The Greeks will get some of your hard earned money

Congratulations, dear American taxpayer. You get to shore up Greek profligacy. Ruminate on this when the austerity measures fail and the welfare-state loving Greeks are back to the streets putting bricks through windows. I've read several news articles on this and not a one mentions that the International Monetary Fund is largely supported by American taxpayers. I wonder why?

Bankruptcy, thy name is Greece

The next time someone tells you that they trust the way government handles finances or they are A-OK with tax hikes because they benefit the common good, tell them about a little country called Greece:

Concerns that Greece and other struggling European nations may not be able to repay their debts are focusing investor attention on another big worry: Economies across the Continent have used complex financial transactions—sometimes in secret—to hide the true size of their debts and deficits.

Investors long turned a blind eye to European governments' aggressive bookkeeping, aimed at meeting the euro zone's fiscal ceilings. Countries using the euro currency have a rich history of exotic maneuvers aimed at meeting rules requiring members to cap debt levels at 60% of their gross domestic product and their annual budget deficits to no more than 3%. Despite criticism, European leaders deemed many of these moves acceptable as they sought the long-planned currency union...

...Portugal classified subsidies to the Lisbon subway and other state enterprises as equity purchases. After learning that, Eurostat made Portugal redo its accounting in 2002. The country revised its 2001 deficit from €2.76 billion, or 2.2% of GDP, to €5.09 billion, or 4.1%—well over the limit.

France arranged a deal with the soon-to-be privatized France Telecom in 1997 under which the company paid the government a lump sum of more than €5 billion. In return, France agreed to assume pension liabilities for France Telecom workers. The billions from France Telecom helped narrow France's budget gap to around €40 billion in 1997; it reported a deficit for that year of 3% of GDP—right on the target, and helping it to join the euro.

Even Germany, Europe's largest economy, tried to reappraise gold reserves for a fast fix in 1997, though it backed off after resistance from the country's central bank.

Wanna bet something like this will happen here?

Cap and Trade debate

I spent several hours watching C-Span yesterday as Senators debated one another regarding the Lieberman-Warner “Cap and Security Act” scheme. One of the constant defenses thrown around by advocates (Senators Boxer, Kerry, Warner, and Lieberman) for this scheme was that a similar cap and trade model worked to perfection in the Northeastern United States during the 1980’s when it came to reducing acid rain.

Of course, what they fail to mention is that part of the program’s success back then was the fortuitous timing of the price of low-sulfur coal: It had started to drop just around the time of the cap and trade enforcement. Many coal fired plants switched over to the cleaner burning coal and therefore found an easy and less expensive way to clean up their act. Secondly, the technology needed to trim sulfur dioxide was available at the time of that cap and trade scheme. The sort of technology that is needed to cut carbon dioxide on such a grand scale as the Lieberman-Warner bill mandates is not yet available. Also, somebody could inform the Senator’s (sadly, John McCain backs this bill) backing this bill that the current cap and trade scheme in place in Europe is not working as planned. Why do we want to adopt a huge bureaucracy that doesn’t work? That means that this bill, if made into law, will be another expensive large government program.

And just like the Farm Bill, get ready to empty your wallets dear taxpayer---Cha-Ching!

The ugly face of inflation.

From The Wall Street Journal (subscription may be required):

“The Federal Reserve is sharply cutting U.S interest rates -- the opposite of the usual response to rising inflation -- to prevent the housing bust and credit crisis from causing a deep, prolonged recession. That's making the global response to inflation more complicated.”

“On Wednesday, the World Bank estimated global food prices have risen 83% over the past three years, threatening recent strides in poverty reduction. The IMF forecast consumer prices in emerging and developing countries will rise 7.4% this year, the most inflation since 2001 though still well below the double-digit levels of the recent past.”

“As crops are sold for alternative-energy production, food prices have soared: The price of rice, the staple for billions of Asians, is up 147% over the past year.”

Comment: In another example of how the global economy is intrinsically tied together, we now have the threat of record high global inflation. Every time the Fed makes a move downward on interest rates, countries that have their currency tied to the dollar get a kick up in inflation. Of course, the two primary forces in all of this are food and energy prices. And I do believe that we are moving into an era where these two drivers are going to have a deleterious effect on the world economy for some time to come. As long as the U.S. continues to subsidize corn for use as ethanol and as long as the global energy infrastructure stays in its current modality, we are going to see slightly higher global inflation for some time. In this sense, I disagree with the articles rosy conclusion that an economic slowdown in the U.S. and Europe will quickly stabilize inflation as has previously occurred in history. The IMF also noted that world economic growth has slowed due to the financial crises in the U.S. The theory of a “decoupled” world economy (from the U.S. particularly) seems to hold little value.

Europe has lower corporate tax rates.

(Click to enlarge)

Is it time to get rid of the corporate tax? I was watching Larry Kudlow on his “Kudlow and Co.” show the other day when he mentioned this. After doing some snooping around, I was surprised to discover that more than a handful of nations in the European Union have cut their corporate income tax rates over the last several years or so. I was surprised by this since as Americans we tend to view European governments as being high tax and state-welfare havens. In the last six years, 16 E.U. nations have cut their corporate tax rates. Even France and Sweden have lowered their corporate rates to business friendly levels. The U.S. has kept its rate at roughly 40 percent (Federal and State combined). Now that our country is facing a severe slowdown in the economy, wouldn’t it be prudent to at least lower our corporate tax rate in order to create an incentive for companies to invest in our country? It seems that we may be at a disadvantage when compared to many European nations that have lower rates. We should not discourage job creation and capital investment at such a critical time. For a study on our corporate tax vs. E.U. corporate tax, see Tax Foundation