Is Spain the next Domino?

And the dominos keep falling, this time it is Spain. Again, they spend more than is brought in via tax revenue so they need to go to financial companies ("bankers") to buy the bonds to finance a government they can not afford. When the bill comes due the government realizes they need to curb spending and protests break out. A sad script playing out before us and it may not be too long before we see it in the US. The money quote:

On Sunday, protesters insisted that workers and the unemployed would not passively accept spending cuts to help ease a crisis they had no role in causing.

"The banks and the governments that caused this situation must know that we do not agree with the measures and the budget cuts, that we intend to be heard", the "indignants" movement said in its call for nationwide protests.

Greece and Austerity

As the previous post points out, Greece is in trouble. To get out of this trouble (as we talked about in class) they rely on the bonds market. The only way people will finance this spending (by buying their bonds) they need assurances that the spending will get under control. This results in what the media calls "Austerity" movements.

The problem arises when its citizens do not accept the fact that they are basically broke. They need to curb the spending and increase taxes to satisfy the bonds market. It appears as if they are catering to the Wall Street element, but it is really like learning to live within your means. This is the problem going on now in Greece as protests cripple the nation.

Dominos

Deficits are financed by issuing bonds. When the credit rating falls for those bonds, it signals an increased risk of default. This is currently the case in Greece (no nation is rated lower). When those bonds fail, those that hold those bonds suffer. This is one major reason why the nations in Europe are so closely intertwined. Why many of those nations are suffering because of their neighbors (Iceland, Ireland, Greece, UK, etc…). It is why when Spain and/or Portugal get into the same problem that Greece is in the other will feel it. And here is news of private US companies intertwined with Greece. Not good.

Jobs

Bad news in the jobs market. More evidence that this economy is slow to recover with more questions of if this is the new way of things.

Here is a scarry stat:

a stalled job market with a scant 54,000 jobs created in May

Now consider this, it takes about 130,000 to 150,000 jobs per month to replace the retirees.

Fannie and Freddie

Here is a past post to check out. Look up the Fannie and Freddie podcasts from NPR to get an idea of what they are and how they contributed to the housing/financial crisis.

QE3?

Many of the problems Americans face can be dealt with by creating some inflation in our country. Most of our debt is in nominal, not real terms (something we will get into more later). We have the cost of our mortgage exceeding what we can pay (evident by the large default numbers) and we have a national debt too large (in many people's opinion at least). If we had some inflation this would "ease" these problems that households and our nation faces. So how do we get inflation? By a process called "Quantitative Easing" and for the first time it looks like we may do round three of this, thus Quantitative Easing Three (QE3). We will talk more about this later, but it steps outside the typical Federal Reserve actions.

Student Teachers

Local school districts have no money. Voters are turning down propositions for increasing spending. The unions refuse to give enough concessions. The result is squeezing wherever the districts can squeeze. Unfortunatly for those trying to become teachers things just got worst in Medford NJ (where I live). Now the student teachers may have to PAY for the right to student teach.

Global Poverty

Here is a good Op-Ed piece in the NY Times on Financial Aid. One very interesting paragraph, and a nice complement:

When I was in college, I majored in political science. But if I were going through college today, I’d major in economics. It possesses a rigor that other fields in the social sciences don’t — and often greater relevance as well. That’s why economists are shaping national debates about everything from health care to poverty, while political scientists often seem increasingly theoretical and irrelevant.

Hemp for Victory

Via ‘Marginal Revolution’ we get this link for legalizing Hemp. Plenty of interesting information, but what is perhaps the most interesting is that it was made by the US government.

(No you can not cite this as a source on your position paper)

Allocating Cuts in Education

Our government is spending more than the taxes it takes in. This has gone on for a while, and happens on all levels of government (federal, state, and local). Lately the states have done so with the help of the stimulus package a couple of years ago. It just ran out and the states have to figure out how to deal with that problem.

Step one seems to be accepting this fact and taxing more or spending less (the latter in the case of PA). Step two is who to tax or who to cut. This article seems to move from step one into step two of this process for education. In other words, how should the state properly allocate the cuts more efficiently?