This week I found interesting relationships between seemingly unrelated events.
- As Senator Bunning tried to make his case that now is the time to start cleaning up the debt crisis, he was pilloried by Republicans, Democrats, and the press for being heartless to the unemployed. It was during these discussions I came to the conclusion that unemployment insurance is more like triage rather than part of a larger solution for unemployment. The question of whether to extend unemployment insurance seems to be most closely related to the prevailing political winds at the time. At this time the political winds are to extend unemployment. Several people showed that the unemployment figures remain mostly unchanged at the beginning and at the end of the unemployment insurance extensions. So the plan is we spend a lot of money to kick the can down the road.
- Greece passed an austerity budget and there were strikes and rioting, Clashes in Athens as Greek PM seeks EU debt help (AP). By the end of the week it looked like the Greek population is finally coming to grips with the reality that budget cuts are inevitable.
- I ran across an intriguing slide presentation, “The Nightmare Scenario: How The U.S. Government Would Look Under An Austerity Budget”, on The Business Insider. This presentation uses the Irish austerity measures as the template.
- There was a referendum in Iceland to repay Britain and the Netherlands for a failed Icelandic bank, Icelanders balk at Icesave deal, 93.3% vote ‘no’ (AFP). It appears that Icelandic population do not feel obligated to pay for the mistakes of others.
- Barney frank threw a scare into the mortgage backed securities markets when he casually “noted that debt issued by the two mortgage finance companies is different from bonds issued by the Treasury Department” . This evidently caused a panic among investors. On Friday the Treasury Department was forced to reiterate their financial support for Fannie Mae and Freddie Mac.
- Finally we see that Rick Perry Wins Heated Texas GOP Primary. Populism is alive and well in Texas as he said , "From Driftwood, Texas, to Washington, D.C. we are sending you a message tonight: Stop messing with Texas!".
- Although I doubt the Democrats will not agree, the Instapundit is wondering if our economy has gone beyond the triage stage, HAS OBAMA DONE IRREVERSIBLE DAMAGE YET? Neo-Neocon says “yes.” I’d say it depends .
Although I doubt the United States will install an austerity budget as severe as Ireland, I think it is inevitable that some states and cities will balance their budgets with “Irish”-like budget cuts. Extreme situations will require extreme solutions. Eventually a federal austerity budget will become inevitable because entitlement cuts are intractable political issues. As shown in California neither party was willing to cut the budget until they are forced to do something embarrassing like issuing IOUs. I think that the wise men and women in Washington will try and put a muzzle on Barney Frank to avoid an Icelandic-type public opinion blow up the mortgage market before it has a chance of recovering.