Milton Friedman On Government

An educational video providing material for thought. The bright professor Milton Friedman in an interview about taxation, government intervention and many more.

Same Treatment In The Two Sides Of The Atlantic

As expected, a last minute deal could not be a bold deal or one that would “fix” the problem. It just gives a breather, until the problem comes back to us again. The techniques to approach serious problems are extremely identical in the two sides of the Atlantic!: Push the can down the road. It is impossible for the human phycology to do the optimal; to stand above the short term goals and pressures. This is a universal law. Washington did exactly what Brussels did, given the battle they found themselves into. No supremacy of the New World was demonstrated in handling the same problem and this “plan” is not a fix, the same way that the recent deal in Europe is not a fix.

Greek Rescue Increases Its Debt

Yes you read it right! Increases, not decreases the Greek debt. After the dust went away and the parties from the recent summit are over, people started to analyze the so called “deal” about the Greek debt.

Here are three articles that argue that the Greek plan is no solution. Charles Forelle from the WSJ and Hugo Dixon from Reuters explain why the Greek debt will increase and not decrease as a consequence of the “deal”. Also, Wolfgang Munchau of FT argues why the Eurozone crisis is not over and why a 50% reduction on the Greek debt was necessary.

Some Good News: U.S. Plan To Overhaul Its Finances

From the WSJ:

WASHINGTON—A surprise jolt of bipartisan support emerged Tuesday for a $3.7 trillion deficit-reduction plan that had been in development for months, though it was thought to be dead just several weeks ago.

Roughly half of the Senate's 100 members sat through an hour-long briefing on the plan, which was designed by a group of lawmakers known as the "Gang of Six" and would cut spending, overhaul entitlement programs such as Medicare, rework the tax code, and make significant changes to Social Security.

…

The plan does not include an increase in the $14.29 trillion federal borrowing limit. But several senators, including Sens. Susan Collins (R., Maine) and John Kerry (D., Mass.), said they hoped it could be considered as part of a package to raise the debt ceiling before Aug. 2, to avoid a government default.

…

A key question remains whether the plan might receive any support in the House, where Republicans have strongly resisted any new proposal that could bring in new taxes. The gang's plan would bring in $1 trillion in new tax revenue over 10 years by narrowing several tax breaks. But Mr. Conrad said it would also lower tax rates and end the alternative minimum tax. He said the combination of tax changes would be viewed by budget experts as a $1.5 trillion tax cut.

…

The $3.7 trillion deficit-reduction plan would come from roughly 74% spending cuts and 26% new taxes, Mr. Conrad said.

…

Central parts of the plan would:

• Impose immediate spending cuts and caps that reduce the deficit by $500 billion over 10 years.

• Make changes to Social Security to make the program solvent over 75 years.

• Direct key congressional committees to find specific levels of deficit-reduction within their areas of jurisdiction. If the committees fail, then a group of senators—five Democrats and five Republicans—will be able to confer and offer their own a deficit-reduction plan as a replacement.

The full article can be found here.

Selective Default Definition

First, note that the term “Selective Default” (SD) exists only in S&P’s terminology. The other houses have no corresponding term and they only consider “Default” (D). According to the Bankers Almanac, S&P defines Selective Default as:

“An obligor rated 'SD' (Selective Default) or 'D' has failed to pay one or more of its financial obligations (rated or unrated) when it became due. A 'D' rating is assigned when Standard & Poor's believes that the default will be a general default and that the obligor will fail to pay all or substantially all of its obligations as they become due. An 'SD' rating is assigned when Standard & Poor's believes that the obligor has selectively defaulted on a specific issue or class of obligations but it will continue to meet its payment obligations on other issues or classes of obligations in a timely manner. Please see Standard & Poor's issue credit ratings for a more detailed description of the effects of a default on specific issues or classes of obligations.”

Links to the published definitions of credit rating classifications can be found here and here.

Gkikas Hardouvelis Comments On Greece

Economist Gkikas Hardouvelis, Professor of Finance at the University of Peiraius, and Chief Economist at Eurobank, comments on the current situation in Greece.

