Tag Archives: Run

Commentary

Bank run in socialist Europe begins

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Europe: Annual Budget Deficit as % of GDP
Europe: Annual Budget Deficit as % of GDP

From CNBC.

Excerpt:

Money-market funds in the United States have quite dramatically slammed shut their lending windows to European banks. According to the Economist, Fitch estimates U.S. money market funds have withdrawn 42 percent of their money from European banks in general.

And for France that number is even higher — 69 percent. European money-market funds are also getting in on the act.

Bond issuance by banks has seized up because buyers have gone on strike.

From the Economist’s Free Exchange Blog:

In the third quarter bonds issues by European banks only reached 15 percent of the amount they raised over the same period in the past two years, reckon analysts at Citi Group. It is unlikely that European banks have sold many more bonds since.

Corporate depositors are also pulling their cash.

Free Exchange:

“We are starting to witness signs that corporates are withdrawing deposits from banks in Spain, Italy, France and Belgium,” an analyst at Citi Group wrote in a recent report. “This is a worrying development.”

And there are troubling signs that banks are even running out of collateral to back their borrowings from the European Central Bank .

So far the liquidity of the European Central Bank (ECB) has kept the system alive. Only one large European bank, Dexia, has collapsed because of a funding shortage. Yet what happens if banks run out of collateral to borrow against?

And from the leftist New York Times.

Excerpt:

The flight from European sovereign debt and banks has spanned the globe. European institutions like the Royal Bank of Scotland and pension funds in the Netherlands have been heavy sellers in recent days. And earlier this month, Kokusai Asset Management in Japan unloaded nearly $1 billion in Italian debt.

At the same time, American institutions are pulling back on loans to even the sturdiest banks in Europe. When a $300 million certificate of deposit held by Vanguard’s $114 billion Prime Money Market Fund from Rabobank in the Netherlands came due on Nov. 9, Vanguard decided to let the loan expire and move the money out of Europe. Rabobank enjoys a AAA-credit rating and is considered one of the strongest banks in the world.

American money market funds, long a key supplier of dollars to European banks through short-term loans, have also become nervous. Fund managers have cut their holdings of notes issued by euro zone banks by $261 billion from around its peak in May, a 54 percent drop, according to JPMorgan Chase research.

This is really disturbing. I wonder if any of my economics-minded commenters can explain to me what happens when there is a run on banks. I am guessing that there will be some rioting over benefits as austerity measures are imposed, and interest rates will go up.

Commentary

How government forces private firms out of business with predatory pricing

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This article on Fox News’ Forum is by John Lott. He explains the threat of predatory pricing as it relates to Obama’s health care plan.

First, Lott explains the stated goal of Obama’s plan:

President Obama is selling government health insurance to the American people as the way to save money.  That government health insurance will merely provide competition to keep private insurance companies from gouging their customers.

But here is the problem with a parallel system run by the government:

There are a couple of problems with Obama’s argument.  Government is just not known for its cost effectiveness or quality.  And the way for government enterprises to survive is with massive taxpayer subsidies and charging customers prices below the firm’s actual costs, driving more efficient private firms out of business.  These subsidies mean that when government enterprises “win” they do so by driving more efficient private firms out of business.

Here is an an example of how it works with USPS vs Fedex:

The U.S. Postal Service would often increase its first-class mail rate, where it had a monopoly, to raise money to subsidize its overnight delivery service where it faced stiff competition.  For example, it raised first-class mail to thirty-three cents in January 1999 and simultaneously reduced the price of domestic overnight express mail from $15.00 to $13.70, even though it was already losing money at the $15.00 rate. The price, which was lowered in response to increasingly successful competition in overnight delivery from FedEx and UPS Overnight, remained below $15.00 for the next seven years.  Clearly the Postal Service was not able to drive its competitors out of business with this maneuver, in part because its on-time delivery record and quality was poorer.

The Postal Service lost money on its overnight deliveries despite advantages that FedEx and UPS could only dream of.  The Postal Service is exempt from paying state sales, property and income taxes.  And it uses some of the most expensive real estate in the country — rent-free. The competition that Obama advocates between government and private insurance companies isn’t going to be any fairer.

The government can run huge deficits, effectively transferring money from the productive private sector into their parallel public competitor, with the end goal being complete control of consumer purchases. Obama intends to run private companies out of business so that you have only one place where you can go to purchase health care: OBAMA. And you will do anything he tells you in order to get that health care.

It’s all about controlling your behavior by taking your money and then restricting your access to services. The end goal is that everyone will have equal life outcomes regardless of how hard they work, and how risky and/or immoral their lifestyle. Democrats do not trust you to keep the money you earn, and to spend your money on the things that you want. They think government knows best.

In his book “Freedomnomics”, Lott has even more examples of predatory pricing. I recommend that book, especially for the chapter on abortion and crime. Pro-lifers will find the book very useful. It’s important for people to understand that the more involved government gets in the free market, the less liberty we have as consumers.

News

Evaluating Democrat policies on the budget, health care and cap and trade

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A Harvard economist says that tax hikes will kill the recovery: (H/T John Boehner, Mike Pence)

Harvard economist Martin Feldstein writes in the Wall Street Journal:

Even if the proposed tax increases are not scheduled to take effect until 2011, households will recognize the permanent reduction in their future incomes and will reduce current spending accordingly.  Higher future tax rates on capital gains and dividends will depress share prices immediately and the resulting fall in wealth will cut consumer spending further.  Lower share prices will also raise the cost of equity capital, depressing business investment in plant and equipment.

