2/6/12 Daily Grind: Why a Greek default poses a significant risk

Why a Greek default poses systemic risk

By Bill Wilson

How is it that a hard Greek default — a tiny country that comprises less than two percent of Europe's Gross Domestic Product — poses such a systemic risk to the European and, indeed, the global financial system?

The American Enterprise Institute's Alex Pollock has the answer, citing a little-understood danger created by the weakening of capital requirements after the financial crisis by the Bank of International Settlements based in Basel, Switzerland.  The problem, Pollock writes, is "banks investing in European government debt would for such investments have zero required capital."

Banks are normally required to hold capital against assets based on their risk.  Pollock notes a zero-based capital requirement for sovereign debt "can only make sense if owning this debt has no risk whatsoever."

Of course, it is not risk-free, so it makes no sense.  A Greek default in particular has become increasingly likely in recent days as parliamentary leaders in the Hellenic nation are rejecting demands to cede national fiscal sovereignty to the European Commission, International Monetary Fund (IMF), and the European Central Bank (ECB), known as the Troika.

Without an agreement to meet the Troika's budget targets, Greece cannot receive what remains of its original €110 billion bailout refinance loans, nor an additional €130 billion pledged in October.  Just €14.5 billion of debt is coming due on Mar. 20, but a hard default has wider implications.

Of Greece's €340 billion debt, the ECB holds €55 billion in Greek bonds, plus another tens of billions more worth it accepted as collateral when it made other loans.  The IMF has lent €23 billion to Greece.  The European Financial Stability Facility (EFSF) has also lent €53 billion.

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Week Ahead: Saving Money On Unemployment

Video by Frank McCaffrey

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OSHA app tells outdoor workers it's too hot, and too expensive

By Rebecca DiFede

Have you ever been standing outside in your garden and wondered if it was hot out?

If you are confused by that statement, congratulations! You're not a cyborg.

However the Department of Labor's (DOL) Occupational Safety and Health Administration (OSHA) has made an app that is apparently made for robots who are unable to feel temperature, and as such must be told that it is hot (or cold) out by another machine.

This app, for Android, Blackberry and iPhone markets, legitimately takes your location, reports the temperature, and then gives a rating. For example, 80 degrees Fahrenheit registers as having a high heat index, also known as "it's hot".

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Agenda-driven "science" at EPA

By Willie Soon and Paul Driessen

In December 2011, the Environmental Protection Agency released new Clean Air Act "National Emission Standards for Hazardous Air Pollutants." Once again, EPA Administrator Lisa Jackson touted the supposedly huge benefits of controlling emissions of mercury (Hg) and other air toxics from U.S. coal- and oil-fired power plants (or electric generating units, EGUs).

The people of Idaho may welcome this new rule, since the EPA's miraculous modeling machine has promised to prevent "six premature deaths" and create "up to $54 million" in health benefits by 2016 — even though not one coal-fired EGU in Idaho fits the EPA's final rules. Even the District of Columbia, which has only one oil-fired unit, will somehow, magically realize "up to $120 million" in health benefits, presumably from new restrictions on coal-fired units in Maryland or Virginia.

The average U.S. citizen, however, can be excused for no longer being willing to be penalized by EPA — the Extreme Punishment Authority — for such minimal, imaginary and manufactured benefits.

In fact, the final rule may be the most expensive one ever devised by EPA. And yet, even EPA admits, the alleged "hazards to public health" from mercury and non-mercury emissions from American EGUs are "anticipated to remain after imposition" of the new regulations.

Get full story here.

2/3/12 Daily Grind: Is Mitt Romney out of touch?

Is Mitt Romney out of touch?

By Bill Wilson

Within hours of his big win in Florida, former Massachusetts Gov. Mitt Romney again raised questions about whether he is in touch with the American people, telling reporters, "I'm not concerned about the very poor. We have a safety net there. If it needs repair, I'll fix it."

Really?

The nation has 13 million unemployed, another 4 million who have given up on looking for work, and another 10 million who can't find full time work.  As a matter of fact, millions of Americans are becoming poor, but Romney's not concerned because there's a "safety net"?