Professor Morici’s Commentary on Greece’s Debt Problems

A great commentary for the simple reason that it is clear and spelled out completely. One of the best perhaps lines is that “Politicians are like children in a candy story," he says. "They don't worry about the cavities they will receive or the money their parents will have to pay filling those cavities. They just want their candy now."

Important Economists Talk About Greece

Video On Greece’s Economic Hardships

Disclaimer: A video is posted to start us thinking about issues, not because the views of the speakers are (necessarily) adopted by me.

A Must-See Interview: Ex Minister Of Economy Alekos Papadopoulos On Greece’s Dire Outlook

The video, bellow, also includes an interview of the German Economist Hans-Werner Sinn on the Greece's situation.

Γνώμες: Τι Γίνεται Στην Ελλάδα;

“Inside Job” Documentary

A Changing Attitude

I do not like to bring up politics but this is an exception for a lot of reasons. First, because I am concerned about the path Greece is on and second, because I want to bring to your attention opinions of foreign officials as they are described by Mr. Michalis Ignatiou, an – according to the Greek media – informed and objective Greek journalist in the U.S. capital.

Mr. Michalis Ignatiou,  the permanent correspondent of several Greek media in Washington and a person with a lot of connections in the US capital, writes an article on the recent reactions in Greece after the announcement by Troika of the 50 Billion Euros privatization plan the government agreed with its foreign lenders. It is important when a person like Mr. Ignatiou, who spends all his time in Washington, describes how the Greek ministers and prime minister are perceived by their foreign counterparts, after 10 months of common life with Troika. The article is in Greek and can be found here, however, I attempt to translate a few key observations of Mr. Ignatiou.

Mr. Ignatiou states, that a source of his reassures him, that the decision to announce the privatization plan of 50 billion Euros was taken at the highest level, i.e. between Mr. Strauss Kahn the head of the IMF  and Mr. Papandreou, the Greek prime minister.  This point is coming together with the opinions of foreign officials about the deterioration of the economic conditions in Greece since Greece entered into the IMF program. Mr. Ignatiou again states that according to foreign officials – his sources – prime minister Papandreou is now seen as the reason of this deterioration. He says that the same person that in the beginning of the IMF involvement in Greece, was considered as the person who can push Greece forward, now is seen as the source of the problem. After a year of interacting with him, they realize that his objectives have changed, and he has become more concerned about prolonging his political career in Greece, rather than pushing forward hard reforms. On the other hand, they view the minister of economy, Mr. Papaconstantinou, as the one who strongly believes that without this program Greece will not survive, and as the only one in the Greek government who firmly pushes for the necessary actions.

Mr. Ignatiou, towards the end of his article, in an attempt to decipher the changed attitude of the prime minister, reminds the Greek people and the prime minister, that if Greece does not pay back the debts it has created with the IMF-EE-ECB consortium, its lenders have rights over the public property. A note that a lot seem to forget in Greece and which can bring Greece in a much more difficult position than the one it was before the IMF involvement.

Roubini On Risks

Euro Under Attack

A video about the crisis in the Eurozone. The inside story of important events during the Eurozone crisis. Appear, Jean-Claude Trichet, George Papaconstantinou, Jean-Claude Juncker, George Soros, Christine Lagarde, Olli Rehn, and others. It is in French, with Greek subtitles.

Sheer Regulators’ Incompetence

The failures of SEC in identifying Ponzi schemes or even following up after people pointed them out to the authorities are known and monumental. So, perhaps one more failure would not be of surprise or worthy to be mentioned. However, here I report the latest one, the failure to uncover a 500 million Ponzi scheme run by Westridge Capital Management that lasted more than a decade, in Los Angeles.

Other notable failures of SEC officials to uncover such practices include the Madoff scandal. Here are some older articles on the subject. Article 1, article 2.

