Eastern Europe is Now a Better Bet than Western Europe – From the Financial Times: Another sign of the dwindling fortunes of the eurozone emerged this week. The economies of western Europe overtook their neighbours in central and eastern Europe as greater default risks….An index that measures the risk of default of 15 western European economies, including Germany, France and the peripheral eurozone countries, has surged higher than a comparable one comprised of countries such as Hungary and Ukraine. These indices, which measure the cost to insure the two geographical groups against default, suggest any hopes that the festive lull could give the eurozone a breathing space appear to be fading, only one week into the new year. The article explains the key reason for the change is both the ongoing deterioration of the Eurozone periphery and the improving lot of Eastern European countries like Hungary, Ukraine, and Poland. The Euro itself has been a big contributor to this mess. Its existence meant applying a one-size-fits-all monetary policy to vastly different economies.
That Debt Ceiling Again – Responding to my post from earlier this week, a reader wrote me this: This current article has raised questions for me. Why is it assumed that failure to raise the debt ceiling must necessarily result in a default? Is it not feasible that when forced to choose between default and cutting something that the correct choice would be made? It seems to me that until that awful decision is faced, meaningful spending cuts will never occur. Here, I think, is the answer to his question. Our debt is not a function of immediate spending decisions but of very-long-term spending trends. That means that in order to pay just the interest on the debt, the government has to roll over some existing debt by borrowing. It is simply not possible to cut spending enough immediately to avert this with some additional borrowing. Spending cuts will reduce the debt in the long term, so that we don’t have to raise the limit again; but they cannot reduce it immediately and could only put off the need to borrow more for a very short time. Raising the debt ceiling is about, as I wrote, existing obligations racked up by Obama and the last Congress.
Beyond the Debt Limit Rhetoric – Judging by some of the recent rhetoric out of Washington, you could be forgiven for thinking that the United States is lurching toward an imminent default on its debt obligations. However, that scenario is highly unlikely. What we are seeing is the early stages of posturing for a particularly aggressive negotiation over the country’s fiscal future that will begin to play itself out in the debt limit debate. Treasury Secretary Tim Geithner warned yesterday in a letter to congressional leaders of “catastrophic damage” that would be “unthinkable” if Congress fails to act, while the President’s top economic adviser recently labeled such an outcome “insanity.” There are always voices willing to accept those consequences and vote no, but history shows that Congress always comes through with a debt limit increase. The consequences of not doing so are too severe, both economically and politically. Those in a position of responsibility in Congress realize that failure to act on the debt limit is a counterproductive response to the fiscal mess
Federal Budget Deficit in First Quarter of Fiscal Year 2011—$371 Billion – The federal budget deficit was $371 billion in the first quarter of fiscal year 2011, CBO estimates in its latest Monthly Budget Review, $18 billion less than the shortfall in the same period of fiscal year 2010. Revenues were 9 percent higher than they were a year ago, whereas outlays were only 3 percent higher. Later this month, CBO will issue new budget projections for fiscal year 2011 and the following 10 years. Revenues through December totaled about $531 billion, $43 billion more than in the same period last year. Most of that net increase stems from higher withholding of individual income tax and social insurance payroll taxes, which rose by $33 billion (or 8 percent) in the first quarter because of strengthening economic conditions. Revenues also increased because individual tax refunds were lower than the abnormally high amounts for the same period a year before.
Americans Boost Student Loan Debt, Cut Credit-Card Borrowing – Americans kept their credit cards at bay in November, subdued by high joblessness and fallen home values. The 27th straight drop in revolving credit restrained overall consumer borrowing, according to the Federal Reserve’s monthly consumer credit data. The report Friday also said consumer credit outstanding increased $1.3 billion, or 0.7%, to $2.40 trillion. Climbing student loans drove the unexpected increase. Economists surveyed by Dow Jones Newswires had predicted consumer credit in November would remain unchanged. The Fed revised up October consumer credit sharply, saying it climbed 3.5% instead of an originally reported 1.7%. The back-to-back increases in consumer credit followed 20 straight declines during large charge-offs by banks on bad loans and tightened lending standards in the wake of the recession.
Fed’s Duke Plays Down Inflationary Threat – U.S. Federal Reserve governor Elizabeth Duke on Friday sought to allay worries over a potential inflationary threat and to defend a controversial bond-buying program that is expanding the central bank’s already ballooned balance sheet. “The expansion of securities holdings was worth implementing to support the economy and make the recovery more durable,” The program, through which the Fed is buying $600 billion in additional U.S. government debt by the end of the second quarter, was meant to drive down interest rates. But long-term rates have instead risen as the Fed’s Treasury holdings have climbed above the $1 trillion mark. Duke attributed the rising rates to “a strengthening in market participants’ outlook for the economy and a corresponding decrease in the market’s expectation for future accommodation.”
