PIIGS: the Original Acronym and the Original Proposition

If one thinks back several years to when the acronym PIGGS was coined [Portugal, Ireland, Italy, Greece and Spain] the original proposition put forth was: a debt train wreck involving the PIIGS. Keep this in mind for a moment.

Now consider the many talking heads, pundits and those supposedly in-the-know explaining very assuredly that the EU would “talk” it out and negotiate a deal to avert any supposed debt train wreck.

However, each deal that was supposedly in the pipeline, when hatched, ended, in the main, in yet another deal which lead to another deal and so on which did nothing to solve the crisis. That the debt train wreck would be adverted, really became, a cascading series of “talk” that amounted to more “talk” but never stopped the impending debt train wreck.

One should consider Dr. Frank Knight’s proposition of the First Law of Talk: "Talk is cheap and it drives out talk that is less cheap."

Note: Frank Knight was an economics professor of both Milton Friedman and James M. Buchanan. Both Friedman and Buchanan are Nobel Prize winners in economics.

“Frank Knight humorously hypothesized that this idea about bad and good money could be applied to communication. "Cheap talk" was easily manufactured and it tends to drive out more reasoned talk because the response to cheap talk is more generally even cheaper talk that is yet more inflated. This law can easily be seen in action in the realm of politics and diplomacy. It also applies to academic arguments that generate a certain amount of vitriol.” (1)

Returning to the original proposition regarding a debt train wreck associated with the PIIGS, were the talking heads, pundits and those supposedly in-the-know advocating cheap talk? Was the more reasoned response the original response of: a debt train wreck?


Notes:

(1) Frank Knight's First Law of Talk

http://www.indepthinfo.com/articles/law-of-talk.shtml

U.S. Federal Budget: the un-balanceable budget!

If Markets Fail, Then Governments Fail Too – The Song

Greetings From the Third World: Detroit

"Detroit Mayor David Bing is begging Gov. Rick Snyder for a bailout. He warns that the city won't be able to pay its bills come May without state aid. The Republican governor has agreed to throw a lifeline to the underwater city. Trouble is, there's no free cash attached.

On Tuesday the governor floated a "consent agreement" that would turn city operations over to a nine-member financial advisory board and give them the power to renegotiate and nullify collective bargaining agreements, which are the city's biggest cost drivers. Mr. Bing, however, blasted the proposal for forfeiting "the electoral rights of the citizens of Detroit guaranteed by the democratic process." He also claimed it "circumvents the role and power of the City Council as the legislative body, waives the ability of elected officials to contest any aspect of the agreement, and dismisses the unprecedented effort and concessions made by the City's labor unions to avoid an economic catastrophe."

Mr. Bing may want to reconsider his objections. Employee benefits now make up about half of the city's general funds. Health costs have soared by more than 60% since 2008, while the city's pension bill has quadrupled to $200 million. That also happens to be approximately the size of the city's budget deficit. The only way the city will ever get a handle on its budget is by nullifying and renegotiating its collective bargaining agreements.

To be sure, it would be much better for Mr. Bing and the city council to do the messy work than an unaccountable board of bureaucrats. But neither the mayor nor the city council want to break their promises to the unions. Instead, they're hoping that the state will provide the city with $100 million to $200 million to tide it over until the unions make some concessions and revenues rebound. The prospects for the former are dim since the city has lost 25% of its population in the last decade. Plus, its high crime rate and diminishing public services make it an unattractive place to live and do business. The prospects for the latter are even grayer since the unions have no incentive to come to the table unless politicians threaten them with a big stick like bankruptcy.

The governor wants to help Detroit avoid bankruptcy since a municipal default on the magnitude of Motown's would hurt Michigan's credit rating. Nonetheless, if city leaders are intent on spurning the governor's overtures, allowing Detroit to fail may be the only way to revive it." - Allysia Finley, The Wall Street Journal, Political Diary, 03/14/2012

Paul Ryan regarding: “The Most Predictable Crisis”

2013 Obama Budget Accounting Vignette: post cards from the alternate universe of accounting -or- when deficit reduction means spending increase.

