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Jim Cook

 

RUNAWAY SOCIAL SYMPATHY

Every once in a while I switch the TV channel from Fox to CNBC to see what the liberals are saying.  After listening awhile I get a deep sense of hopelessness and foreboding for our country.  The most important thing for the left is giving money to people.  They are happy to see the growth of food stamps, disability payments, housing subsidies, free healthcare and all the other welfare benefits.  They utterly fail to see the damage it is doing to the recipients.  Whole cities that once flourished have deteriorated into rotting eyesores populated with shambling hulks of chemically dependent drones.  These people are no longer employable.  They have become incompetent and helpless and the liberals can’t see that it’s their doing.

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The Best of Jim Cook Archive

 
Best of John Browne
January 5, 2011
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The Wavesof 2011

One of the founding myths of the modern global financial system was that governments, especially of the developed democracies, could borrow endlessly without consequence. But, with sovereign debt crises erupting across the globe, it appears the umbrella of perceived safety has gotten smaller, exposing some benighted countries, like Greece and Ireland, to severely rough weather.

As a key condition for financial rescues of these ailing sovereigns, the International Monetary Fund (IMF) and the European Central Bank (ECB) both demanded severe cuts in government spending. Faced with a bondholder revolt that sent yields upward, both acquiesced and have embarked on austerity campaigns to repair their financial positions.

The big question is: has the umbrella stopped shrinking, or will other countries soon face similar decisions?
For now, major governments such as the United States and European Union have been able to continue to borrow and spend licentiously to fend off the threat of deflation and keep their economies stimulated (the U.S. is by far the greater offender). But three surprising and powerful changes threaten the viability of a long-promised "exit strategy."

First, international investors are beginning to become net sellers of sovereign debt. Even the mighty United States is finding that, despite the Fed's rounds of massive quantitative easing, in which the Fed has bought outright hundreds of billions of dollars of U.S. Treasuries, yields are still rising. In other words, the private and foreign selling pressure is stronger than the Fed's buying pressure. 

Second, the credit agencies, stung by their failure to warn investors about the banking crisis, are now emboldened enough to threaten the triple-A ratings of member states within the EU, and even of the United States itself--now the largest debtor in the world. Although it remains to be seen how great an impact the rating agencies will have on the debt markets, the fact that such moves are being contemplated at least drives the debate in an unprecedented direction.

Third, there is considerable and growing political pressure on governments to cut spending. There is a growing awareness among Western voters that government largesse can't be maintained forever, and that it will likely cost the next generation if not the present. Many pet spending programs, including defense, healthcare, welfare and even public pensions, are getting ready for haircuts - if not scalpings. Massive government spending cuts, possibly accompanied by tax increases, will be sure to take a huge bite out of near-term GDP growth, and will perhaps put the world back into the second act of a recession. This will lead us to the next great crossroads in the global financial crisis. Put simply, will the governments of Europe and America allow a natural contraction?