The welfare state will not even pay for a basic mortgage, as evidenced by the millions of Americans still facing foreclosure.  But even if it could somehow ever be adequate or repaired, is that really what helps people get ahead? Which is better: welfare or the dignity of a real job?

At this stage in American history, of course, Americans need jobs, not welfare. 

But let's leave that aside.  Giving Romney the benefit of the doubt, presidential candidates meet with thousands of reporters, and are bound to make some gaffes.  It's to be expected.  Just ask Barack Obama, who was visiting 57 states on the 2008 campaign trail.

What is perhaps more important is how Romney dealt with his gaffe.

Did he talk about what it would take to create millions of jobs here? No.  At the first sign of trouble on sensitive economic issues, Romney renewed his support for automatic hikes in the minimum wage indexed to inflation, something that has never been attempted before at the federal level. 

That means Romney's first instinct was to run to the left and to pander, in this case dangling higher wages for jobs that no longer exist in this country.

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Obama/Biden Fundraising...Show Them The Money!

Video by Frank McCaffrey

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The horrors of campaign finance

By Adam Bitely

You can set your watch by the media stories that always come out in each election bemoaning the amount of money that is spent by campaigns. It's always the same, no matter the changes in laws that seem to happen rather routinely. There is always too much money being spent and serious reforms to limit that money would make elections more palatable, the media elites claim.

But is this so? Is there really too much money being spent to win elected office?

Consider the election for the presidency. If one becomes President, they immediately are perceived to be the most powerful man in the world. The winner becomes the Commander-in-Chief of the U.S. armed forces and can deploy the military wherever they please — whether or not that is spelled out in the Constitution is another debate — but nonetheless, the winner controls the world's most powerful military force. The winner also gets to veto any legislation they want from Congress and has the potential to change the landscape of the Supreme Court. And you also get to live in the White House.

All of the above and many more powers and perks can be yours for a price of about $1 billion and enough support from the electorate. And the $1 billion comes from donors, not all of it is from your own bank account!

If you ask me, that seems like a remarkable deal!

Consider what companies spend to run a successful marketing campaign. When McDonald's launches a new product, they spend hundreds of millions of dollars just to get people in the store to purchase the latest McSandwich. When Microsoft rolls out their latest products, they spend hundreds of millions of dollars to make sure you upgrade your computer. And who even knows the price tag for running a successful marketing campaign for Coca-Cola.

But when it comes to becoming the most powerful man in the world, we are supposed to believe that money should not be a factor in attaining the power of the presidency?

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ALG Editor's Note: In the following featured commentary from Zerohedge.com, the Congressional Budget Office's analyses may be influenced by special interests pushing their own agenda:

Is The CBO Merely Another Manipulated Front For Wall Street To Dictate Washington Policy?

In the past, when discussing the goalseeking C-grade excel jockeys at the Congressional Budget Office (or CBO), we have not been technically full of reverence. After all when one uses a phrase such as this one: "What do the NAR, Consumer Confidence and CBO forecasts have in common?" If you said, "they are all completely worthless" you are absolutely correct", it may be too late to worry about burned bridges. We do have our reasons: as we pointed out last year, following the whole US downgrade fiasco when the Treasury highlighted the CBO's sterling work in presenting a US future so bright, Timmy "TurboTax" G had to wear shades, we said "according to the same CBO back in 2001, net US indebtedness in 2011 would be negative $2.436 trillion, the ratio of debt held by the public to GDP would be 4.8%, total budget surplus would be $889 billion, and GDP would be $16.9 trillion." As we know now they were off only by a modest $17.5 trillion on that debt forecast. Yet we never attributed to malice and bias and outright corruption, what simple stupidity and gross incompetence could easily explain. Until today that is, when following a WSJ article, we are left wondering just how deep does the CBO stench truly go and whether its employees are far more corrupt than merely stupid?

