Greek unemployment reaches record 26 percent

News from The Associated Press

ATHENS, Greece (AP) -- "Unemployment in debt-crippled Greece rose to a record of 26 percent in the last quarter of 2012, as austerity measures combined with a deep recession took a harsh toll on the workforce.

"The figures were worse than the previous quarter's 24.8 percent, and 20.7 percent a year earlier.

The national statistical authority said Thursday that 1.29 million people were out of a job in October-December 2012. In the under 25 age group, unemployment was 57.8 percent.

"The rate for women was 29.7 percent, compared with 23.3 percent for men.

"Greece's economy has been falling apart over the past three years, savaged by its financial crisis. The country is surviving on international rescue loans, released on condition it keeps up a tough program of spending cuts and tax hikes.

Split Over ECB Reflects Europe's Divisions - WSJ.com

EXCERPTS:

"Established in 1998, the ECB [European Central Bank] was founded on a German principle that strictly separates central bankers from governments, a principle rooted in Germany's own history. In the early 1920s, its Reichsbank bought massive amounts of government bonds it paid for by printing money.

The result was hyperinflation, an episode that scars Germany's psyche as much as the Depression does in the U.S. The Reichsbank's successor, the Bundesbank, safeguarded Germany's postwar recovery by focusing on a single mandate to keep inflation low, a duty enshrined in the ECB's charter.

Its first president, Dutchman Wim Duisenberg, was so grounded in the tradition of central-bank independence that he was known to tell politicians "I hear you, but I don't listen."

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Proponents of a broader ECB role say Europe's politicians lack the means to cope with a crisis of this severity even if they could overcome their differences. They contend the only way to forestall a collapse of the euro is for the central bank to declare that it will underpin the bond markets of all euro-zone governments.
Germany's worry is that such a move would spark a debilitating inflationary spiral. Germans' visceral rejection to printing money is so strong that endorsing such a course could amount to political suicide for Ms. Merkel and her coalition.
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"They need to go into the market and say we have a wall of money here and no matter how much speculation there is, we are going to keep buying Italian bonds and any other euro bonds that are threatened," Irish Finance Minister Michael Noonan has said.
That would mark a dramatic departure from the central bank's charter, which restricts its role to maintaining price stability through monetary policy, the setting of interest rates.
The euro zone's architects purposely limited the ECB's purview to shield it from political influence. Independence, they believed, would instill confidence in the long-term viability of the common currency, convincing both investors and ordinary Europeans that the bank's power to create money wouldn't be used to remedy political folly.
By testing the limits of its charter, the ECB has opened itself to accusations that it has traded principle for expediency, inviting disaster. Within the ECB, opponents of further action argue that the moves have already put the central bank's reputation at risk.

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Others warn that the bond purchases could invite reckless fiscal behavior by governments, a phenomenon often referred to as "moral hazard."
The credibility issue is central for skeptics of ECB bond buying. If the ECB were to give in to government demands for more aggressive action, the German public could lose confidence in the euro as a stable currency.
German economists contend that since the ECB prints the money to buy bonds, the extra funds it injects into financial markets when it makes bond purchases threaten to increase inflation. European inflation is currently about 3%, versus the ECB's 2% target.

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Other big central banks, particularly the Fed, have interpreted their mandates more broadly to preserve financial stability. The Fed, which unlike the ECB also has a mandate to maximize employment, has purchased large amounts of Treasury bonds to keep long-term interest rates low and has bought mortgage-backed securities to help housing.

Fools Rush In Where Europe Rushes Out - Jonah Goldberg

EXCERPTS:

"As of this writing, France is paralyzed. By the time you read this, it might be in flames.

In Britain, where politics is more polite but the problems are perhaps just as dire, the government is proposing budget cuts on a scale not seen for nearly a century.

In Greece, well, the less said about Greece the better.

All of these countries--and many more--are going through painful retrenchments because they spent too much money, made too many promises, and expected too little from their citizens. The era of European austerity is upon us, because the Europeans--or at least those in charge--understand the mess they've made of their economies.

This should present a real problem for Barack Obama and the vast (though shrinking) chorus of experts, editorialists, and activists who support his agenda. In broad terms, all of the policies Obama and the Democrats have pushed are the sorts of policies the British, the French, and other Europeans had for years, even decades.

As far as I am aware, no one has asked President Obama a simple question: If your philosophy is so great, how come the countries that have embraced it for generations are so much poorer than we are?

Nor have they asked: If guaranteed health care for everyone will make us so much more "competitive," how come we've been doing so much better than our "competitors" who already have socialized medicine, high tax rates, and lavish pensions?

Nor has the president been queried about the incongruity of saying his policies have laid a "new foundation" for economic growth and job creation when the countries he's trying to emulate are trying to dismantle the very same foundations in order to survive.

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What's irrational about saying that we shouldn't be rushing into a condemned building everyone else in the developed world is rushing out of?

Summer of Greece's Discontent - WSJ.com

EXCERPTS:

"ATHENS—Greece's deepening recession is driving joblessness steadily higher, feeding discontent with the government's austerity program and dragging on the broader economy.

Greece's gross domestic product contracted by 3.5% in the second quarter from a year earlier, hitting retailers hard and sending unemployment rates to above 12% of the work force, according to data released last week.

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"We expect real unemployment to top one million workers by the year's end, which is a rate of 20%....