The repeal of ObamaCare's subsection C.L.A.S.S.: entitlement repeal -or- repeal of a budget gimmick entitlement?

“The Republican-led House on Wednesday voted to repeal a financially troubled part of the 2010 health care law that was designed to provide affordable long-term care insurance.

The House vote comes months after the Obama administration suspended the Community Living Assistance Services and Support program, known as the CLASS Act.


Health and Human Services Secretary Kathleen Sebelius in October said she was unable to find a way to make the program financially solvent.

Still, the White House has said it does not support repealing the program, under which workers would pay a monthly premium during their careers and collect a daily cash benefit if they become disabled later in life.

Republicans have targeted the program as part of their overall goal of dismantling the health care overhaul law. Action on the bill in the Democratic-controlled Senate is uncertain.

“Republicans are committed to repealing and defunding it, piece by piece if necessary,” House Speaker John Boehner (R-Ohio) said of the health care bill after the CLASS Act vote.

The House vote was 267-159, with 28 Democrats joining all 239 voting Republicans in support.”

 - CLASS Act Repeal Passes House, Politico, 02/01/2012



However, to understand why-what-where-when-how of the repeal vote one needs to examine this news story from October, 2011:



Budget Shenanigans - Wall Street Journal Political Diary, 10/18/2011, Joe Rago

　

“Congressional Republicans spent yesterday debating their political strategy options now that the Obama Administration has euthanized the Affordable Care Act entitlement program known by the acronym CLASS. The next question is how much of the rest of the law, as a practical matter, they should try to take out too. But they did receive a gift from the Congressional Budget Office, which showed unusual common sense in ruling that formally repealing the CLASS spending program for long-term care would not increase the deficit.

Welcome to the wilderness of mirrors that is the budget process. During the health-care debate, CBO scored the CLASS entitlement as a fiscal benefit because of a Democratic gimmick: The program would have collected $81 billion more in premium taxes over the next 10 years than it would have spent on home health aides and the like -- even though this huge new liability would then have started draining the federal fisc in the following decade. Under these rules, getting rid of Class "costs" $81 billion, which Republicans would have to offset.

　

But then the white smoke rose up from CBO, and in an email to staffers it ruled that it would adjust its baseline to "assume that the program will not be implemented," since the Administration itself junked CLASS. "Beginning immediately, therefore, legislation to repeal the CLASS provisions in current law would be estimated as having no budgetary impact," the message continued. In other words, repealing what is now a vestigial program merely ensures that the CLASS program remains vestigial, while actually preventing future taxpayer dollars from being spent would have also erased the fake deficit reduction.

This kind of non-logic shows why the budget process is so in need of reform. But anyway, CBO's blessing makes it much easier for House Republicans in particular to do some practical good. The White House let it be known yesterday that it opposes a formal repeal of the CLASS program even as it says that the program would be a disaster. Perhaps that's because it may try to revive CLASS in the future, as the Hill newspaper reported it was telling its political allies.

More likely, the veto threat comes because the White House knows that a repeal bill would also be a vehicle for also repealing some of the health-care laws more unpopular and harmful elements that Democrats would find it difficult to oppose -- which is why Republicans should use this new lever to the maximum extent“.

　

DEBT LIMIT - A GUIDE TO AMERICAN FEDERAL DEBT MADE EASY.

Political Constituency Building in Fail-Safe Mode

Public debt in percent of GDP (2010), CIA fact book 09/2011


Particular politicos that champion more or constant spending in the face of unsustainable debt loads point out that their particular political constituency recipient groups enjoy their particular taxpayer funded transfer payment and do not want benefits cut. Go figure.

Its an interesting argument in that the politico points to their own purposely politically built constituency group, funded through taxpayer dollars, and state the recipient group enjoys their taxpayer funded benefit. Problem being the benefit would not exist without the purposeful creation of the benefit by the politico to garner political constituency. Go figure x 2.

In essence, the politico purposely created a dependent recipient class and now points to the purposely created group in its “constituency form“ i.e. in its voting block form. Stated alternatively, the political constituency building episode is a fail-safe, in that, the politico purposely built a dependency class through political promises all the while knowing that the dependent political constituency class will never give up its dependency benefit and hence act as purposely designed and call for supporting the particular politico for more or constant spending.