As a reminder, the CBO is "a nonpartisan arm of Congress—employs analysts and economists who are charged with trying to estimate the potential financial impact of proposed policies and legislation." So far so good - they also happen to be beyond worthless at their job, and if they were in the private sector they would be fired with extreme prejudice. Of course, they are government workers, so anything goes. Which is where the problem arises: because while as the WSJ says, the CBO should be impartial, it turns out it is anything but:

"Republican staffers on three Senate committees are pressing a congressional office that scrutinizes federal budget issues and proposed legislation over how its assessments are compiled. The inquiries of the Congressional Budget Office, which haven't been made public, concern the CBO's analyses of some of Washington's most complex and controversial measures, including bills on financial regulation, health care, small-business lending and efforts to aid the housing market, said people familiar with the matter.

"As part of the inquiries, some Republican committee staffers are examining whether CBO officials adequately monitored and disclosed the role of Wall Street banks, academic researchers with government ties and other outside advisers, the people said. They are pushing for greater transparency in the CBO's dealings with advisers, to shed light on the role of outside interests in shaping the office's views, the people said."

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2/2/12 Daily Grind: Reports of capitalism's death are greatly exaggerated

Reports Of Capitalism's Death Are Greatly Exaggerated

By Howard Rich

As originally published at Investor's Business Daily.

Klaus Schwab, a German academic and founder of the World Economic Forum, recently proclaimed the death of capitalism as we know it — a curious critique coming from the head of an organization whose motto finds "entrepreneurship is in the global public interest."

"Capitalism, in its current form, no longer fits the world around us," Schwab declared at the most recent installment of his globalist gathering in Davois, Switzerland, adding that the world's business and political leaders "have failed to learn the lessons from the financial crisis."

The latter half of this observation is indisputable. The doctrine of chasing good money after bad has reached dangerous dimensions on both sides of the Atlantic — yet leaders continue to plow ahead with new deficit spending and fresh bailouts regardless.

But is refusing to acknowledge the increasingly-costly failure of this ever-escalating interventionism really an indictment of capitalism? It would be easy to condemn Schwab for conducting a botched autopsy on the capitalist economic model, but what he's really done is more intellectually dishonest — he has misidentified the "victim."

Capitalism is far from dead. As proof we need only examine the ongoing rise of the global black market — which employed 1.8 billion people (half of the world's work force) and did $10 trillion worth of business in 2009.  Within a decade, this "shadow economy" will employ two-thirds of the global work force and represent the largest economy on the planet.

More conventionally we ought to consider China — which has embraced free market reforms and seen its economy expand 16-fold over the last 30 years. In the last two decades this rising tide has lifted an estimated 440 million Chinese out of poverty.

Get full story here.

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Default better than death of democracy

By Bill Wilson

Reflecting Europe is nowhere near agreement on how to "rescue" Greece — let alone prop up Italy and Spain — German Chancellor Angela Merkel again delayed finalizing any deal on Jan. 30, telling reporters, "We won't have a thorough discussion of Greece because the troika is in Greece and we don't have a result of the talks with the banks."

Greece cannot receive what remains of the original €110 billion bailout refinance loans, nor an additional €130 billion pledged in October, unless an agreement is reached with both Greece and private banks that lent the money to begin with.  With €14.5 billion of debt coming due on Mar. 20, time is running out to resolve these issues.

At issue is Greek control over its fiscal sovereignty, and whether private investors will be forced to accept losses as much as 70 percent while governmental institutions such as the European Central Bank (ECB), the International Monetary Fund (IMF), and other sovereigns that purchased Greek debt bear no losses.

Germany has demanded quite explicitly a "transfer of national budgetary sovereignty" to a "budget coordinator" appointed by European authorities to administer Greece's budget that will "veto decisions not in line with the budgetary targets set by the Troika," referring to the tripartite organizations administering the bailouts: the European Commission, the ECB, and the IMF.

Greece has, to its credit, rejected these demands. A government source told AFP, "It is out of the question that we would accept it, these are matters of national sovereignty."

Another told Athens News Agency, "We can never accept this. A similar proposal was made in the past by a Dutch minister. We do not even discuss about it."

So, Greece is not willing to cede sovereignty to the Troika, even if it means a certain default.  Thus far, it is true: Greece has not met the targets it agreed to as a condition to receive bailout funds.  It has not reduced its budget deficit at all.  Instead it grew from €16.6 billion to €19.1 billion.

