A Central Bank Doing What It Should

The article closes with:

In the short run, Mr. Draghi has avoided disaster. In the longer run, it is hard to see a course that enables the peripheral countries to regain prosperity and competitiveness while keeping the single currency.

You just knew that they had to do something - they weren't going to let it end (the Euro) in a giant mess (although it probably still should and will - as he points out above). So we basically have a repeat of what the Fed did in America. But the Europeans named the banks at least - it didn't take three years and a FOIA request by Bloomberg to find it out. And there will be more lent no doubt...

“Who gives a crap about some imbecile?”

Yeah, this kind of attitude and PR are really going to help your case:

If successful businesspeople don’t go public to share their stories and talk about their troubles, “they deserve what they’re going to get,” said Marcus, 82, a founding member of Job Creators Alliance, a Dallas-based nonprofit that develops talking points and op-ed pieces aimed at “shaping the national agenda,” according to the group’s website. He said he isn’t worried that speaking out might make him a target of protesters.

“Who gives a crap about some imbecile?” Marcus said. “Are you kidding me?”

How about a boycott of the Home Depot? (Marcus is one of the co-founders). I wonder if any of his customers are so-called "imbeciles"?

What kills me is that these people rail and rail about their taxes as if they couldn't possibly pay more, when historically taxes on income at these levels is at an all time low. Just give us all a break already.

All hail AMERICA!!!

Next time some flag waving neanderthal is berating you with chants of "USA, USA" pull up this link:

(AP) WASHINGTON - Squeezed by rising living costs, a record number of Americans — nearly 1 in 2 — have fallen into poverty or are scraping by on earnings that classify them as low income.

"it does nothing to address the underlying problems"

Hard to justify today as more than an oversold bounce. The markets are looking for anything, and this was an excuse:

Finally, note that while this move can ease financial market conditions, it does nothing to address the underlying problems creating those conditions. So this is no substitute for the difficult decisions that Europe must make to overcome its troubles.

Ten days left for the Euro?

Lots of optimism out there - not:

The Euro Area Is Coming to an End: Peter Boone and Simon Johnson

The eurozone really has only days to avoid collapse that includes this:

Italy’s disastrous bond auction on Friday tells us time is running out. The eurozone has 10 days at most.

It isn't too complicated

Mysterious Europe

What I have never understood, and still don’t understand, is how European leaders think this is going to work out. What’s the plan? Or lacking a plan, what’s the story with a happy ending?

As I see it, the underlying eurozone story is pretty clear and simple. After the creation of the euro, investors developed a false sense of security about lending to peripheral economies; this led to large capital flows from the core to the periphery, and corresponding current account imbalances:

These capital inflows also caused a boom in the periphery that raised costs and prices dramatically compared with the core:

Now all of that has to be unwound. So how is that supposed to happen?

It seems obvious that spending cuts in the periphery have to be offset by spending increases in the core, and also that a way has to be found to make the required real depreciation in the periphery feasible. But eurozone policy is for austerity everywhere, and a low inflation target for the area as a whole, which means crippling deflation in the periphery.

So where is the story about how this is supposed to work?

As far as I can tell, European policy makers aren’t even thinking about scenarios. They’re just repeating the old slogans about stable prices and fiscal responsibility, with no narrative at all about how pursuing those virtues can be consistent with European recovery.

Even a few months ago I regarded a complete euro crackup as highly implausible. Now I’m having trouble finding a plausible story about how the thing survives.

In other news, Jean-Claude Trichet is the new chairman of the Group of 30. My congratulations. True, I have said some harsh things about his policies — but as Tessio said, it was only business.

Just as an aside

This is part of the problem (as far as hot the problem is reported/perceived) - perception:

Despite its desperate circumstances, however, Lewis shared a wonderful story about how Vallejo's fire chief is moving heaven and earth to do more with less. As a result of seeing that resourceful and inspiring work, Lewis "has a hard time getting depressed about our country," though he admits that he "doesn't have a hard time getting depressed about Greece."

Michael Lewis is a smart guy, and a great writer, obviously. But why the difference between the US and Greek views? Left alone, Greece will do fine - or good enough for the Greeks, as it did for the last couple of thousand years. There are 11 million people in Greece - California is more than three times that at 36,961,664. This "crisis" now in Europe is a problem made of the global banking system and the Euro governments. Let them (the individual countries) clean it up, give them their sovereign currencies back, and we'll all be fine - eventually. Greece is not different that different from California (except for being smaller) - Americans just don't speak the language.

Markets Tumble as Greece Sets Referendum on Latest Europe Aid Deal

Wow. So the global game of financial chicken continues to be played. At first blush this sounds like a crazy idea by Papandreou but I know enough to know that I don't know anything about the internals of Greek politics. The worst part about it is at least two more months of kicking the can down the road (at the least).

