MERKEL, HOLLANDE READY TO DO ANYTHING TO PROTECT EURO

Seems the turning point may have been early June when Trichet made a proposal that included the ECB, as previously discussed.

And note, also as previously discussed, it’s all about ‘the euro’ meaning ‘strong currency.’

So a big relief rally with the solvency issue resolved, and then just the reality of a bad economy, and a too strong euro with no politically correct way to contain it, as dollar buying is ideologically all but impossible.

Also, as previously discussed, member govt deficits seem high enough for modest improvement, absent further aggressive austerity measures.

*MERKEL, HOLLANDE READY TO DO ANYTHING TO PROTECT EURO REG
*GERMAN CHANCELLERY COMMENTS IN E-MAILED STATEMENT
*GERMAN CHANCELLERY COMMENTS ON MERKEL-HOLLANDE TELEPHONE CALL

Small Business on Obamacare: No Reason to Hire or Invest

Business hires to service customers and expand when there’s enough aggregate demand to sustain sales at profitable prices. With or without Obamacare.

Small Business on Obamacare: No Reason to Hire or Invest

By Patricia Orsini

June 28 (CNBC) — Small business owners, who have been waiting for the Supreme Court’s decision on Obamacare before hiring and investing, say the ruling raises more questions than it answers.

Euro zone economy

After weak April and May numbers, I’ve been on the lookout for possible hints that euro zone economies may now be flattening.

Austerity tends to drive down demand which also causes deficits to increase to the point where they stabilize GDP.

Therefore, if the euro zone just leaves their fiscal policies alone at some point those automatic fiscal stabilizers work to prevent further declines.

Meanwhile, no euro zone banks have had liquidity cut off by the ECB, and it doesn’t look like any euro zone govt will be missing any payments any time soon, so govt deficit spending will continue to add income and ‘savings’ to their real economies.

French Consumer Confidence Stalls as Hollande Readies Budget

June 26 (Bloomberg) — French consumer confidence stalled as President Francois Hollande prepared tax increases and spending cuts to help reduce the nation’s budget deficit.

Household sentiment was unchanged at 90 in June, national statistics Insee said today in a release from Paris. Economists expected a reading of 89, according to the median of 14 estimates gathered by Bloomberg News.

Broadbent Says Indicators Suggest U.K. GDP Growth May Be Flat

June 26 (Bloomberg) — Bank of England policy maker Ben Broadbent said that indicators suggest the U.K. economy may be broadly flat in the next quarter or two.

“The near-term indicators suggest that, abstracting from the various short-term distortions (the effect of the Golden Jubilee holiday, for example), output is broadly flat in the next quarter or two, as it has been for the past 18 months,” he said in answers to a questionnaire from the U.K. Treasury Committee published today in London.

Germany rebuffs Obama’s advice on euro crisis

Until they all get ‘in paradigm’ the 99% don’t have a chance.

Germany rebuffs Obama’s advice on euro crisis

June 25 (AP) — Germany’s finance minister is rejecting U.S. President Barack Obama’s calls on Europe to move faster in fighting its debt crisis, telling him to get the American deficit under control instead.

Wolfgang Schaeuble told public broadcaster ZDF in an interview late Sunday that “people are always very quick at giving others advice.”
He says: “Mr. Obama should first of all take care of reducing the American deficit, which is higher than in the eurozone.”

EU Leaders Urged to Set Timetable for Action (Again)

Doesn’t seem to me ‘avoiding market turbulence’ is actually of any particular concern in the euro zone:

EU Leaders Urged to Set Timetable for Action (Again)

By Catherine Boyle

June 20 (CNBC) — Ahead of two key European policymaker meetings on the credit crisis Friday, politicians are yet again being urged to set out a clear timetable for action to avoid further market turbulence.

Romney’s fiscal message

And all evidence shows President Obama agrees.

FISCAL RESPONSIBILITY

The mission to restore America begins with getting our fiscal house in order. President Obama has put our nation on an unsustainable course. Spending is out of control. Yearly deficits are massive. And unless we curb Washington’s appetite for spending, the national debt will grow to the size of our entire economy this year.

As President, Mitt Romney will cut federal spending and bring much-needed reforms to entitlement programs. Mitt will work toward balancing the budget, reducing the size and reach of the federal government, and returning power to states and the people.


Policy

Exercise fiscal responsibility to restore economic opportunity.
Washington is addicted to deficit spending. As President, Mitt Romney will cut spending to finally move our nation toward a balanced budget.

