Socio-Economics History Blog

Socio-Economics & History Commentary

California’s Day of Reckoning is a Warning For Europe

  • The ongoing collapse of California is fascinating to observe but for the real human suffering. Families are getting evicted. Tent cities are rising. Unemployment at an all time high and commercial real estate about to go belly up. What is happening in California will no doubt be replicated across many countries in Europe. The Time UK reports:
    The Golden State is almost bust, but its inhabitants, even if they believe it, do not want to know and they certainly do not want to pay for it. The state has been running huge budget deficits for years; the till in Sacramento, the state capital, is now empty and the last-ditch attempt by Arnold Schwarzenegger, the Governor, to balance the books with a series of tax increases and budgetary shuffles was roundly rejected by voters in referendums a week ago.
    With a $21 billion (£13 billion) deficit and the lowest credit rating of any American state, the choices are few and grim. California cannot hope to borrow such large sums, except at extortionate rates, which leaves the option of massive cuts in public spending – the sacking of thousands of teachers.
    California could run out of cash in a few months. Mr Schwarzenegger has already warned that 5,000 state employees face being fired. The state education budget is in line for a $5 billion cut, alongside the end of funding for parks and the closure of at least one state agency.
    Politicians in Europe will be watching the Californian car crash with fascination and horror. The sight of the world’s favourite American state lurching towards financial Armageddon is not unlike watching an episode of the American television drama Desperate Housewives. You laugh at the outrageous behaviour of the characters, believing that your neighbours could never behave in such an appalling way, until, on reflection, you wonder . . . On Europe’s eastern fringe, there is Hungary, a financial basket-case, its banking system crippled by a private borrowing binge in Swiss francs. Hungary is already supported by the IMF and the European Union has resisted calls for a regional financial rescue package for the former communist states, but even within the eurozone, the financial stress is mounting in Greece, the Irish Republic, Italy and Spain.
    Were a eurozone government to find itself at risk of being unable to pay interest on its sovereign debt, there is no question that fellow member states would have to provide financial support to prevent default. The alternative would be for that state to abandon the euro, float its own currency and allow its economy to implode in what could be rapid devaluation and, ultimately, bankruptcy.
    It is the Argentine scenario, scary stuff, but if America is looking at a financial rescue package for California, the EU must begin to contemplate similar tailspin scenarios for its more precarious member states. Sterling and the gilt market suffered a rude shock last week when Standard & Poor’s, the credit rating agency, gave warning that Britain could lose its AAA rating if government debt rose to a level equal to the country’s gross domestic product.


May 27, 2009 Posted by | Economics | , , , , , , | Comments Off on California’s Day of Reckoning is a Warning For Europe

China Warns Federal Reserve Over ‘Printing Money’

  • The Chinese are caught in a USD trap and they know it. The size of it: US$2T, means it is unlikely they can exit the USD without causing damage to themselves. Their fear and concerns are now palpable. The Telegraph UK reports :
    China has warned a top member of the US Federal Reserve that it is increasingly disturbed by the Fed’s direct purchase of US Treasury bonds.
    Richard Fisher, president of the Dallas Federal Reserve Bank, said: “Senior officials of the Chinese government grilled me about whether or not we are going to monetise the actions of our legislature.”
    “I must have been asked about that a hundred times in China. I was asked at every single meeting about our purchases of Treasuries. That seemed to be the principal preoccupation of those that were invested with their surpluses mostly in the United States,” he told the Wall Street Journal.
    The Oxford-educated Mr Fisher, an outspoken free-marketer and believer in the Schumpeterian process of “creative destruction”, has been running a fervent campaign to alert Americans to the “very big hole” in unfunded pension and health-care liabilities built up by a careless political class over the years.
    “We at the Dallas Fed believe the total is over $99 trillion,” he said in February. “This situation is of your own creation. When you berate your representatives or senators or presidents for the mess we are in, you are really berating yourself. You elect them,” he said.
    His warning comes amid growing fears that America could lose its AAA sovereign rating.


May 27, 2009 Posted by | Economics | , , , , , , | Comments Off on China Warns Federal Reserve Over ‘Printing Money’

Alex Jones on Israeli Lobby And The Zionist

May 27, 2009 Posted by | GeoPolitics | , | 14 Comments