Greece Agrees to Austerity Plan

Unemployment: Many Workers exhausting all benefits – From Bloomberg: More Than a Million in U.S. May Lose Jobless Benefits [Lawmakers] are quietly drawing the line at 99 weeks of aid, a mark that hundreds of thousands of Americans have already reached. In coming months, the number of those who will receive their final government check is projected to top 1 million. Interviews with state officials found that in New York, 57,000 people have received their last check. In Florida, 130,000 are no longer eligible as are about 30,000 Ohioans. According to the BLS, a record 6.5 million workers have been unemployed for 27 weeks or more. The article notes a study by the Pew Fiscal Analysis Initiative that shows 3.4 million workers have been unemployed for more than a year. Not all states have 99 weeks of benefits, but some workers are starting to exhaust all of their benefits.

Dividends Tax Rate Next Year? – Congress is beginning to realize how expensive it will be to cap the dividends tax rate at 20% for those earning over $250,000 beyond the end of this year.  Yesterday, House Ways and Means Chair Sander Levin (D-MI) told the Bureau of National Affairs that it would be "very expensive" and that there was no provision for exempting it under the Budget Act or for "paying for" it at a cost of $138 b. FY11-FY20.  Congressional taxwriters have spent the last few months struggling to find ways to "pay for" $31 b. of extensions of expired tax provisions and would have a much more difficult time finding $138 b. worth.  President Obama has proposed setting the dividends and capital gains rates at 20% for all taxpayers.  So far, there have been no signs that Congress is ready to grapple with the issue of extending the 2001 and 2003 Bush tax cuts.  It could easily fall over until a lame duck session after the election.

 "Budget For A Declining Nation" – That was the title of today’s luncheon talk to the National Economists Club by Urban Institute Fellow and former Deputy Assistant Treasury Secretary Gene Steuerle.  A video and slides will be posted here.  These are the main points he made. "What makes this fiscal crisis unique is that we can no longer depend upon economic growth to get out of it.""World War II is always held up as an example of running the national debt over 100%, but no one remembers that we drove it down below 70% within 6 years by the end of the Truman Administration." "The enormous budget squeeze of 2009 saw revenues fail to cover entitlement spending and interest for the first time.""We have a budget for a declining nation because we’re increasing federal spending on consumption, and we’re cutting federal spending for education and investment."

 Greece Agrees to Austerity Plan – From the Financial Times: Greece agrees €24bn austerity package Greece has agreed the outline of a €24bn austerity package, including a three-year wage freeze for public sector workers, in return for a multibillion-euro loan from the eurozone and the International Monetary Fund …The final details are still being worked out, but apparently the value-added tax (VAT) will be increased, public sector workers will lose their two large bonuses, and the retirement age will be increased significantly among other measures. This is intended to reduce the budget deficit by 10+ percentage points over 3 years

Two Videos: Energy Security and the Milken-Roubini Debate – As I travel, here’s an automatic post of video from two of the lunchtime sessions at the Milken Global Conference. First, the panel on "Geopolitics, Global Demand and the Quest for Energy Security": Here’s the video from the session "Nouriel Roubini and Mike Milken Debate Where We’ve Been – Where We’re Going":

Sovereign Default – Who is at Fault? – I am watching the Greek crisis as it takes its painful course, and have noted that there are some views which seem to suggest that Germany has an obligation to rush to the rescue. A Guardian article is typical, though the extract below does not really capture the overall sentiment of the article: What we are seeing is a pass the parcel of blame, and Germany looks like will be left holding the package. However, all of this is to lose sight of the reality of the situation. The Greek debt is the fault of Greece, and nobody else.There have been suggestions that somehow Greece was enticed into debt, that it really is not their fault. It is the view that Greece is like a consumer persuaded into a dodgy Hire Purchase agreement, without realising the consequences of signing on the dotted line. However, in this case, our consumer has lied about their level of debt on the application form.

Provision would break up nine biggest banks.- Nine of the largest financial institutions including Bank of America Corp., Citigroup Inc. and J.P. Morgan Chase & Co. would have to scale down by about 40%, according to legislation introduced by a group of eight Democrats on Thursday. The group is hoping the measure will be approved as part of sweeping bank reform legislation under consideration on Capitol Hill. The measure limits the size of non-deposit liabilities at financial institutions to 2% of U.S. gross domestic product, or about $300 billion. It’s unclear whether congressional leaders will allow the measure to be voted upon by the full Senate or whether lawmakers would approve it.

The Euro Trap, by Paul Krugman, Commentary, NY Times: Not that long ago, European economists used to mock their American counterparts for having questioned the wisdom of Europe’s march to monetary union. … Oops…, right now it does seem to have been a bad idea for exactly the reasons the skeptics cited. And as for whether it will last — suddenly, that’s looking like an open question. To understand the euro-mess — and its lessons for the rest of us — you need to see past the headlines. Right now everyone is focused on public debt, which can make it seem as if this is a simple story of governments that couldn’t control their spending. But that’s only part of the story for Greece, much less for Portugal, and not at all the story for Spain.

We Can’t All Be (Net) Exporters – The Greek crisis, which helped further extend the Dollar’s uptrend in place since the beginning of the year, is a reminder that global imbalances are still with us – and, if not corrected, will eventually threaten the sustainability of the global recovery. Indeed, how sustainable can any recovery be if the vast majority of nations are pursuing an export oriented growth strategy? After all, clearly that is not a game all can play – there needs to be a net importer to offset the net exports. Who wants to fill that role? If the US is pushed into filling that role, we have simply come full circle over the past three years.  From the Wall Street Journal: President Barack Obama’s goal of doubling U.S. exports over the next five years will be difficult to meet, business leaders and economists say, because of the lack of momentum on demolishing trade barriers and the shift by more American companies toward producing overseas.

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