During the Bush years, the nation’s deficit—the gap between what Washington collects and spends each year—hovered between 2 percent and 4 percent of GDP. These levels were already problematic and a cause for concern. During the Obama administration, however, the deficit exploded to 10 percent of GDP.

One major problem with sky-high deficit spending is that it necessarily leads to another practice that undermines the nation’s fiscal foundation: borrowing unhealthy sums to pay for what we already cannot afford. America is on an unsustainable path that, within just a few short years, will cripple the economy and foreclose any opportunity for recovery.

Mitt Romney will bring fiscal restraint to Washington by placing a hard cap on federal spending to force our government to live within its means and put an end to deficit spending.

Mitt will also curb federal spending by repealing Obamacare, the federal takeover of health care that is scheduled to cost taxpayers one trillion dollars over the next ten years. He will also focus on eliminating wasteful government spending and right-sizing the federal government to save taxpayer dollars.

Mitt Romney’s goal is to put the federal government on a course toward a balanced budget and true fiscal responsibility.

Reform entitlement programs to keep them solvent and put America on a path to prosperity.
Federal spending on entitlement programs like Medicaid, Medicare, and Social Security has not only spiraled out of control, but has placed their very solvency in danger. Unfortunately, President Obama has failed in his fundamental responsibility to articulate a serious vision and plan for the future of these programs. At present, the total cost of U.S. entitlement programs accounts for more than half of all federal spending. Combined with interest payments on the national debt, so-called “mandatory” spending is over 60 percent of all federal spending.

Many of our fellow citizens have no idea that our growing entitlement spending has created a looming crisis. This is because politicians have a habit of hiding our country’s long-term liabilities. Mitt Romney believes that the federal government should publish a balance sheet each year—just as it requires public companies to do—so that Americans can understand the burden that future entitlement spending will place on our budget and economy. Over the course of his campaign, Mitt will propose the specific steps he will take as President to ensure the long-term solvency of Medicare and Social Security. While reforms are needed, Mitt also believes that these changes should not reduce benefits for current seniors or break the promises they have relied upon for their economic security in retirement.

Mitt knows that our economic future—along with the future of entitlement programs—depends on fundamental reform. If we wisely begin to reform entitlements and commit to live within our means, we can bestow on the next generation an America that is stronger and even more prosperous than the one we know today.

Thanks, Bill…

CLINTON SLAMS OBAMA: ‘I’M THE ONLY GUY WHO GAVE YOU FOUR SURPLUS BUDGETS’

Last night in New York City Obama and Clinton held a joint fundraiser. Bill Clinton had to reminded everyone of the difference between his presidency and Obama’s

“And, I care about the long term debt of the country a lot. Remember me, I’m the only guy that gave you four surplus budgets out of the eight I sent.”

This Republican Economy

Not to mention taking $500 billion out of the medicare budget to give to the insurance companies and then declaring victory on healthcare. And the early statement about needing to first fix the financial sector before the real sector can recover.

And, of course, it would be nice if Professor Krugman would reverse his errant and highly counterproductive contention that the federal deficit presents a long term economic or financial problem per se.

This Republican Economy

By Paul Krugman

June 3 (NYT) — What should be done about the economy? Republicans claim to have the answer: slash spending and cut taxes. What they hope voters won’t notice is that that’s precisely the policy we’ve been following the past couple of years. Never mind the Democrat in the White House; for all practical purposes, this is already the economic policy of Republican dreams.

So the Republican electoral strategy is, in effect, a gigantic con game: it depends on convincing voters that the bad economy is the result of big-spending policies that President Obama hasn’t followed (in large part because the G.O.P. wouldn’t let him), and that our woes can be cured by pursuing more of the same policies that have already failed.

For some reason, however, neither the press nor Mr. Obama’s political team has done a very good job of exposing the con.

What do I mean by saying that this is already a Republican economy? Look first at total government spending — federal, state and local. Adjusted for population growth and inflation, such spending has recently been falling at a rate not seen since the demobilization that followed the Korean War.

How is that possible? Isn’t Mr. Obama a big spender? Actually, no; there was a brief burst of spending in late 2009 and early 2010 as the stimulus kicked in, but that boost is long behind us. Since then it has been all downhill. Cash-strapped state and local governments have laid off teachers, firefighters and police officers; meanwhile, unemployment benefits have been trailing off even though unemployment remains extremely high.

