The house of cards will crash. Call it peak government. The game is up.
If we will not impose discipline on ourselves, the market will do it for us.
– Monty
It amazes me that this far in the recession the only solution they have is to increase taxes. It doesn’t seem like any State of the Union or any of the European nations outside of Iceland and Finland have smaller operating budgets today than in 2007. Just tax, tax, tax and spend your way out.
Governments are choosing to do all they can to perpetuate the status quo – focusing on keeping things together just through the next quarter, through the next election cycle. And it’s clear that their best efforts are meeting with less and less as the situation worsens.
– Macleod
Example #1 – the last paragraph says it all:
Malloy’s strategy is flawed because he enacted the largest tax increase in Connecticut history and the state is still facing a deficit.
Example #2 – In January 2011:
Illinois lawmakers raised income tax rates by 46 percent on businesses and a record 67 percent on individuals. And with this flood of new tax dollars, urgent pressure to pass lasting structural spending reforms deflated. The state is still broke. Not only still broke, but they borrowed more money last year further ballooning state debt.
One of the problems for politicians is GDP. GDP in of itself isn’t bad. But insert a bureaucrat statistician and GDP becomes a numbers game.
Take for instance efficiency. Efficient producers such as the manufacturers and suppliers of electronic goods and services, who reduce their prices over time, see their output diminished as a proportion of the statistical whole, while those that maintain their prices by monopolistic or subsidized means keep and even increase their weightings.
Alasdair Macleod continues and spells it out:
if you try and measure an economy by GDP, all you are measuring at the end of the day is the amount of money in the economy. It is not a measure of economic progress and/or true economic growth.
You have money in the private sector where value is produced and competitive advantages are gained – Keynesians are taking money away from the productive economy and injecting it into something less productive or not productive at all.
The money from the productive area of the economy is the area that needs to progress for the world to move forward from this global malaise.
Not only have politicians completely deceived the public over economic growth, but they deceive themselves. For this reason they are unequipped to deal with the developing crises, which are the result of earlier interventions. They now claim that economic growth, the ultimate source of tax revenue and government solvency is jeopardized by spending cuts. Statistically, this is obviously true, because if you take away government costs and support for unwanted economic activities, GDP will fall. But the important point that is commonly missed is that a government which stops draining an economy of its private sector resources actually releases them to be deployed more effectively for the common benefit by those randomly-acting entrepreneurs.
– Alasdair Macleod
The next economic cycle? The Facebook ipo flop – this was as good as any confirmation that we are entering it. And this one is going to be nasty.
IMF Managing Director Christine Lagarde told Harvard graduates they faced one of the most challenging economic times since the 1930s…pointing out the inability of 75 million young people to find a decent job.
Barron’s has an article up about the Baltic Dry Index no longer being a relevant metric because of too many ships and not enough trade.
I read China defaulted on coal contracts this month.
Spain, France, and Germany just passed new border controls laws. When the EU collapses, people are going to attempt to flee with their money as this email from a family member in Europe illustrates:
Shortly after I arrived, the merchants did not want dollars or to be paid by credit cards issued from American banks (no Visa, no MasterCard etc) and they covered up the slots to swipe American credit cards on their machines and asked for cash or a bank card with a “chipknip” from a euro bank…The banks are undercapitalized, they are being asked to increase their capital requirements. … When we drove across the German border from Switzerland, there were armed border patrols.
Hattip – Brother Bob, TAB, ZeroHedge, Monty