08:17 – I see that S&P has belatedly noticed that all 15 eurozone countries that don’t already have junk ratings should be downgraded, including Germany. The problem is, S&P is under immense political pressure, and so will probably downgrade these countries by only one or two notches. The reality, of course, is that there’s not a country in the eurozone that should have a rating in the investment-grade range. Back on 25 November, I posted my suggestions for accurate ratings for the eurozone countries. We’ll see how close S&P comes to reality when they finally get around to cutting these ratings.
We have all the subassemblies ready to make up a new batch of chemistry kits, so it’s just a matter of getting them boxed up and ready to ship. I have a bunch of backorders to fill, and intend to ship all of those Friday.
Work on the biology book continues. Right now, I’m working on a lab session about the root, stem, and leaf structures of seed plants, with another session about reproductive structures in the on-deck circle.
S&P won’t come anywhere near reality; our lords temporal have put the old kibosh on that sort of nonsense. We must keep kicking the can down the road until it really blows up badly.
Any entity that prints its own money, should never be rated, IMO. As long as a country or union can print money, then the only question is whether they will intentionally refuse to print it. There is about a zero chance of that happening in either the US or the EU.
Dean Baker has had a really good series of recent articles attacking the conventional reporting on the EU.
http://www.cepr.net/index.php/beat-the-press/
He points out that of all the EU countries being castigated, only Greece was profligate. All the others had surpluses going into the 2010 downturn of the EU (which I saw starting in 2009). Also, only Greece is unlikely to repay their debt in a timely way.
IMO, the only way out is for the ECB to guarantee the bonds, as Baker recommends. Any other solution will be so intolerable for so long, that it will only cause those countries to leave the EU — which, of course, may be exactly what Germany and France are trying to engineer.
Rating sovereign debt should be illegal, IMO. Actually, S&P ought to be dismantled altogether. Recent hindsight analyses have shown their ratings to have been way off the mark for a long time.
“Rating sovereign debt should be illegal, IMO”
Why shouldn’t someone be allowed to give an opinion on the likely outcome for sovereign bonds?
It may be true that, as long as the country owns a functioning printing press, the money will always be repaid. However, if a country inflates its currency in the process, from they bondholder’s point of view it was still a lousy investment.
Governments already have plenty of ways to suppress information they dislike. Let’s not hand them another stick to beat us with.
This is not to say that I like the existing system. The concept of government-consecrated organizations being designated as ratings agencies is just an invitation to corruption at the highest levels. Any organization ought to be able to give ratings – and people and companies should be able to choose who they listen to.
But… but… That way lies anarchy!
But that’s just it, Chuck. Italy or Spain or Germany for that matter *can’t* print its own money. And the ECB is independent of any of them and has no intention of doing so. The “EU” can’t print its own money, so your comparison is false.
As to profligacy, you’re wrong again. *All* of the eurozone nations, including Germany, have been profligate, to a much greater extent than the US has been, and *none* of them is likely to repay their debt at all, let alone in a timely manner. And none of them has run a budget surplus, ever. What you’re talking about is a “primary budget surplus”, which is meaningless. That just means that (on a cash basis) their tax revenues were higher than their expenses, *not counting* debt service expenses. That’s like saying that you’re running a personal surplus because your income is slightly higher than your monthly expenses other than the interest on your mortgage. Also, I emphasize the “cash basis” part because it’s critical. The European welfare state has bankrupted Europe, but much of the cost isn’t reflected in the kinds of numbers you’re talking about. Right now, the overall debt of Europe, including private debt and unfunded liabilities for pensions and health care is probably more than $100 trillion. That’s with a “t”. Europe makes the US look fiscally responsible.
Incidentally, just as a sanity check, I note that the USPS is in danger of going bankrupt, and all over just a few billion dollars. This is the USPS, the most visible federal government agency, and the one that most of us deal with every day except Sunday. All this over a debt problem that’s literally 1/1,000th as large as the debt problem of just Italy, a relatively poor country with about a fifth the population of the US. The EU debt problem is unimaginably large, and it’s not going away. I’ve been saying for decades that Europe was spending itself into bankruptcy with their social welfare programs, and that’s come home to roost.