But that makes a good case for default, for debt restructuring across the board, for significantly reforming Greece's socialist system, and even for leaving the Euro system altogether.  It does not make the case for the end of Greece.

Get full story here.

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A very bad week for Big Labor

By Rick Manning

On Feb. 1, Indiana became the twenty third state in the nation to pass a right to work law, and the first in the formerly heavily unionized rust belt to do so.

After signing the legislation, Indiana Governor Mitch Daniels released a statement saying, "The only change will be a positive one."

"Indiana will improve still further its recently earned reputation as one of America's best places to do business, and we will see more jobs and opportunity for our young people and for all those looking for a better life."

The state of Indiana's decision to allow workers to choose whether to join a labor union is likely to put competitive pressure on neighboring states like Michigan and Ohio to follow suit.

Bill Wilson, President of Americans for Limited Government, called Indiana's achievement, "a milestone that in ten years we will look back upon as the dam breaking in a tidal wave against forced unionization."

The other bad news for Big Labor is the Commonwealth of Virginia's state legislature's passage of legislation to end Project Labor Agreements (PLAs) on Jan. 31. 

PLAs require that a government only award contracts to unionized firms.  It is estimated that PLAs add between 17-20 percent to the costs of construction projects due to higher labor costs. 

If, as expected, the legislation is signed by Virginia Governor Bob McDonald, it will effectively open up competition for government contracts saving Virginia taxpayers millions of dollars.

Get full story here.

2/1/12 Daily Grind: The politics of who pays taxes

The politics of who pays taxes

By Robert Romano

Why does Barack Obama play the politics of division on the income tax question? At the State of the Union Address Obama was at it again, quick to point out that "Warren Buffett pays a lower tax rate than his secretary."

It's not that hard to understand once one looks at the numbers.  It's less about who pays taxes, or how much they pay, than it is about who doesn't.  Most voting-age Americans do not pay income taxes — approximately 50.6 percent.

That includes 53.91 million Americans who pay nothing in income taxes, and 64.7 million who get refunds in excess of what was owed.  That's 118.61 million out of 234.6 million Americans 18 years and older, based on data compiled by the Joint Committee on Taxation and the U.S. Census Bureau.

As a subset, the non-income taxpayers include 35.1 million who do pay payroll taxes but do not make enough or have enough deductions and credits that they do not have an income tax liability, based on data compiled by the Bureau of Labor Statistics showing 148.8 million Americans who have jobs full-time and part-time.

That leaves 116 million Americans who do pay income taxes, 49.4 percent of the voting-age population.

Further weighing the argument in his favor, when Obama talks about raising taxes on the upper-income brackets, he's talking about just 3.9 million Americans who make $200,000 or more in Gross Adjusted Income according to the Internal Revenue Service.  When he invokes the Buffett Rule, proposing raising capital gains taxes for those who earn more than $1 million, he's only talking about 450,000 Americans.

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New Gov't Statistics Are Generous And Still Bad For Obama

Video by Frank McCaffrey

 

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Obama's Oceans and Lakes Power Play

By Rebekah Rast

In response to President Obama's Executive Order "Stewardship of the Ocean, Our Coasts, and the Great Lakes," which he put into order on July 19, 2010, Environmental Protection Agency (EPA) Administrator Lisa Jackson said:

"Protecting our oceans, coasts and Great Lakes is critical to the health of our communities, vibrancy of our economy and overall security of our nation.  The new National Policy provides a clear road map for all federal agencies to work together, with local partners, to protect our vital waters for future generations." (Emphasis added.)

Clear is not the word to use to describe the president's new ocean policy.  Unless, of course, you are referring to the cliché phrase, "clear as mud." 

The White House claims this Executive Order "strengthens ocean governance and coordination, establishes guiding principles for ocean management, and adopts a flexible framework for effective coastal and marine spatial planning to address conservation, economic activity, user conflict, and sustainable use of the ocean, our coasts and the Great Lakes."

But the truth is this is nothing more than an absurd power grab by the Obama administration.  To control the country's lakes, oceans and coastlands by issuing strict usage regulations and restrictions will only hurt such livelihoods as farming, fishing and logging.  And because the president issued it by Executive Order, there is nothing Congress or anyone else can do about it.