ATHENS — In a surprise move that jolted Europe and put his political future in play, Prime Minister George A. Papandreou announced late Monday that his government would hold a referendum on a new aid package for Greece, putting austerity measures — and potentially membership in the euro zone — to a popular vote for the first time.

The announcement sent tremors through Europe’s markets on Tuesday, with bank stocks taking a particular hammering. French and German indexes were down by more than 3 percent while, in Britain, which is not a member of the euro zone but trades heavily with continental Europe — the FTSE 100 index was down by 2.5 percent.

Mr. Papandreou’s surprise promise of a vote on the austerity package introduced a note of uncertainty in what had seemed to be a done deal, threatening a comprehensive agreement reached by European leaders last week to shore up the euro zone. A rejection by the voters would also be likely to be treated as a vote of no confidence in the government and lead to early elections.

The anxiety stirred up by those fears hammered United States financial markets on Monday, showing once again how the domestic politics of even the smallest members of the European Union can create troubles that not only threaten the currency but reverberate around the globe.

Addressing lawmakers on Monday evening, Mr. Papandreou said the decision on whether to adopt the deal, which includes fresh financial assistance, debt relief and deeply unpopular austerity measures, properly belonged to the Greek people.

“Let us allow the people to have the last word, let them decide on the country’s fate,” he said.

It was unclear how the referendum would be worded, but Mr. Papandreou said it would be a vote on whether or not Greeks supported the debt deal and the program of austerity measures in exchange for foreign aid.

The stakes are extremely high. A no vote could break the deal between Greece and its so-called troika of foreign lenders — the European Union, European Central Bank and International Monetary Fund — which have demanded structural changes and austerity measures in exchange for aid.

Without the aid, Greece would not be able to meet its expenses and would default on its debt, sending shock waves through the euro zone and the world economy.

A yes vote, on the other hand, would move the package forward, effectively shifting responsibility for the nation’s painful economic choices from Mr. Papandreou’s Socialist Party onto the public. That outcome would help Mr. Papandreou shore up his political fortunes and avoid the instability of early elections.

The center-right opposition has opposed the bulk of the austerity program, and the prime minister’s popular support has dwindled as Greeks have been hit by a seemingly endless series of tax increases and wage and pension cuts. On Sunday, the center-left newspaper To Vima reported that a majority of Greeks viewed the deal negatively.

At a time when Mr. Papandreou is under intense political and social pressure, including from members of his own Socialist Party, the move was seen as the last card he could play.

It also appeared to give the Greek government a bit more leverage in negotiations with Europe. The terms of the deal, in which banks have been asked to voluntarily take a 50 percent write-down on Greek debt, have not been finalized and must still be accepted by the banks. Putting the package up for a vote, with the distinct possibility of rejection, could induce banks to agree to the deal rather than face greater losses if Greece defaults.

“It’s not motivated by the intention of some sort of brinkmanship with Europe, but it may have this sort of positive or negative effect,” said George Pagoulatos, a professor of European politics and economy at Athens University of Economics and Business. “It raises the stakes. It’s about, ‘Will we remain in the euro with a lower public debt, or will we lose everything that we will achieve?’ ”

Mr. Papandreou also said that he would seek a parliamentary vote of confidence in his administration, just four months after winning a similar vote before pushing an earlier batch of austerity measures into law. The vote of confidence is expected to be held on Friday, and he is expected to squeak by with his narrow three-vote majority in Parliament.

The referendum will probably be held in January, government officials said, essentially buying the government time while the details of the deal are hammered out.

Addressing lawmakers on Monday evening, Finance Minister Evangelos Venizelos framed the debate as one of Greece’s staying in the euro zone, the group of 17 European Union countries that use the euro, or not. “It’s for the people to decide to stay in Europe or go back to the drachma,” he said.

While the austerity measures have proved incendiary for much of the public, setting off widespread strikes sometimes accompanied by episodes of street violence, being part of the euro zone generally meets with high approval.

Takis Michas, a political analyst with Forum for Greece, an Athens research institute, said posing the question this way was “a master stroke on behalf of Papandreou in the sense it is forcing the various parties to take a very responsible position.”

“If he succeeds in framing the issue as being one of remaining in the euro zone, obviously he is going to get a huge yes,” Mr. Michas added. “But it depends on whether he can frame the question in those terms.”

Under the Greek Constitution, the government must propose the language of the referendum, which would need to be approved by Parliament and then by the president.

Some analysts said the referendum was an invitation for instability. “When the debate is very passionate and things are tense, holding a referendum could be risky,” said Alexis Papahelas, the editor of the center-right daily Kathimerini.

