http://www.craigsteiner.us/articles This RSS feed includes leading text to the articles posted to http://www.craigsteiner.us en-us Wed, 08 Oct 2008 19:00:00 EDT Craig Steiner Mon, 05 Dec 2011 11:15:00 -0600 http://www.craigsteiner.us/comments/398 Continue reading the article...]]> Craig Steiner Mon, 28 Nov 2011 22:00:00 -0600 http://www.craigsteiner.us/comments/397
The accelerating rate of Europe's collapse is surprising some people, but I'm actually surprised it's taken this long. Eighteen months ago I wrote that events in Europe might cause the Euro to collapse or force the strongest economic powers to abandon it. These conclusions were considered "fringe" just a few months ago, not to mention a year and a half ago.

Now it finally appears to be being fulfilled at breakneck speed.

In the span of just a few months, Greece has required another bailout, instituted a new government, Italy got a new government, Spain got a new government, Italy is reaching bailout-level interest rates, Spain's interest rates are going up dangerously, Portugal's debt has been downgraded to "junk" status, Belgium has been downgraded and is asking for European support, and there is increasing speculation that France is ultimately in trouble. There are assertions that the European Central Bank must take action (ie print money) to prevent an Italian death spiral, and must stand ready to "purchase the debt of troubled sovereigns in whatever size proves necessary." Even economic powerhouse Germany had a failed bond auction that has raised concerns about its ability to backstop all of Europe.

At this point it's becoming increasingly clear that Europe will either attempt to resolve its problems by creating a true fiscal union that will crush the sovereignty of member nations, or there will be a spectacular economic disintegration.

Despite the proclamations of politicians trying to calm the markets and saying a Eurozone breakup is impossible, their statements lack credibility. Eurozone banks are preparing for the possibility of a disorderly breakup of the Euro which is increasingly described as "probable" rather than "possible."

Meanwhile, European politicians are now proclaiming that the real problem is that they have monetary union without fiscal union--implying that the solution is fiscal unification. But Europe's problems aren't a result of a lack of fiscal unity but a lack of fiscal responsibility. This will not be solved by unifying their fiscal irresponsibility.

The European Union--as it is currently instituted--is doomed. Whether it collapses now or they succeed at kicking the can down the road a little longer, this will not be a minor economic event.

As stated above, one of the possible "solutions" being offered is a tighter economic union and "pooling" the debt of all European countries into a consolidated continent-wide debt raised by some kind of "Eurobonds." This isn't really a solution since it just redistributes the debt of Greece, Italy, Spain, etc. to the stronger countries such as Germany. Germany is resistant to this idea, understandably.

If Germany foolishly accepts liability for the debt of other countries, eventually their own credit situation will suffer and their interest rates will rise just as they have in the problem countries. Nothing can be gained by such a course of action but time. But is Germany willing to tie itself to this economic disaster and go down with the sinking ship that is the Euro?

Even if they do, Europe will at some point require external support. Given the fact that interest rates in Europe are soaring while interest rates in the United States are at record lows, it seems likely that Europe and the world will eventually look to the United States and the Federal Reserve to backstop Europe.

Of course, we can't afford it. Given our own unsustainable $15 trillion debt, we can't afford to borrow enough money to loan to Europe--and if we did, our borrowing costs would immediately go up and we'd see failed bond auctions just like Germany.

Likewise, the Federal Reserve can't print enough dollars to bail out all of Europe without turning the dollar into Monopoly money. Loan guarantees by the U.S. or the Federal Reserve would ultimately be just as unfeasible as investors would see those actions as an increased liability and risk on the part of the U.S. Government or Federal Reserve.

Nevertheless, I believe that eventually we will see calls for the U.S. and the Federal Reserve to bailout Europe. After some wrangling this option will be rejected but, during the uncertainty, U.S. interest rates will start spiking due to fears that we can't even support our own debt let alone help Europe (and possibly a fear that we might be stupid enough to try to bailout Europe).

When that happens, we may very well see an appeal to pool the debt of Europe and the United States together into a joint liability spanning our two continents. Just as some think Europe should "unite" its debt into continent-wide obligations, it's very possible that we'll see recommendations that this be taken to the trans-Atlantic level of "uniting" the debts of Europe and the United States.

What happens then probably depends on when it happens and who is president of the United States. I wouldn't be surprised to see Obama support such a "merger" while I'd hope a Republican president would be less likely to entertain that option.

Given the accelerating pace of economic deterioration in Europe, it seems likely that Europe will collapse and create huge waves in the world economy before the elections. Republican candidates for president better be ready with a confident and credible plan on what to do in response to Europe's collapse and the likely requests for economic support that we'll be receiving from Europe and the world.

