In Occupy Wall Street: The Return of Shays’ Rebellion, I wrote about how the Occupy Wall Street protesters, like the participants in Shays’ Rebellion, demand debt relief or forgiveness. But I must point out that this demand for debt relief predates the United States by at least a couple of thousand years.
The ancient Greek and ancient Roman historians and philosophers warned against debt relief and those who demand it.
About 2,300 years ago, Plato warned the ancient Greeks:
And is it not true that in like manner a leader of the people who, getting control of a docile mob, does not withhold his hand from the shedding of tribal blood, but by the customary unjust accusations brings a citizen into court and assassinates him, blotting out a human life, and with unhallowed tongue and lips that have tasted kindred blood, banishes and slays and hints at the abolition of debts and the partition of lands.
In ancient Rome, Cicero warned:
And what is the meaning of an abolition of debts, except that you buy a farm with my money; that you have the farm, and I have not my money?
They say that those who forget history are doomed to repeat it. With the return of the demand for debt relief, we clearly have neglecting our study of history.
– Michael E. Newton is the author of the highly acclaimed The Path to Tyranny: A History of Free Society’s Descent into Tyranny. His newest book, Angry Mobs and Founding Fathers: The Fight for Control of the American Revolution, was released by Eleftheria Publishing in July.
Posted in Occupy Wall Street
Tagged Business, cicero, debt, Debt relief, Financial services, July, New York City, Occupy Wall Street, plato, Protest, Rome, Shays' Rebellion, Street protester, United States, Wall Street, Zuccotti Park
A quick look at the charts shows the sovereign debt crisis has hit record levels along with European interest rates:
Greece 10-year yield:
Ireland 10-year yield:
Portugal 10-year yield:
With 10-year interest rates up at 14.9, 10.5, and 9.5 percent (and two-year rates even higher in many cases), it is hard to see how these countries can afford to pay these rates. If the United States were paying a 10% interest rate with debt about 90 percent of GDP, 9 percent of GDP and about a third of federal spending would go just to paying interest on the debt. In Greece, where debt is about 130 percent of GDP, the government is spending about 19.4 percent of GDP on interest. This is clearly unsustainable, which is why everybody expects these countries to “restructure” their debts, a euphemism for defaulting and paying back less than they owe. This expectation is a self-fulfilling prophecy because it pushes rates even higher.
With the situation in the United States only marginally better, how long before rates rise here and the U.S. defaults? Best to cut spending now, when we have a choice, than later when interest rates rise and the government has to divert spending to interest payments.
Posted in Sovereign debt crisis
Tagged 2010 European sovereign debt crisis, Business, debt, Financial services, greece, International Monetary Fund, Ireland, Politics of Greece, portugal, Standard & Poor's, United States
Despite all the governments’ efforts, or maybe because of them, the sovereign debt crisis is only getting worse. Marketwatch reports:
The euro zone’s sovereign-debt crisis intensified Tuesday, with yields on Spanish, Italian and other peripheral government bonds soaring in the wake of a weekend meeting of European Union finance ministers that failed to soothe fears of the potential for future defaults.
The yield on 10-year Spanish government bonds jumped to around 5.63%, strategists said, a day after surging to 5.43%.
The move sent the yield premium demanded by investors to hold 10-year Spanish debt over comparable German bunds to more than three full percentage points.
“Ireland’s bailout did nothing to ease the euro-zone debt crisis: it might have even made it worse,” said Steven Barrow, currency and fixed-income strategist at Standard Bank. “For now the market sees a pattern emerging and the next piece of the bailout puzzle seems to be Portugal, with Spain to follow after that.”
The yield on 10-year Italian bonds also rose for a second day to hit 4.77% from around 4.64% on Monday. Portuguese, Greek and Irish bond yields also rose. And outside the periphery, the Belgian 10-year bond yield continued to climb, hitting 3.97% versus around 3.86% on Monday.
How long before Europe realizes that bailing out the banks, announcing plans to cut their deficits to 3 percent in four years time, and getting bailouts from EU and IMF will not work? The sovereign debt crisis will continue until these European countries announce balanced budgets effective immediately (2011) or, at the worst case, next year (2012) and that they will never again bail out the banks. They also have to leave the Euro, which is partly responsible for the mess to start with.
Unfortunately, I doubt the European governments will implement these measures. And if they were to do so, the people would be in full revolution. The only easy way out I see is if the economy suddenly stages a huge recovery. Barring that, it looks like things will be getting worse, possibly much worse.
Posted in Deficits, Economics, Government spending, Sovereign debt crisis
Tagged 2010 European sovereign debt crisis, Business, European Union, Eurozone, Financial services, Government debt, Government of Spain, greece, Ireland, italy, List of sovereign states and dependent territories in Europe, portugal, spain, Standard Bank
The Treasury announced that the total cost of TARP would be just $50 billion. In their perverse logic, the Administration and media played this up as a government success story. But we really should look at TARP as an investment. Congress approved spending $700 billion for TARP, of which only $296 billion was spent. Looking at TARP as an investment, the government lost 16.9% over a two year period. And they call that a success!
What else could the government have done with the $296 billion? Since TARP was signed into law on October 3, 2008, the following instruments have produced these returns:
||Troubled Asset Relief Program
||iShares Barclays 20+ Year Treas Bond
||iShares Barclays 7-10 Year Treasury
||iShares Barclays Short Treasury Bond
||SPDR Gold Shares
||Financial Select Sector SPDR
All major markets (stocks, long-term bonds, intermediate-term bonds, short-term bonds, and gold) posted positive returns. In some cases, very good returns. As you can see, I added the Financial sector into that table, which declined slightly more than TARP. Most of TARP’s investment were in the financial sector. The small difference is largely a rounding error because I am looking at XLF’s return up to today whereas the Treasury is using expected returns as of some future date. And that is assuming you trust their accounting…
But this raises the question of why they invested in the worst performing market sector? Those of us who argued that they were throwing good money after bad were correct. Maybe Treasury lost less money than we expected, but we were still correct in predicting negative returns on this investment.
Of course, the government claims that TARP saved the financial system from utter destruction. Oh, to live in a world where you can make outrageous claims without any proof. Next thing you know, the government will claim that the American Recovery and Reinvestment Act of 2009, also known as the stimulus bill, “created or saved” millions of jobs, even though the unemployment rate has remained steady near the 10% level.
Posted in Economics, Gold, Government spending, politics, Redistribution, Stimulus spending, Unemployment
Tagged American International Group, big government, Business, Deficit, economics, Finance, Financial services, Government, Government debt, government spending, Investing, Stocks and Bonds, TARP, Troubled Asset Relief Program, unemployment, United States, United States Department of the Treasury