“The state is the great fiction by which everybody seeks to live at the expense of everybody else“.

- Frederic Bastiat

The Austerity Argument: Real GDP Growth vs. False GDP Growth

Of the many problems with the "austerity argument" regarding lower GDP growth are:

(a) the argument regarding "austerity" leading to lower GDP growth relies on the implicit assumption that the previous false GDP growth number, created through endless government deficit spending, was in fact a real growth number, yet in fact the GDP growth number was false,

(b) the false GDP number is then used as a base measurement,

(d) austerity merely returns one to a real GDP growth number and/or a real GDP growth number base,

(e) the movement from false to real is depicted as "lower growth" when in fact it is a movement from false growth to real growth.

The PIIGS: Austerity Upon Further Review.

One argument you hear from talking heads is that economic growth in Italy and Greece (the PIIGS in general) will be very low in coming years, even negative, due to "austerity". Austerity is used in terms of reduced government spending. That reduced government spending will reduce growth.

In regards to the above argument an item worth considering is how did one arrive at Z amount of public sector spending/promises/workers/tax rates? Stated alternatively, the constant rise in tax-types and tax rates coupled with rising debt lead to level Z.

We now know, for certain, that the PIGGS, in the main, engaged in rising tax-types and rising tax rates coupled with ever growing debt leading to the ever increasing role of politico promises through the mechanism of government. The phenomena then became a disincentive nightmare on one hand and politico promised pipe dreams on the other hand. Its exactly what F.A. Hayek explained as late stage socialism implosion.

Hence Z is/was a false number. Z-1 is the true number. Therefore, reducing to Z-1 is not “austerity” its merely returning from a false/bubble number. Any reduction in growth associated with the movement from Z to Z-1 is not a reduction in true growth.

Matter-of-fact, "austerity" is the incorrect term. Austerity would mean doing without. How can you "do without" something you could not afford in the first place? Hence the talking head argument is: living within one's means equates to low or no growth.

Chuck Woolery - Let's Tax The Amish

Upon Further Review: Buffett Tax Math

"As anyone with at least a passing familiarity with tax-policy analysis would know, Buffett was leaving out a critical piece of information. The very reason that dividends and capital gains bear a lower tax rate than wage income is that, unlike wages, they are not deductible from corporate income taxes.

That is, if you receive income from owning or selling corporate stock, that income has already been taxed at the corporate level. The same is not true for wages. So unless you make dividends and capital gains deductible to some entity – either the corporation or the shareholder – investment income is double-taxed.

Under the current system, which levies a lower personal tax rate on investment income but not a zero rate as tax neutrality would require, most of Buffett’s income is taxed at a higher effective tax rate than his secretary’s wages. He may not be writing a personal check for all those taxes, but he bears their cost in the form of lower returns". (1)

HT: B. Kavanaugh

(1) Carolina Journal, 09/21/2011  http://www.carolinajournal.com/jhdailyjournal/index.html

Obama: Rich must pay fair share. What is fair?

"All I'm saying is that those who have done well, including me, should pay their fair share in taxes," Obama said in a speech that effectively staked out the ground on which the 2012 presidential election will likely be fought. (1)

Anytime you hear the term fair coming from a politico your antennae need to go up to full extension. Fair is one of those political terms that mean what the particular politico wants it to mean in a particular context. Maybe a better way to frame the term fair is that it has no meaning at all other than that meaning given by the user at a particular moment. How so?

Webster defines fair as: free from bias, dishonesty, or injustice: a fair decision; a fair judge. That is a very noble definition. However, when fair is actually used, put into action as it where, is fair used free from bias?

Maybe a better definition of “fair” is: what you are doing and what the other guy is not doing -or- fair is where you go to get your pig judged.

