Posts Tagged ‘Greece’

America’s most profligate states do not owe as much, proportionately, as Greece. But their politics are just as problematic

economist.com, 6/17/2010, Washington, D.C.

THE state of Illinois has a rather crude way of coping with its ballooning budget deficit. It stops paying bills. Already, it has failed to pay more than $5 billion-worth. State legislators are paying their own office rent to avoid eviction. Schools and public universities are having their budgets cut.

Illinois owes Shore Community Services, a non-profit agency in suburban Chicago, some $1.6m for services to the mentally disabled. The agency has had to lay off a dozen staff. Jerry Gulley, the executive director, says his outfit’s line of credit could be exhausted soon. The bank will not accept the state’s IOUs as collateral. “That’s how sad it is,” shrugs Mr Gulley.

Comparisons between incontinent American states and Greece are all the rage. Though this is an exaggeration, credit-default-swap spreads, which measure investors’ expectations of default, are wider for some American states than they are for some of the euro zone’s other peripheral economies (see chart).

There are other similarities. Like members of the euro zone, American states may not declare bankruptcy, cannot be sued by creditors and, thanks to America’s federal structure, cannot be forced to behave by a higher level of government. They also do not issue their own currency, so inflating away their debt is not an option. And, like many European governments, state legislatures and governors are reluctant to impose the necessary pain. The Illinois legislature recently passed a budget for the next fiscal year, starting on July 1st, which leaves a $13 billion deficit to be closed.

Read more at http://www.economist.com/node/16379740

Joe Weisenthal, Business Insider, May 15, 2010

It didn’t get much attention, but this week The White House announced its support for a bailout of one of the President’s most important constituent groups: public school teachers (teachers unions, basically).

A post on The White House blog (via ABC News) late Wednesday evening announced that it was time for “bold action” to save teachers’ jobs.

Specifically, Arne Duncan, Obama’s education secretary wrote the following to Nancy Pelosi and Harry Reid:

We applaud Chairmen Harkin, Miller and Obey for crafting legislation in direct response to these challenges. S. 3206, the Keep Our Educators Working Act, H.R. 2847, the Jobs for Main Street Act, and H.R. 4812, the Local Jobs for America Act, each call for $23 billion in emergency support to preserve education jobs modeled after the State Fiscal Stabilization Fund (SFSF) established in the American Recovery and Reinvestment Act (ARRA). This funding would keep teachers in the classroom while helping to sustain meaningful and necessary reforms in public education across the country.

We urge Congress to include this funding in the supplemental appropriations bills soon to be considered. We also urge Congress to include $2 billion in support to localities for police and firefighters to ensure that our communities remain safe, as well as $1 billion in funds for the Child Care and Development Block Grant to preserve early childhood education jobs and ensure that our youngest children do not lose the supports and services critical to their learning and overall well-being.

Of course, this kind of thing counteracts exactly the type of “absolutely terrible” budget cuts we’re seeing in places like California, and it’s these regular transfers of federal money to local governments that have prevented a “Greece” from happening yet.

Read more at http://www.businessinsider.com/keep-our-educators-working-act-2010-5

By John Lott, FOXNews.com, May 13, 2010

Why the U.S. should want to bailout Greece is no more obvious than why we were supposed to bailout AIG, Goldman Sachs, or General Motors.

To say that Americans weren’t thrilled by the original government bailout of American financial institutions is an understatement. But if they were upset with that plan, imagine how furious they’re going to be when they start to understand that the Obama administration has begun bailing out banks from Japan, Canada and Europe.

There are two ways that the U.S. is bailing out these countries’ banks. First, the Federal Reserve is providing banks around the world with loans at below market interest rates. It mirrors what the Federal Reserve did last year when it gave American banks loans at near zero interest. The banks then turned around and used these government loans to lend money back to the Federal government by buying U.S. Treasury bonds, on which the banks received higher interest rates. The bottom line is obvious: it is just an outright gift to foreign banks.