Why did the president need to exercise the use of an Executive Order in this case? In 2007, a similar bill was proposed in Congress, which at that time was controlled by Democrats in both chambers, called OCEANS-21.  It would have established a comprehensive National Oceans Policy, very similar to what the president is working on today.  The bill never became law.  Realizing the opposition he would face today if he asked for similar legislation, he decided an Executive Order was the best way to get his way.

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Senate should block all nominations until fake 'recess' appointments resign

By Rebecca DiFede

Why does the Senate put up with so much abuse?

On Jan. 4, much to the surprise of Congress, President Obama made four supposed "recess" appointments — three to the National Labor Relations Board (NLRB) and one to the Consumer Financial Protection Board (CFPB) — without confirmation by the Senate.

The Constitution specifically states that in order for the president to make a recess appointment, the Senate must actually be in recess and therefore unable to accept nominations. At such a time it is the president's duty to fill any vacancies during the Senate's absence with recess appointments.

However, as it turns out, the Senate was not in recess. There were still plenty of officers left to take nominations, and since three of the appointees hadn't even completed the mandatory Senate questionnaire prior to their appointment, the entire process was entirely illegal on the part of the president.

The wording in the Constitution is quite clear about the rules for Houses going into "recess" and the corresponding "recess" appointments. President Obama's blatant disregard for this "advice and consent" clause sets a dangerous precedent for his possible second term.

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Letter: Obama "Recess" appointments Unwarranted, Unnecessary and Unconstitutional

RE: On January 4, President Obama purported to appoint three individuals to be members of the National Labor Relations Board (NLRB) (two of whom were only nominated two weeks before and had not even completed the necessary questionnaire required by Senate) and one person to head the Consumer Financial Protection Bureau (CFPB). All of these positions require confirmation by the U.S. Senate.

ISSUE-IN-BRIEF:  The Constitution allows the President to make "recess Appointments—bypassing the Senate under only one circumstance: "The President shall have power to fill up all vacancies that may happen during the recess of the Senate." But the Senate did not adjourn its session and still had officers to receive nominations from the President. Again, the Constitution is very clear on this point: "Neither House, during the Session of Congress, shall, without the Consent of the other, adjourn for more than three days." In December the House did not consent to the Senate taking a recess.

There are three objections to what are basically illegal appointments by President Obama:

1. The Senate was not in "recess" as required by the Constitution and therefore the President lacked the authority to make "recess" appointments. The President cannot require Congress to act on his priorities—the Constitution established the principle of separation of powers as an important check and balance on the federal government.

1. This contempt for the Constitution by the President demonstrates a pattern of disregard for the Constitutional responsibility that accompanies the oath of office. Earlier in his administration the President decided he would not defend the Defense of Marriage Act—even though it was passed by bi-partisan majorities and signed by President Clinton in 1996. The endless use of appointing "Czars" to direct cabinet departments and thusly also circumventing the Senate confirmation process has been questioned by members of both political parties.

1. If President Obama would disregard the Constitution's "advise and consent" clause as he sees fit prior to an election—imagine what he would do if he happened to be re-elected and would not face the voters again. By making these illegal "recess" appointments the President is saying he can appointment any person, at any time, to any position he chooses without the advice & consent of the Senate.

Get full story here.

1/30/12 Daily Grind: The reason for Apple's big foreign slice

Jan. 30, 2012

The reasons for Apple's big foreign slice

Once a country bustling with assembly lines and jobs aplenty, the climate here has changed and companies are finding better relationships across borders and taking their business elsewhere. 

Video: Gingrich and Other Candidates on Housing and Members of Congress on Obama on The Week Ahead

Host Frank McCaffrey and ALG's Robert Romano review where Republican Presidential candidates stand on Fannie Mae and Freddie Mac.

Tricking the elderly…not just for used car salesmen anymore

SEIU pushes new Dept. of Labor rule to attempt to take money away from the care recipients and put it into the eager hands of their "companions".

Economy slowed down in 2011, debt close to topping economy

While the economy dithers, the national debt is growing at about 10 percent annually.