No Change

Doesn’t it sometimes seem like we’re caught in some kind of Twilight Zone or Outer Limits episode where nothing ever changes?  Every week or so they’ll be some big story that dominates the news, and when the coverage finally subsides, we realize we’re right back where we were before.

So it is with the Supreme Court health care ruling.  We now know that the Affordable Health Care Act (h/t to Cousin Jeff) has survived, and when we raise our heads and look around, things everywhere are still stuck in neutral.

Guess what?  European leaders are having another meeting to try to figure out how to solve — once and for all! — that sovereign debt crisis that never seems to end.  (Hey, but this time they’re serious!)  The European debt crisis must be the longest-running, most ineptly handled financial crisis in history.  We keep hearing that the crack-up is coming, and it surely is, but European leaders merely respond with another “summit” that produces talk and resolutions and a shrimpy bailout approach that doesn’t do the trick — and in a week or so the process starts all over again.  In the meantime, economies are moribund, and the European unemployment rate rises.  It’s like a kind of torture, wondering when the big, crushing crack-up will come and the European “leaders” can dither no more.

In America, different pieces of economic news roll out every week, and they’re inevitably bad.  Consumer confidence is falling.  The unemployment rate is ticking up.  Home prices are dropping again.  And most recently we learned that the domestic manufacturing sector of the economy, which had been a relatively strong performer, is now contracting.  There don’t seem to be many glimmers on the horizon, or “green shoots” in the American economic soil — just more of that sapping, ever-present bad news.  We’re being conditioned to cringe in anticipation whenever the business news is announced.

Could Rod Serling please appear and bring this episode of unrelenting sameness to an end?

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Europe Is Still There, And Its Problems Are Getting Worse

In America, we have the ability to just ignore the rest of the world now and then.  When the news from abroad is too depressing, we turn it off and focus on more interesting American things instead, like a celebrity scandal or  the new iPhone or a weirdly viral YouTube video.

I think most Americans have tuned out the debt crisis in Europe.  It has been going on forever.  There’s no end in sight.  Lots of different, faraway countries are involved. The Europeans appear to be dealing with it.  So why should we care?  Look, a squirrel!

On Friday Standard & Poor’s cut the credit ratings for the debt issued by nine European countries.  France, Europe’s second-largest economy, lost its AAA status, Italy’s debt is now rated the same as that of Kazakhstan, and Portugal’s debt is down to junk bond status.  Even worse, it looks like Greece won’t be able to reach agreement with its creditors, which would mean that the latest Eurozone effort to address the Greek debt crisis would fail and Greece would be facing default and bankruptcy in March.

In the modern world, the economies of countries are connected in countless ways.  We sell lots of good and services to Europe; if its economies crash, those markets vanish and American businesses will suffer.  American banks, mutual funds, and investors have purchased the sovereign debt of European countries and would experience huge losses in the event of defaults.  And, of course, Europe’s current predicament is just a peek at America’s likely future if we don’t deal promptly with our governmental debt problems.  European countries that are saddled with enormous debt are now at the mercy of ratings agencies, creditors, and faceless bureaucrats at the International Monetary Fund.

So, we can be distracted if we choose — but Europe is still there, and its problems are, too.  They may be our problems soon, if we don’t start paying attention.

Giving Thanks — And Ignoring The Falling Dominoes

We Americans have many reasons to be thankful this year, and one of the reasons is that we aren’t Italy — yet.

I’ve written before about the debt problems in Europe.  Things keep getting worse there.  The dominoes are slowly falling and threatening to knock over larger and larger economies.

The latest country to teeter on the brink is Italy.  Today it offered six-month debt obligations, and had trouble selling them even at an unsustainable 6.5 percent interest rate.   The financial markets obviously feel there is significant risk that Italy will default, and therefore they require an ever-higher interest rate to compensate for that risk.

Why should we care, here in the U.S. of A.?  Because the same thing could happen to us.  At some point, our debt load could pass an as-yet-unknown, magic threshold that makes investors feel insecure.  Once the investors start to demand high interest rates as a result, our problems with balancing the budget get immeasurably worse.

It’s boring and depressing to think about such things.  That’s why President Obama doesn’t focus on our debt problems, and Congress is happy to ignore them, too.  We’re whistling past the graveyard, and in the meantime the spending and debt accumulation continues without any let-up — and the dominoes in Europe keep toppling.

It’s All Greek To Me

Every day brings a new twist to the Greek/Eurozone debt drama.  It’s as confusing and quick-moving as a whirling Greek folk dance.  One day it’s general euphoria because another bailout deal has been struck.  The next day it’s back down in the dumps because the markets question whether the bailout will work.

The most recent outlook change is stunningly abrupt, even when judged against by the roller-coaster turnabouts that have characterized the ongoing European solvency crisis.  The decision by Greece’s prime minister to put the new round of austerity measures up for approval by referendum has shocked other European governments and put the latest deal in peril, causing markets around the world to plummet.

People are afraid that the Greeks won’t approve of the deal because they don’t like the austerity measures that have been imposed on them already.  No kidding!  So far as I can tell, the Greeks have borrowed to the hilt to finance a lavish, benefits-rich lifestyle that has been effectively underwritten by the Germans and the rest of thrifty Europe.  The Greek grasshopper just wants the German ant to save it, again, from the ravages of the approaching winter.

Although I don’t sympathize with the Greeks, who created their own predicament, isn’t the European response to the notion of a referendum a bit . . . awkward?  A plebiscite is in the finest traditions of democratic government, — which was invented in Greece, after all.  Is having a referendum really such a bad idea, when the alternative is to have unpopular austerity measures shoved down the unwilling throats of the Greek people, who are likely to respond with general strikes, work stoppages, and riots that will just make the situation that much worse?   Why not let the Greek people have their say?

Redefining “Improving” (Cont.)

Today we got more economic news that indicates that the economy that we keep hearing is “improving” is, in reality, not doing much along those lines.  The May jobs report showed that the economy added 431,000 jobs last month, but that number is not considered very good news for two reasons.  First, economists were expecting the creation of significantly more jobs; estimates ranged as high as 750,000 new jobs, and the average estimate was well above 500,000 jobs.  Second, the vast majority of the jobs — more than 90 percent — were temporary government jobs related to the 2010 census.  In all, 411,000 of the new jobs were temporary census positions that will end later this summer, and when that happens all of those people will be back on the pavement.

The stock market plummeted on the bad employment news, as well as the unsettling debt news from Hungary.  Anyone who pays much attention to the stock market these days is likely to get whiplash; the market is bouncing like a yo-yo.  I think the reason is that the market is simply reacting to the daily news without much direction from underlying fundamentals.  No one knows whether the recession is really over, whether the European debt crisis will be successfully resolved, or whether wars will break out in the Middle East or on the Korean peninsula.  The uncertainty makes the market lurch up and down as investors try, unsuccessfully, to read the news each day as an indicator of long-term trends.

What is clear is that the economy is not “improving” — at least, not in a way that is very noticeable for the average citizens who care mostly about jobs.  We would all be better served if economists kept their thoughts about the “improving” economy to themselves until we get several months of strong employment news.

Redefining “Improving”

Redefining “Improving” (Cont.)