With the exception of $30 billion to Canadian banks, the Federal Reserve won’t reveal how much of these subsidized loans they are giving to foreign banks. And why we would want to subsidize Canadian banks is a mystery in the first place. Compared to the U.S. economy, the Canadian economy has done fairly well during the global economic crisis. Meanwhile, here are home, since Obama became president, U.S. unemployment has risen by 2.2 percentage points from 7.7 to 9.9 percent. Canada’s has only gone up by about a third as much, rising by 0.8 percentage points from 7.3 to 8.1 percent.

A second part of the bailout comes from a $54 billion International Monetary Fund loan to Greece and other European countries. Again, we don’t know exactly how much of this loan the U.S. will be responsible for, but that number is likely to be at least $10 billion since we typically contribute 17 percent of the IMF budget.

Why the U.S. should want to bailout Greece is no more obvious than why we were supposed to bailout AIG, Goldman Sachs, or General Motors. After all, the Greek government possesses lots of valuable assets it can sell to pay its debts — for example, it owns land as well as stock in many companies. Indeed, the Greek government is sitting on a range of odd investments: casinos, banks, jumbo jets, and even a lucrative sports-betting organization. The Greeks may not want to sell those assets, but why should American taxpayers subsidize Greek nationalistic pride? To top it off, Greek government truly spends too much — 44 percent of GDP. Why should American taxpayers feel sorry for a country that refuses to cut its government spending?

Read more at  http://www.foxnews.com/opinion/2010/05/13/john-lott-greece-bailout-taxpayers-americans-obama-aig-general-motors-merkel/

By Sen. Jim DeMint, dailycaller.com, 5/06/2010

The International Monetary Fund board has approved a $40 billion bailout for Greece, almost one year after the Senate rejected my amendment to prohibit the IMF from using U.S. taxpayer money to bailout foreign countries.

Congress didn’t learn their lesson after the $700 billion failed bank bailout and let world leaders shake down U.S taxpayers for international bailout money at the G-20 conference in April 2009. G-20 Finance Ministers and Central Bank Governors asked the United States, the IMF’s largest contributor, for a whopping $108 billion to rescue bankers around the world and the Obama Administration quickly obliged.

Rather than pass it as stand-alone legislation, President Obama asked Congress to fold the $108 billion into a war-spending bill to send money to our troops.

It was clear such an approach would simply repeat the expensive mistake of the failed Wall Street bailouts with banks in other nations. Think of it as an international TARP plan, another massive rescue package rushed through with little planning or debate. That’s why I objected and offered an amendment to take it out of the war bill. But the Democrat Senate voted to keep the IMF bailout in the war spending bill. 64 senators voted for the bailout, 30 senators voted against it.

Only one year later, the IMF is sending nearly $40 billion to bailout Greece, the biggest bailout the IMF has ever enacted.

Right now, 17 percent of the IMF funding pool that the $40 billion bailout is being drawn from comes from U.S. taxpayers. If that ratio holds true, that means American taxpayers are paying for $6.8 billion of the Greek bailout. Although the $108 billion extra that Congress approved for the IMF in 2009 hasn’t yet gone into effect, you can bet that once it does Greek bankers will come to the IMF again with their hat in hand. And, if other European Union countries see free money up for grabs they could ask the IMF for bailouts when they get into trouble, too. If we’ve learned anything from the Wall Street bailouts it’s that just one bailout is never enough.

Read more at http://dailycaller.com/2010/05/06/u-s-taxpayers-are-helping-finance-greek-bailout/

By BOB DAVIS, Wall Street Journal, May 5, 2010

WASHINGTON—Some lawmakers and other commentators are arguing that the U.S. will be handed a big bill to rescue Greece from default because the U.S. is the International Monetary Fund’s largest shareholder.

But as with much concerning the IMF, an international financial institution based in Washington D.C., it isn’t that clear-cut.