U.S. Is Bankrupt and We Don't Even Know: Laurence Kotlikoff - Bloomberg

EXCERPTS:

"Uncle Sam’s Ponzi scheme will stop. But it will stop too late. And it will stop in a very nasty manner. The first possibility is massive benefit cuts visited on the baby boomers in retirement. The second is astronomical tax increases that leave the young with little incentive to work and save. And the third is the government simply printing vast quantities of money to cover its bills.

Most likely we will see a combination of all three responses with dramatic increases in poverty, tax, interest rates and consumer prices. This is an awful, downhill road to follow, but it’s the one we are on. And bond traders will kick us miles down our road once they wake up and realize the U.S. is in worse fiscal shape than Greece.

YouTube - Greek Debt Song

YouTube - Greek Debt Song

Alan Greenspan: U.S. Debt and the Greece Analogy - WSJ.com

EXCERPTS:

"Despite the surge in federal debt to the public during the past 18 months—to $8.6 trillion from $5.5 trillion—inflation and long-term interest rates, the typical symptoms of fiscal excess, have remained remarkably subdued. This is regrettable, because it is fostering a sense of complacency that can have dire consequences.

The roots of the apparent debt market calm are clear enough. The financial crisis, triggered by the unexpected default of Lehman Brothers in September 2008, created a collapse in global demand that engendered a high degree of deflationary slack in our economy. The very large contraction of private financing demand freed private saving to finance the explosion of federal debt. Although our financial institutions have recovered perceptibly and returned to a degree of solvency, banks, pending a significant increase in capital, remain reluctant to lend.

Beneath the calm, there are market signals that do not bode well for the future. For generations there had been a large buffer between the borrowing capacity of the U.S. government and the level of its debt to the public. But in the aftermath of the Lehman Brothers collapse, that gap began to narrow rapidly. Federal debt to the public rose to 59% of GDP by mid-June 2010 from 38% in September 2008. How much borrowing leeway at current interest rates remains for U.S. Treasury financing is highly uncertain.

The U.S. government can create dollars at will to meet any obligation, and it will doubtless continue to do so. U.S. Treasurys are thus free of credit risk. But they are not free of interest rate risk. If Treasury net debt issuance were to double overnight, for example, newly issued Treasury securities would continue free of credit risk, but the Treasury would have to pay much higher interest rates to market its newly issued securities.

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I grant that low long-term interest rates could continue for months, or even well into next year. But just as easily, long-term rate increases can emerge with unexpected suddenness. Between early October 1979 and late February 1980, for example, the yield on the 10-year note rose almost four percentage points.

Every investor is a "speculator" - Donald J. Boudreaux

EXCERPTS:

"Just as every day is followed by a setting sun, every financial turmoil is followed by seething politicians blaming the economic woes on "speculators."

Of course, each investor -- from the 15-year-old who uses his paper-route earnings to buy a U.S. Savings Bond to Warren Buffett -- is a speculator. Each one assesses the future and puts his money (or money entrusted to him) in those assets that he believes promise the best ratio of return to risk.

And because risk there will always be -- because the future is never perfectly predictable -- every investor is a speculator.

So when the German government recently blamed "speculators" for the falling value of the euro, it, in fact, blamed investors.

But blaming investors sounds lame and uninteresting. So the word "speculators" is trotted out in an effort to fool voters into thinking that a special species of financial ghouls suddenly materialized to wreak unjustified financial havoc.

Such accusations, though, are always and everywhere excuses for politicians' harmful intrusions into the economy....

The Welfare State's Death Spiral - Robert Samuelson

EXCERPTS:

"What we're seeing in Greece is the death spiral of the welfare state. This isn't Greece's problem alone, and that's why its crisis has rattled global stock markets and threatens economic recovery. Virtually every advanced nation, including the United States, faces the same prospect. Aging populations have been promised huge health and retirement benefits, which countries haven't fully covered with taxes. The reckoning has arrived in Greece, but it awaits most wealthy societies.

Greek protesters: Ready to face reality about the debt crisis? - CSMonitor.com

I encourage you to read this entire article on the situation Greece has gotten itself into. Then, read it again but replace "Greece" with "United States."

EXCERPTS:

"Dear Angry Greek Protesters:

Screaming in the streets, waving banners, and tossing homemade explosive devices at the police do absolutely nothing to address the very real problem your country faces. That problem is that your country is not as wealthy as you would like it to be. Nor is it as wealthy as your government led you (and others) to believe it was.

In short, your economic pie is too small to satisfy all of your demands. Railing madly against this reality, however, does nothing to increase that pie’s size. Resources and wealth are produced neither by angry sloganeering nor by simplistic denials of the facts. Quite the contrary.

For decades your country has lived well beyond its means. Thirty years ago, your government’s debt-to-GDP ratio was 34.5 percent. Today that figure stands at 115 percent. In other words, for decades your government borrowed money to provide you with goods and services that you couldn’t afford.

Living on credit is fun while it lasts. But reason tells us that it cannot last forever. Now that the bills are coming due, you must somehow pay them. This requirement is unavoidable.

... Your only reasonable course of action, then, is to work harder, save more, and adopt wiser public policies that promote wealth creation. Chief among these policy changes is to reject the socialism that you have been infatuated with for too long now. You need greater respect for private property. You need entrepreneurship. You need competition. In short, you need free markets. Without these, you will never become more prosperous.