Someone brighter than I said somewhere, that the ratings agencies provide a lagging indicator, not a leading one. The ratings agencies are far from perfect, but they still provide a useful service. How else are amateurs who own bonds going to decide when to sell? Yes, if you wait to sell your AAA rated bonds until the ratings agency revokes the AAA rating, you will lose your shirt. However, if you ignore that information or it isn’t available, you’ll lose your shirt, your pants and your underwear.
Here’s an idea that sucks even worse than ratings agencies. Some genius European regulator decided it was not necessary to require ratings agencies to carry loss reserves on sovereign debt, regardless of how it was rated.
Chuck says:
“Rating sovereign debt should be illegal, IMO”
brad says:
Why shouldn’t someone be allowed to give an opinion on the likely outcome for sovereign bonds?
I am a Libertarian only when it is convenient to my views, and regulation and rules are areas where I do not agree with Libertarians. Better that there are no ratings agencies at all, than to have ones that are consistently wrong, or meddle troublingly in an area where there is little doubt about repayment, — or who blather on with no intention of providing any definable methods to their mad assessments. Yes, print opinions all you want, but none should be allowed to set themselves up as the official crystal ball of the future, if their track record is both bad, and there is no independent method of actually establishing the indisputability of their findings. Guessing is not useful to anyone, and should be prohibited in a standards organization.
It may be true that, as long as the country owns a functioning printing press, the money will always be repaid. However, if a country inflates its currency in the process, from they bondholder’s point of view it was still a lousy investment.
Inflation is now a fact of life in every economy, but S&P does not publish how inflation will affect these sovereign investments — nor can they actually know. So it really has no application here, IMO.
Governments already have plenty of ways to suppress information they dislike. Let’s not hand them another stick to beat us with.
Well, I do not consider eliminating sources of bad information to be another stick. It is taking the stick from the hands of those who misused it.
RBT says:
But that’s just it, Chuck. Italy or Spain or Germany for that matter *can’t* print its own money. And the ECB is independent of any of them and has no intention of doing so. The “EU” can’t print its own money, so your comparison is false.
Yes, technically that could be true, but will the EU itself starve its own members by making it impossible for some to pay their obligations? I think the probability of that is less than 1% — but more than that, the debt is small compared to the troubled countries’ revenue. None of them (except Greece) needs to print more money, because their revenues are far more than that necessary to pay the debt.
Now, either you rely on published government figures, or you don’t. They are the only thing we have to go on. At the moment, all the EU countries in trouble (except Greece), are actually doing better than they were just a couple years ago. And their published debt obligations are still a small percentage of their current GDP. Whether that amounts to trillions or schmillions, it is NOT oppressive, unaffordable debt that cannot be repaid!
Moreover, the EU itself was the first step to a federal government. It was what Germany could get past other EU countries at the time. Federalism WILL result eventually, and this ‘crisis’ is merely a step towards an inevitably closer union.
But Merkel is absolutely the wrong person to be in the driver’s seat in Germany for this juncture. Indiana has a balanced budget clause in its constitution. Can it force other states to have — or do — the same? Obviously not. Merkel needs to get on with federalizing, instead of forcing other states to do what Germany feels Germany, itself, needs to do. What California needs to do, is certainly different than what Indiana needs, and what Germany needs to do is different than what Italy or Spain need.
I agree with Dean Baker, that if the ECB would simply guarantee the bonds of EU member countries, the whole current crisis would go away, and the EU would have breathing room to make WORKABLE corrections in the troubled member states that does not involve significantly higher unemployment or considerable wage reductions that would have the effect of misaligning them with other EU member states.
And the EU has not even begun to liquidate the wealth of its citizens and corporations through inflation, like the US has shown them is possible. That can always be done before the EU dissolves.
Also, I do not agree that the welfare states of Europe are not affordable. In fact, the countries with the most social welfare benefits, are the ones performing better than any of them. What is it that makes Americans fear and hate social welfare? Selfishness, I guess. ‘I don’t want any of my money going to anybody but me!’
Chuck, you’re not a libertarian or anything close to one. You’re an old-school populist.
By that standard, professional purveyors of religion would be silenced. As would purveyors of global warming, power line leprosy, and other unsupportable “science”, whether or not it fosters the power of the State.