If the referendum fails, he said, “we have a very big chance that the country would go into a disorderly default.”

A spokesman for the center-right New Democracy Party, Yiannis Michelakis, said a referendum was dangerous. Mr. Papandreou, he said, “has tossed Greece’s future in Europe in the air like a coin.”

Insightful analysis

Via the professor:

THE IMPLICATION IS that the very creation of the common currency area sowed the seeds for this crisis, not the behavior of the periphery countries.

Read the full piece here.

A dangerous mind

Tom Friedman is a fool - there are so many holes in this op-ed that you don't know where to start. Instead, read it, and then remember that almost every assumption he makes or "fact" he simply states is WRONG:

Gov. Chris Christie of New Jersey isn’t going to run. That’s too bad. He had a chance to rescue the Republican Party from its dash to the cliff and make President Obama a better leader, too.

Here’s why: When the G.O.P. presidential candidates were asked during their debate on Aug. 11 whether any of them would accept a budget deal that involved $10 in spending cuts for every $1 in tax increases — and they all said no — the Republican Party officially became a danger to itself and to the country.

The G.O.P. became a danger to the country because it announced, in effect, that it would not be a partner for the kind of Grand Bargain that many economists believe we need — something that provides more near-term investment in the economy that spurs job growth, combined with a credible long-term plan to increase tax revenues and trim entitlements so the country’s debt-to-G.D.P. ratio stays in a safe range. Such a Grand Bargain would simultaneously boost the economy and optimism by its economic logic and the mere fact of the two parties working together.

The G.O.P. became a danger to itself because, as Tyler Cowen, an economics professor at George Mason University, pointed out in this newspaper on Sunday: “Cutting $10 in spending for every $1 in tax increases would result in $9 in net tax reduction. That’s because lower spending today means lower taxes tomorrow, and limiting the future path of government spending does limit future taxes, as Milton Friedman, the late Nobel laureate and conservative icon, so clearly explained. Promising never to raise taxes, without reaching a deal on spending, really means a high and rising commitment to future taxes.”

The G.O.P.’s refusal to contemplate any tax increase, added Cowen, “has brought what seems to be an extreme Democratic response: President Obama’s latest budget plan is moving away from entitlement reform and embracing multiple tax increases on the wealthy. We may be left with no good fiscal options.”

Indeed, Obama’s decision to respond to G.O.P. extremism and the failure to conclude a Grand Bargain, by moving to the left rather than to the center, was a huge mistake. It means, as Cowen noted, that the country has no credible, long-term fiscal option before it now. Rather than shift back to his base with a weak fiscal plan, Obama should have taken his idea of a Grand Bargain to the country.

Many Americans understand that we are on the wrong track and, I believe, will support a big plan if it: 1) addresses our problem at the scale that is required; 2) shares the burden of cutbacks fairly — takes from defense programs and entitlements and asks the wealthy to pay more but everyone to pay something; 3) has a lofty goal to restore American greatness, not just get us through this crisis; 4) lays out an honest time horizon. This will take time.

In an essay last week in The Washington Post, the co-chairmen of the president’s fiscal commission, Alan Simpson and Erskine Bowles, made exactly this point about their plan to cut the debt by $3.9 trillion by 2020 — through raising tax revenues, cutting defense and increasing the age at which people would qualify for Social Security and Medicare. “When we presented our co-chairmen’s proposal to the rest of the fiscal commission in November,” they wrote, “Washington insiders were shocked that we so aggressively exceeded our mandate. They were sure that the proposal would need to be scaled back to get a majority vote. It turned out that the opposite was true. The more comprehensive we made it, the easier our job became. The tougher our proposal, the more people came aboard. Commission members were willing to take on their sacred cows and fight special interests — but only if they saw others doing the same and if what they were voting for solved the country’s problems. ...We would not have garnered that type of support had we not taken on defense, domestic programs, the solvency of Social Security, health care, and spending in the tax code all at once.”

By refusing to embrace Simpson-Bowles as the basis of a Grand Bargain, and instead offering a watered-down version, Obama has left a gap for a sane Republican or independent candidate. Why was Christie popular among G.O.P. moderates and independents? Because he seemed ready to tell hard truths that Obama has started to shrink from. Had Christie — a moderate on gun control, climate change and immigration who has also backed Simpson-Bowles — run and won significant support, he would have forced Obama back to the center.

Then, instead of a race between the Democratic left and the Republican right — in which the whole country would lose because the winner would not have had a mandate for the real change we need — we would have had a race between the Democratic center, independents and the Republican center. Then the whole country would win. Because whoever captured the presidency would have a mandate to actually implement some version of the Grand Bargain needed to get growth going again — and growth is the only sustainable cure for unemployment, the deficit and inequality.