“It is simply unfair—as a matter of principle—to force American taxpayers to use their hard-earned money to prop up failed policies in relatively wealthy nations,” wrote Rep. Todd Tiahrt, a Kansas Republican, opposing any U.S. participation in a Greek bailout.

But the U.S. participation in the €110 billion ($145 billion) loan to Greece is relatively modest compared with the huge commitment by Greece’s fellow euro-zone governments, and their taxpayers. Those 15 nations are in various stages of approving a total of $106 billion, divided according to their stake in the European Central Bank. Germany would loan $29 billion, followed by France with $22 billion.

The U.S. role comes from its obligations to the IMF, which is lending an additional $39 billion as part of the Greek package. The U.S. pays roughly in proportion to its stake in the IMF, as do other countries, if the IMF’s board votes to approve the package on Sunday, as expected.

The IMF is akin to a global credit union. Members kick in money. The institution’s board lends it out.

Each member has a “quota”—that is, a financial stake in the IMF, expressed as a percentage—and contributes accordingly. The U.S. quota is 17.09%, followed by Japan at 6.12%, Germany at 5.98% and France and Britain at 4.94% each.

Does that mean that the U.S. is responsible for 17% of the IMF’s portion of the Greek package? Not exactly.

First, though all countries are theoretically responsible for investing in the IMF’s lending pool, not all of them have currencies that potential borrowers can use. (Think of Zimbabwean dollars or Venezuelan pesos.)

The IMF doesn’t say that outright. Instead, it uses the concept of “usable resources,” meaning it uses money from countries that are considered financially sound. About 21% of the quota contributions to the IMF were “non-usable,” according to the IMF, as of January 2010.

Because the U.S., Japan and big European countries are in the “usable” camp, they finance a larger percentage of IMF funding than their quota would suggest.

Read more at http://online.wsj.com/article/SB10001424052748704866204575224421086866944.html

Congressman Ron Paul questions Federal Reserve Chairman Ben Bernanke at the Joint Economic Committee hearing “The Economic Outlook,” April 14, 2010.

youtube.com, 5:59

Cong. Ron Paul (R-TX) asks Fed Chairman Bernanke where the money will come from to bail out Greece and other countries. Where will the money come from to bail out California?

by Mark Steyn, OC Register, Feb. 27, 2010

While Barack Obama was making his latest pitch for a brand new, even more unsustainable entitlement at the health care “summit,” thousands of Greeks took to the streets to riot. An enterprising cable network might have shown the two scenes on a continuous split-screen - because they’re part of the same story. It’s just that Greece is a little further along in the plot: They’re at the point where the canoe is about to plunge over the falls. America is further upstream and can still pull for shore, but has decided, instead, that what it needs to do is catch up with the Greek canoe. Chapter One (the introduction of unsustainable entitlements) leads eventually to Chapter 20 (total societal collapse): The Greeks are at Chapter 17 or 18.

What’s happening in the developed world today isn’t so very hard to understand: The 20th century Bismarckian welfare state has run out of people to stick it to. In America, the feckless insatiable boobs in Washington, Sacramento, Albany and elsewhere are screwing over our kids and grandkids. In Europe, they’ve reached the next stage in social democratic evolution: There are no kids or grandkids to screw over. The United States has a fertility rate of around 2.1 – or just over two kids per couple. Greece has a fertility rate of about 1.3: 10 grandparents have six kids have four grandkids – i.e., the family tree is upside down. Demographers call 1.3 “lowest-low” fertility – the point from which no society has ever recovered. And, compared with Spain and Italy, Greece has the least-worst fertility rate in Mediterranean Europe.

So you can’t borrow against the future because, in the most basic sense, you don’t have one. Greeks in the public sector retire at 58, which sounds great. But, when 10 grandparents have four grandchildren, who pays for you to spend the last third of your adult life loafing around?

Read more at http://www.ocregister.com/opinion/greece-236468-government-america.html