And if the Republican nominee wants to win, his or her answers better be fundamentally different than Obama's.
  Continue reading the article...]]> Craig Steiner Wed, 21 Sep 2011 21:00:00 -0500 http://www.craigsteiner.us/comments/396 beginning, the Fed's actions are about bailing out the U.S. Government.  Continue reading the article...]]> Craig Steiner Tue, 06 Sep 2011 09:20:00 -0500 http://www.craigsteiner.us/comments/395
Markets engage in a triple-digit rally because Hurricane Irene wasn't as damaging as hyped. Or pundits claim that a strong month of car sales are driving away fears of a double-dip recession (even though the same article indicates such spending is unsustainable with high unemployment). There is celebration in the markets when second quarter housing prices come in higher than expected despite the fact that there are millions of homes either in or near foreclosure, and despite the fact that the second quarter's sale prices were actually down year-over-year. Some days the market goes up because, allegedly, investors are thinking Europe isn't as bad as was thought. Other days the markets are down on "renewed concern" over Europe's situation.

By reading economic news, one would think the economy is slowly moving away from the financial crisis of 2008.

The truth is that absolutely nothing is changing in our economy on a day to day basis. Whether it be a tsunami in Japan or a hurricane on the eastern seaboard--or even an earthquake in Washington DC--nothing has changed economically in any significant way.

In fact, the only change since September 2008 is that things have gotten worse.

Our federal government is closer to bankruptcy, as are many of our states, counties, and cities.

Our unemployment rate is higher than it was when Obama was elected, and appears to be going higher.

We have millions of homes in or near foreclosure, and many which are abandoned and falling into disrepair, yet construction companies continue to build new homes.

Obama's stimulus failed to create jobs. So did QE1. And QE2. The Keynesian's are out of tricks.

Even as Social Security enters deficit territory we've created a new unfunded entitlement with Obamacare.

Around the world, individual debts became too much so they were unloaded on banks. The debt of the banks then became too much so they were bailed out and unloaded on the taxpayers. And now sovereign debt is too much and countries are collapsing and the United States has been downgraded.

The reality is that what the unemployed feel--that the recession never really ended--is completely true. Sure, it may have ended from a strictly statistical measure of GDP. But employment never recovered and--just as importantly--the root causes of the financial crisis have never been addressed.

We're not just going to wake up one morning and find that the economy has gotten better for no apparent reason. A month of good car sales or a quarter of increased home prices are just blips on the economic radar. As long as we continue to ignore the fundamental problems in our economy, there's no need to get excited about occasional good economic news. It's nothing more than statistical noise.

The state of our economy will not significantly change until we change our economic policies.

Instead of trying to prevent housing prices from falling, we need to let them fall and find their bottom. Instead of stopping foreclosures, we need to foreclose on homes as quickly as possible and get it over with. Instead of pumping up the stock market with QE1 and QE2, we need to let the market find its true value. Instead of trying to convince consumers to spend more money to spark economic activity, we need to encourage them to complete the process of deleveraging and fixing their balance sheets. Instead of getting in the way of corporate bankruptcies, we need to let those companies fail.

None of these things will be pleasant, but they are absolutely necessary before there can be any expectation of a true, solid recovery. And since none of these policies will be implemented as long as Obama is president, it is extremely unlikely there will be any recovery before he leaves office.

Until then, we're simply hoping for an impossible recovery.

Recovery doesn't need to be impossible. But it is impossible given the policies of President Obama.
  Continue reading the article...]]> Craig Steiner Fri, 19 Aug 2011 10:30:00 -0500 http://www.craigsteiner.us/comments/394
This is not the year to raise taxes at any level of government, and it's important that the public make its voice heard so that the school board will decline to do so.  Continue reading the article...]]> Craig Steiner Wed, 17 Aug 2011 10:00:00 -0500 http://www.craigsteiner.us/comments/393 Continue reading the article...]]> Craig Steiner Tue, 16 Aug 2011 09:05:00 -0500 http://www.craigsteiner.us/comments/392 Continue reading the article...]]> Craig Steiner Sun, 14 Aug 2011 22:00:00 -0500 http://www.craigsteiner.us/comments/391 Continue reading the article...]]> Craig Steiner Thu, 11 Aug 2011 11:00:00 -0500 http://www.craigsteiner.us/comments/390 Continue reading the article...]]> Craig Steiner Thu, 21 Jul 2011 09:20:00 -0500 http://www.craigsteiner.us/articles/71 must elect principled and ethical people that are running for office for honorable reasons: A sense of duty, patriotism, an attitude of humble and principled service to the community, and a true desire to fix what's broken.  Continue reading the article...]]>