Notes:

(1) Obama: Rich must pay fair share of deficit cuts, Agence France-Presse, 09/19/2011, http://www.rawstory.com/rs/2011/09/19/obama-rich-must-pay-fair-share-of-deficit-cuts/

Buffett Tax Translation

'Obama added, "I’m proposing real cuts to spending. These would be among the biggest cuts in our history ... This plan eliminates tax loopholes that primarily go to the largest corporations."

"We can’t afford these special lower rates for the wealthy — rates, by the way, that were meant to be temporary." ' (1)

Observation: the tax code is a political creation or an economic creation? The loop holes and tax rates are a political creation or an economic creation? 

In Action: does economic man, faced with politico man's tax code, act rationally to reduce tax to the maximum extent? 


Translation: the ultimate "creator" [politicos] want to merely recreate in their own [new, newest] self image. Its not about economics, its all about politics.

Notes:

(1)
http://themoderatevoice.com/122763/obama-on-proposed-1-5-trillion-in-new-taxes-this-is-not-class-warfare-its-math/

No Bail Out for This U.S. Assembled Vehicle Purchase!

Obamanomics No-Fly Zone?

“House Speaker John Boehner rolled out the congressional Republican counteroffer to President Obama's American Jobs Act on Thursday. It wasn't a plan for fundamentally changing economic policy in Washington -- the GOP candidates for president will need to do that -- but it does set out the right pre-conditions for jobs and growth. And it establishes a no-fly zone to deter more Obama regulations and taxes that inhibit hiring.

Mr. Boehner emphasized what he called the "triple threat" from government now facing employers: federal regulations, out of control spending and a business-unfriendly tax code.

"Employers will hire if they have the right incentives," Mr. Boehner said, "but the incentives have to outweigh the costs. Businesses are not going to hire someone for a $4,000 tax credit if government mandates impose long-term costs on them that significantly exceed the temporary credit." That's a not-too-subtle shot at the White House, whose plan dangles tax breaks in front of employers in 2012, then snatches them away in January 2013.

The Boehner speech did warn the Democrats that tax increases are not a viable option. The speaker endorsed a regulatory freeze as well. "I would also urge the president," he advised, to "tell every member of his cabinet: 'Until further notice, I don't want anything that gets in the way of private-sector job creation.'" He said he wants to see passage of the REINS Act, which requires congressional review of costly regulations. There was a vague endorsement of tax reform and lower rates on individuals and corporations. And Mr. Boehner expressed high hopes that the congressional "super committee" will come up with the mandated $1.5 trillion in budget savings. One theme of the speech was that deficit reduction is a "jobs program."

This GOP response to the president's jobs proposal was appropriately tough and critical, but the GOP still is missing a concrete and salable economic revival plan. Those who want the Republicans to go big and go radical will be disappointed. Economically anxious independent voters who want to see a fresh jobs agenda from Republicans will have to keep looking. This was a game plan for playing defense, not offense.” - Stephen Moore writing in The Wall Street Journal Political Diary 09/16/2011

　

And about that Debt Ceiling.....what if it had not been increased?

What then? Then what? Had the debt ceiling increase not occurred, what exactly would have been the outcome?!?

Luckily the Iowahawk has the answers! Here is a sample then follow the link below for the entire list of outcomes:

"New York devolves into a dystopian hellscape of sugared cola moonshiners, salty snackhouses and tobacco dens".


"Chevy Volt rebate checks bounce, stranded owners more than 50 miles from outlet".

"President Obama places tarp over Washington Monument to conceal from Chinese repo men".

Default, Dear Brutus, Is Not In Our Stars, But In Ourselves - Iowahawk

http://iowahawk.typepad.com/iowahawk/2011/07/default-dear-brutus-is-not-in-our-stars-but-in-ourselves.html

Rated BBB?

U.S. enters PIG race -or- S&P Downgrades U.S. debt rating to AA+

The fastest pig in the race is told they are not really, in fact, all that fast. 

Yet the other pigs in the race are simultaneously slowing. Hence the newly proclaimed slower pig, is in fact, relatively speaking, the same fastest pig in the race with merely the pigs to choose from all shrinking in speed.

Hence its not a problem of pig, its a problem of pigs.

Which then leads to the question: does the acronym S&P mean slow and piggy?