With all this new regulation in place, the question that we still have to answer is who is going to do the job. It is not merely a matter of less regulation, but of sheer incompetence of people to perform their tasks, that brought us, to a big extent, where we are today.

A Paper on Greece’s Woes

My appointment at NYU has taken a toll on my time devoted on this blog. However, here is a paper I meant to include in the information about Greece’s economic problems. The article, written by well known academics Meghir, Vayanos and Vettas, not only identifies the causes of the Greek crisis but also proposes measures in order to get out of it as fast as possible. Hope you enjoy it.

Alekos Papadopoulos’ Truths

Still, after more than 12 months since the beginning of the crisis in Greece, Greeks do not want to realize the situation they are in. Alekos Papadopoulos though, ex minister of finance, takes up the role of letting the public know how bad the situation is in Greece – something the politicians still do not want to reveal to the public -- and what is needed in order to to have a chance after many years of austerity and recession. Here is a must read article of a short version of  Alekos Papadopoulos talk at ELIAMEP, in Greek.  The whole speech can be found here. Some of the measures he proposes are:

“Σύμφωνα με μελέτες, το 30% περίπου του σημερινού κράτους είναι περιττό. Γι’ αυτό πέρα από τις καθολικές αποκρατικοποιήσεις των δημοσίων επιχειρήσεων προτείνω όλως ενδεικτικά την άμεση κατάργηση τμημάτων πανεπιστημίων και ΤΕΙ, δημοτικών επιχειρήσεων, ατροφικών νομικών προσώπων δημοσίου και ιδιωτικού δικαίου, άεργων διπλωματικών αντιπροσωπειών, στρατοπέδων, συγχώνευση μητροπόλεων, κατάργηση απολιθωμένων κρατικών υπηρεσιών, αποκεντρωμένων υπηρεσιών και γενικών γραμματειών διαφόρων υπουργείων. Περιορισμό του μεγάλου αριθμού στρατηγών, ναυάρχων, πτεράρχων και ταξιάρχων των ενόπλων δυνάμεων και των σωμάτων ασφαλείας, περιορισμό του πολυάριθμου διδακτικού προσωπικού με αύξηση των ωρών διδασκαλίας, δραστική περικοπή κατά 70% τουλάχιστον των πολυάριθμων Γενικών Διευθυντών και Διευθυντών υπουργείων και οργανισμών, δραστική μείωση του μεγάλου αριθμού των αντιπροέδρων των Ανωτάτων Δικαστηρίων και τέλος εξορθολογισμό ή κατάργηση και άλλων πολυάριθμων αφανών δημοσίων καταλυμάτων, τα οποία περιθάλπουν χρόνια τώρα τον κρατικό ανορθολογισμό”.

Two Opposite Articles On WSJ

Here are two opposite articles on WSJ published on the same day. The first one, accuses the FED’s policy for bringing into a difficult position Brazil and the rest of the world, and even accuses the U.S. for mindlessness and purposeful action to damage the other countries. The second one, explains that buying medium to long-term Treasuries is a valid monetary policy of the FED in order to stimulate the economy. The first one is written by a journalist. The second one by Alan Blinder, economics professor at Princeton. Who speaks logic is your call. Just read them.

China’s Dagong Credit Rating Firm Lowers U.S. Credit Rating

China’s Dagong credit rating firm lowers U.S. credit rating from AA to A+. At the same time Moody’s rates the U.S. credit at AAA, the highest credit rating according to the same firm. You can read about today’s developments on Bloomberg, on Barrons, on MarketBeat and other sources.

Even though the reasons why the credit rating of the U.S. may come under pressure is self evident, it is interesting to see how the articles treat the downgrade by the Chinese firm. They clearly state that their downgrade may be politically motivated and connected with the exchange rates war that is currently ongoing.

Bloomberg’s article mentions that Dagong’s application to become a Nationally Recognized Statistical Rating Organization in the U.S. was denied by the SEC. And Barron’s article mock’s the logic of Dagong’s report that the U.S. has been using the “virtual” financial economy to improve its GDP numbers.