Over all, the picture for America in 2012 bears a stunning resemblance to the great mistake of 1937, when F.D.R. prematurely slashed spending, sending the U.S. economy — which had actually been recovering fairly fast until that point — into the second leg of the Great Depression. In F.D.R.’s case, however, this was an unforced error, since he had a solidly Democratic Congress. In President Obama’s case, much though not all of the responsibility for the policy wrong turn lies with a completely obstructionist Republican majority in the House.

That same obstructionist House majority effectively blackmailed the president into continuing all the Bush tax cuts for the wealthy, so that federal taxes as a share of G.D.P. are near historic lows — much lower, in particular, than at any point during Ronald Reagan’s presidency.

As I said, for all practical purposes this is already a Republican economy.

As an aside, I think it’s worth pointing out that although the economy’s performance has been disappointing, to say the least, none of the disasters Republicans predicted have come to pass. Remember all those assertions that budget deficits would lead to soaring interest rates? Well, U.S. borrowing costs have just hit a record low. And remember those dire warnings about inflation and the “debasement” of the dollar? Well, inflation remains low, and the dollar has been stronger than it was in the Bush years.

Put it this way: Republicans have been warning that we were about to turn into Greece because President Obama was doing too much to boost the economy; Keynesian economists like myself warned that we were, on the contrary, at risk of turning into Japan because he was doing too little. And Japanification it is, except with a level of misery the Japanese never had to endure.

So why don’t voters know any of this?

Part of the answer is that far too much economic reporting is still of the he-said, she-said variety, with dueling quotes from hired guns on either side. But it’s also true that the Obama team has consistently failed to highlight Republican obstruction, perhaps out of a fear of seeming weak. Instead, the president’s advisers keep turning to happy talk, seizing on a few months’ good economic news as proof that their policies are working — and then ending up looking foolish when the numbers turn down again. Remarkably, they’ve made this mistake three times in a row: in 2010, 2011 and now once again.

At this point, however, Mr. Obama and his political team don’t seem to have much choice. They can point with pride to some big economic achievements, above all the successful rescue of the auto industry, which is responsible for a large part of whatever job growth we are managing to get. But they’re not going to be able to sell a narrative of overall economic success. Their best bet, surely, is to do a Harry Truman, to run against the “do-nothing” Republican Congress that has, in reality, blocked proposals — for tax cuts as well as more spending — that would have made 2012 a much better year than it’s turning out to be.

For that, in the end, is the best argument against Republicans’ claims that they can fix the economy. The fact is that we have already seen the Republican economic future — and it doesn’t work.

How to fix the euro banking system

The banks need, and I propose, ECB deposit insurance for all euro zone banks.

Currently the member governments insure their own member bank deposits and do the regulation and supervision.

So to get from here to there politically they need to turn over banking supervision to the ECB.

Let me suggest that’s a change pretty much no one would notice or care about from a practical/operational point of view?

The political problem would come from losses from existing portfolios that, in the case of a bank failure due to losses in excess of equity capital, currently would be charged to the appropriate member nations.

So under my proposal, for the ECB to suffer actual losses a member bank that it supervises and regulates would have to suffer losses in excess of its capital.

And none of the member governments currently think that their banks have negative capital, especially if they assume member governments don’t default on their debt to the banks.

And this ‘fix’ for the banking system would help insure the member governments don’t default on their obligations to their banks.

The euro zone has three financial issues at this point. One is bank liquidity which this proposal fixes. Second is national government solvency, and third is the output gap.

They need to allow larger government deficits to narrow the output gap, but that first requires fixing the solvency issue.

The solvency issue can be addressed by having the ECB guarantee all of the member government debt, which then raises the moral hazard issue.

The moral hazard issue can be addressed by giving the EU the option of not having the ECB insure new government debt and forbidding its banks to buy new government debt as a penalty for violators of the debt and deficit limits of the Stability and Growth Pact.

Video from Venice presentation

Venice video link here.

Also, Trichet Friday, the German elections, and G8 reports seem to be setting the tone for the euro zone to do something about the solvency issue. This is very good for equities and the rest of the credit stack.

At the same time it does not seem likely that any growth proposals will include fiscal relaxation, so the euro zone will have to get by the best it can with the deficits it has, which I’d guess should mean flat GDP, +/- 1% or so.

The US should also continue to muddle through with modest top line growth, and inflation low enough and the output gap wide enough to keep this Fed from hiking any time soon.