Tax hikes for the poor:

Mr. Obama’s biggest proposed tax increase is the cap-and-trade system of requiring businesses to buy carbon dioxide emission permits. The nonpartisan Congressional Budget Office (CBO) estimates that the proposed permit auctions would raise about $80 billion a year and that these extra taxes would be passed along in higher prices to consumers. Anyone who drives a car, uses public transportation, consumes electricity or buys any product that involves creating CO2 in its production would face higher prices…

But while the cap-and-trade tax rises with income, the relative burden is greatest for low-income households. According to the CBO, households in the lowest-income quintile spend more than 20% of their income on energy intensive items (primarily fuels and electricity), while those in the highest-income quintile spend less than 5% on those products.

Bye-bye, American manufacturing sector. Or maybe Obama will nationalize the entire industry, who can say? He’s already practically doing it now.

Remember the no tax increases pledge that Obama made? Kevin Boland writes:

If you drive a car or flip on a light switch – Democrats have a new national energy tax for you.  If you’re a small business owner or if you’re employed by one – Democrats have a new tax for you.  If you’re a charity – Democrats have a new tax for your donors.  If you’re looking to produce more American energy – Democrats have a new tax for you.  If you own stock – Democrats have a new tax for you.  And when you’re finally able to relax – after paying all your taxes to Uncle Sam – and you want to kick back, relax, and have a cold beer, you guessed it, Democrats may have a new tax for you too.

USA Today asks where the promised fiscal restraint of Mr. ACORN lawyer has gone off to. (H/T Mike Pence)

When it comes to federal spending, there’s a pattern emerging with President Obama, and it’s not a flattering one. The president says all the right things about the importance of getting the deficit under control, but his actions don’t come close to matching his rhetoric.

An early sign of the disconnect was his heavily publicized demand last month that his Cabinet secretaries shave $100 million from their administrative budgets. Obama said the cuts would “send a signal that we are serious about how government operates” and would help close the “confidence gap” with skeptical Americans. Those cuts amounted to a less-than-confidence-inspiring 0.003% of the 2009 budget, or about 3 cents out of every $1,000.

Then, when he unveiled his 2010 budget last week, Obama made a big deal of his demand for $17 billion in cuts, insisting that the cuts “even by Washington standards … are significant” and that $17 billion is “real money.”

The president got it backward. Out in the rest of the world, $17 billion is a ton of money. But in Washington, where the president is proposing to spend $3.6 trillion next year, $17 billion looks puny – a little less than half a percent of the budget, or the equivalent of cutting a $100 grocery bill by handing back a 50-cent pack of gum.

Anybody who read David Freddoso’s book or looked up Obama’s voting record could have known that his rhetoric was just lies for the gullible.

Over to the health care issue, where John Shadegg explains how capitalism is the right way to reduce health care costs.

President Obama’s pledge to work with health care providers and insurers to scale back costs misses the entire point: health care costs are so high because we are not giving patients choice and forcing insurers to compete.  We need robust market reforms – not symbolic gestures.  The way to lower prices is to put control in the hands of patients.  We need to empower Americans by giving them the freedom to either keep their employer plan or purchase the plan of their choice through a tax credit.  Choice and competition will drive prices down and quality up.

Shadegg goes on to explain why the Obama plan does none of this. And why should it? We already know that the Democrats want private health care to fail, so they can usher in single-payer health care. (Just they want private industry to fail so they can nationalize more of the free market)

Putting 120 million Americans on government coverage will create a monopoly that sends costs skyrocketing. Choice will be lost because the enormous government-run plan will put the private plans out of business.  In other words, if you like what you have, you will lose it.  And while health insurance will be provided, health care will not – like every nationalized health plan across the world, as costs escalate, care will be slashed, patients waitlisted, drugs denied.

Meanwhile, Michele Bachmann notes the looming entitlement crisis is now closer than ever, with the Medicare insolvency date moving earlier.

Yesterday, the Medicare and Social Security Trustees issued a new report that laid out unequivocally that our current Medicare and Social Security programs are on a path for financial implosion and are in need of serious reform.

In fact, the Medicare insolvency date has moved up to 2017.  And, that doesn’t include the impact of the so-called “stimulus” bill, which could accelerate insolvency by about 6 months.

And, we’re facing a strain on Social Security like never before, with nearly 80 million retiring Baby Boomers tapping into the funds soon we’ll be spending more to pay benefits than what the system receives in payroll taxes. Yet, we continue to carry on with the status quo, every now and then saying that we need to reform it, but not actually doing anything about it.

Michele is trying to do something about it, but the House is filled with Democrats who never ran a business in their entire lives.

I’ve introduced the Truth In Accounting Act to make government finances truly transparent and open.  Not only would financial commitments be crystal clear to Congress, but also to the taxpayers.

Currently, when Congress and the President prepare budget proposals and pass spending bills, they have the luxury of ignoring shortfalls year after year.  They prepare, present, and approve budgets which project these estimates over the short-term – usually five or ten years.  And, there are a lot of things that can be done on paper to paper over the long-term shortfalls.

My Truth in Accounting Act would require the President to consider these long-term shortfalls when he proposes his budget.  And, it would require both the GAO (Government Accountability Office) and the U.S. Treasury to report this information to the Congress so that the numbers can be used when we’re finalizing the annual budget.

Furthermore, my legislation would require that the report be translated into easily comprehensible terms so that nothing could be hidden by complex jargon.  The government’s fiscal imbalance would be presented in the whole, and as distributed per person, per worker, and per household.

I hope she is somehow able to pass this bill.