Come to think of it, that standard would also prevent governments from publicizing their economic statistics, whether unemployment rate, inflation rate, effects of a tax hike on the economy, or anything else.
RBT wrote:
“Chuck, you’re not a libertarian or anything close to one. You’re an old-school populist.”
Ya reckon he should change his name to William Jennings Waggoner? 🙂
Seriously, Chuck seems like a libertarian to me, he’s just sane enough not to be an anarchist. Perhaps that’s what’s got you confused.
Chuck Bryan^H^H^H^H^H Waggoner wrote:
“Also, I do not agree that the welfare states of Europe are not affordable. In fact, the countries with the most social welfare benefits, are the ones performing better than any of them. What is it that makes Americans fear and hate social welfare? Selfishness, I guess. ‘I don’t want any of my money going to anybody but me!’”
Come on Chuck! Social welfare is killing Europe. It demands high taxes, pays people not to work and encourages illegal immigrants, most of whom just cause trouble. Overall I think most social welfare should be privatized. I don’t mind paying for some social welfare but I get plenty mad when people take t as a right and bludge on the rest of us.
Hmm. If, for over 20 years, I have voted for Libertarians and almost ONLY for Libertarians, that makes me a Populist? Very interesting.
Greg is right. I am not an anarchist and never will be. Anarchy will never succeed in politics over rules and regulations — except by force, — and the Libertarian anarchists are the aberration in the party that keeps it from succeeding. Bill Weld proved that in Massachusetts. Like my German cousins, I like rules, but I don’t adore them like real Germans do.
And by no means did I propose stopping the flow of information from anyone. I proposed dismantling S&P for setting itself up as an agency specializing in the predictive power of their determinations, then badly misleading everyone by pretending there is some science behind their terrible track record of guesses.
From everything I can determine, the upcoming weekend EU summit will be the optimum best chance of dissolving the euro or having members withdraw, and they all know it. Banks can close over the year-end holidays to try and stem the runs on them that are likely to occur, and to change currencies. My opinion is that, if no one withdraws or proposes changes to individual country’s currencies at that summit, then the euro will remain intact.
The best outcome would be for the ECB to guarantee the bonds of all members. Most likely, they will only have to pay off on Greece, and that would be a cheap solution. The EU should look to the US. TARP guarantees and bailouts were paid back with interest, and the US did not impose recession-causing policies in the process. So far, the EU has done just about everything wrong — mostly at Germany’s bidding. If the EU experiment fails, it will have been through Germany’s management incompetence, and will not have been necessary.
On the welfare issue, I once lived in high-tax Minnesota, populated by socialist Swedes, and it is one of the more progressive and successful states in the Union. And you could see what your high taxes bought you — including snow removal that was so effective that winter commute times were hardly more than summer ones.
Actually, I did not/do not see Germany or any of the FANG nations complaining about their social welfare programs. In fact, Germany’s unemployment compensation policies seem to have stemmed the general European slowdown dead in its tracks. The complaints you raise are what foreigners who have no equivalent programs, always complain about. In and around Germany, not working and living off social welfare, just did not occur. I knew no one (but retirees) who did not work. No one. Either a person was going to school, or had a job. Work is life there. It is probably a mistake to imagine that problems of one’s own country just have to be problems everywhere else in the world, too.
I’m sympathetic to libertarianism but not a full on one. I think the idea of a “state” is good and that it can and should provide and regulate some goods. Such as electricity distribution infrastructure, roads, snow removal and so on.
Back in the Forties the then premier of South Australia, Sir Thomas Playford, was basically forced to nationalize the Adelaide Electric Supply Company, whose London based owners were acting like complete idiots. The mindless conservatives (some might call them libertarians) in the governing Liberal and Country League where aghast at his “socialism”. But it made sense. SA had lots of easily mined brown coal but the management of the AESC wanted to import black coal, despite the supply problems (communist led strikes in New South Wales, etc) and bought boilers that were capable only of using black coal. Since this put the state’s electricity supply and industry at risk Playford was forced to nationalize AESC and create the state owned Electricity Trust of South Australia. This was the unambiguously correct thing to do. It worked. South Australia didn’t have to rely on coal from NSW and South Africa, we mined our own coal at Leigh Creek, creating jobs here and we didn’t have an interregnum with no or unreliable power.