State superintendent declares California schools in ‘state of emergency" — Saying schools are in a "state of financial emergency," the Superintendent of Public Instruction on Thursday called on Californians to get involved in local schools and support tax measures that benefit education. "It is time to call it what it is," Tom Torlakson said during his first news conference since taking office earlier this week. "It is indeed a crisis of the proportion of an emergency." He said $18 billion in education cuts over the past three years have caused thousands of layoffs, increased class sizes, shortened school years in many districts and eliminated or reduced programs such as libraries, art and music. He said 174 of the state’s 1,077 school districts are in financial distress, signaling they may not be able to pay their bills in the next three years
Income tax could rise 75 percent — Top Democrats in Springfield say they have an agreement that will erase Illinois’ $15 billion deficit, send more money to Illinois schools and limit state spending for three years. But it will take a 75-percent hike in income taxes and billions more in state borrowing to make it all happen. Illinois Senate President John Cullerton, D-Chicago, announced the deal late Thursday. A vote on the measure is pending. Under the provisions, Illinois taxpayers will see their income tax rate jump from 3 percent to 5.25 percent. The corporate tax rate would climb to 8.4 percent. Cullerton estimates that the personal income tax increase will bring in $6.2 billion to the state. He put the price tag for the corporate tax hike at $1 billion a year. The deal also includes just over $12 billion in borrowing. Cullerton said $3.7 billion of that borrowed money will go to pay this year’s pension obligations. The rest will go toward Illinois’ mountain of unpaid bills.
State budget office predicts $829 million gap this year, $1.4 billion by 2013 – At a legislative workshop Thursday morning, Harry Bell, with the state budget office, said in his 15 years in the budget office, this year is the worst he’s ever seen. For 2011, Bell says lawmakers have about $1.2 billion in spending and only $428 million available. Some of the reasons for that difference include flat revenues from the lottery and losing some $350 million in federal stimulus dollars. The state is also losing federal money on medicaid and medicare payments. Bell said typically the state pays 30 cents for every dollar of medicaid and medicare payments. The feds pick up the rest of the tab. The past two years, South Carolina has only paid 20 cents for every dollar. Now it’s going back up to 30 cents.
Germans Fear Dioxin Has Contaminated Small Farms – German officials halted sales from more than 4,700 small farms after dioxin was found in some feed for chickens and pigs and as fears grew about how far contaminated food might have spread. South Korea and Slovakia on Friday banned the sale of some animal products imported from Germany, while Britain and the Netherlands were investigating whether imported foods like mayonnaise, were safe to eat, according to the Associated Press. The order to stop sales from the farms , has led to the withdrawal from the market of millions of eggs as prosecutors investigate how a rapeseed oil processed by a company that supplied the feed became contaminated by dioxin. The substance can cause severe health problems in humans, including cancer and miscarriages.
Extreme Weather Helps Drive Up Food Prices – As my colleague William Neuman reports, the United Nations Food and Agriculture Organization announced this week that food prices hit a record high last month. Its Food Price Index was 214.7 for December, the highest level since the organization created the index to measure the price of a standard basket of goods in 1990. Some environmental groups are attributing this partly to an increase in extreme weather that scientists say is probably linked to global warming. OxfamAmerica said that a “major contributor” to this price surge has been the disastrous effect of extreme weather events on harvests of certain crops. “The record rise in food prices is a grave reminder that until we act on the underlying causes of hunger and climate change, we will find ourselves perpetually on the knife’s edge of disaster,” said Gawain Kripke, policy director for the organization. This summer, for example, Russian wheat crops were devastated by a season of unusual drought and wildfire. Pakistan’s crop yields were reduced because of floods. In Laos and Cambodia, food production was compromised by “delayed and erratic rains,” the Food and Agriculture Organization said.
Practical Survival Skills 101 – Water – In this continuation of our series on practical survival, we’re going to discuss water: where to find it and what to do with it to make it "safe." Water is a common theme in survival – it is unique in that it is both an absolute necessity and a looming threat at the same time. Behind breathable oxygen, it is the single most important element on our survival saw, and we have just three days to ensure a clean, potable supply of water if we are to survive. This is an overview of the “hard” way of procuring safe drinking water. Obviously, Katadyne filters, iodine tablets, and other methods of purification are superior, when they are available. However, we can’t always count on technology, and so here we’ll talk about how to strain impurities/debris and kill microbes in the water.
A Tax on Witches? A Pox on the President – Angry about having to pay taxes for the first time, Romanian witches hurled poisonous mandrake into the Danube River to cast spells on the president and government. In the past, the less mainstream professions of witch, astrologer and fortuneteller were not listed in the Romanian labor code, and people who worked in those jobs used their lack of registration to evade paying income tax. Under a new law, they will pay 16 percent income tax and make contributions to health and pension programs, like other self-employed people.