White House official blog calls this status quo the “Great Recession.”

To say that the economy is anemic is an understatement – GDP is 1.9 percent, only 69,000 jobs were “created” in the month of May and unemployment is at 8.2 percent. Unemployment figures are constantly revised, massaged, and misrepresented. No wonder, citizens no longer trust their government, they fear it.

Congress, who controls the purse strings, has done little to curtail the out of control government spending and waste on bankrupted “green energy” that electrifies nothing except campaign sound bites and the die-hard environmentalist left. 

Last week President Obama signed the reauthorization of the Export-Import Bank, raising its lending authority by 40 percent to $140 billion. The Export-Import Bank guarantees loans from U.S. banks to foreign businesses that buy U.S. made products.  Conservatives in Congress criticized the move and “assailed it for meddling in the free market.”

Legislators did not raise the most obvious question before approving the $140 billion giveaway. Why do we give loans to foreign corporations to buy American products? Do we have money to subsidize corporations, foreign or domestic? Why has Obama the Senator called the Import-Export Bank “little more than a fund for corporate welfare” during the 2008 campaign and promised to eliminate it, yet has reauthorized 40 percent more taxpayer dollars?

For the past three and a half years, the manipulated and constantly revised (a week or month later) unemployment rate has been above 8 percent. The real number is far worse, in the 11-14 percent range. Although the left maligned President George Bush on a daily basis, under his presidency full employment was always in the 4.5-5 percent unemployment range.

A sustained doubling of the unemployment rate is devastating to those who have lost jobs and for our economy. However, if you ask Spain, Greece, Italy, France, or Portugal, they would gladly trade places with us. Their full employment is an unemployment rate of ten percent and higher. This happens because their national priorities are stacked in favor of outrageous social programs and unionized labor, while the population becomes more slothful and happy to live on government handouts.

United States spends 14.8 percent of GDP on welfare programs and has not reached the welfare expenditures level of European socialist countries. France spends 28.5 percent of Gross Domestic Product (GDP) on welfare, Spain 21 percent, Greece 24.3 percent, Italy 24.4 percent, and Portugal 21.1 percent. There are European nations that spend more on welfare, such as Denmark (29.2 percent), Sweden (28.9 percent), Germany (27.4), and Belgium (27.2) but the economic situation in these countries is substantially different. (Statistical data source: NationMaster.com as quoted in Forbes)

German Chancellor Angela Merkel is vilified for her efforts to impose austerity measures on countries whose economies necessitate bailouts from the European Central Bank and the International Monetary Fund. Greece rejected the idea through vigorous and violent demonstrations, while 47 Greek parliamentarians walked out of meetings upon hearing about the type of austerity measures they would have to approve. France rejected austerity by electing a socialist president who promised more socialism, more spending, and more bureaucratic job creation. President Francois Hollande reneged on the austerity agreements his predecessor, Sarkozy, had cobbled with German Chancellor Angela Merkel.

Critics point out that Germany’s five percent unemployment rate makes it unfair and socially unjust for Angela Merkel to impose drastic welfare and pension benefits cuts in Greece, Spain, Italy, France, and Portugal when their respective unemployment rates are so much higher. In Spain, the overall unemployment has reached 25 percent, while 50 percent of young people, including recent college graduates, cannot find jobs and must leave Spain to seek employment.

Joel Kotkin describes them most vividly. “In Madrid you see them on the streets, jobless, aimless, often bearing college degrees but working as cabbies, baristas, street performers, or – most often – not at all. Call them the screwed generation, the victims of expansive welfare states and the massive structural debt charged by their parents.” (The Daily Beast, June 4, 2012)

A young man with a psychology degree, who is working in the grocery store where I shop, was complaining one day that he could not find a job. A quintessential liberal with the agenda of environmental sustainability, social justice and equity, the mantra of the left, it has not occurred to him that the “hope and change” he voted for, his overt distaste for capitalism, love for communism and the murderous Che Guevara whose t-shirt he is wearing under his uniform, is what is dooming his prospects of finding a decent job. He bought his college advisor’s empty promise of a six-figure salary upon graduation, his professors’ socialist/Marxist indoctrination, and is now facing Realville.

European demonstrators argue vociferously and increasingly violent that austerity and budget cuts are the primary reasons for their national economic crises. They believe that the largesse of the government welfare system spending has nothing to do with the government running out of money. As former Prime Minister Margaret Thatcher had said, “the problem with socialism is that eventually you run out of other people’s money.”

Taxing the rich in France at the proposed 75 percent rate will not solve their financial difficulties for long; it will simply prolong the inevitable. Even confiscating everyone’s wealth will only pay the debt and cover the deficit for a few months at best.

Lavish spending is unsustainable when the economy grows too slowly and the population is not having enough babies. There are insufficient wage earners who pay taxes to support retirees who derive benefits and pensions from those taxes.

Demographically speaking, the population replacement value in the U.S. is still within normal range of 2.1 newborns per woman if we count the illegal aliens’ newborns. Without illegal alien births, the U.S. population replacement value is 1.9. Many European Union nations have even lower population replacement values, below 1.4 newborns per female.

According to Joel Kotkin, wealthier countries in the north such as Germany, Denmark, and Sweden, “have offset very low fertility rates and domestic demand by attracting migrants from other countries, notably from eastern and southern Europe, and building highly productive export oriented economies.” (Forbes, May 31, 2012)

Unemployment among young people in Greece and Spain has reached the fifty percent mark. Many have left Spain for employment opportunities elsewhere. Young people have postponed having babies, preferring instead to buy homes, vacations, and luxury goods. The birth rate in Spain dropped to the lowest level of 1.4 from the previous four children per woman fifty years ago.

Joel Kotkin argues that a Nordic welfare state is sustainable because “companies and the labor force are productive and highly skilled,” while Spain, Greece, Italy, and Portugal derives most income and revenue from tourism. By 2021, every working person in Spain will support six students and retirees. (Source: National Institute for Statistics as quoted in Forbes)

Implementing national policies that promote affordable housing for families, reduced taxation for married couples, and higher birth rates instead of abortions, should be a priority for countries with a penchant for lavish spending.

Since Roe V. Wade, millions of babies in the U.S. have been aborted. It is a human tragedy with economic ramifications that will affect our labor force and the future of our country. We can afford right now to import cheap labor from Central America or outsource it to China. Would that be enough in the future to support the ever-burgeoning welfare class in this country? What will happen when we reach the tipping point of no return of the European style demographic decline?