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CANNES, FRANCE - NOVEMBER 03: US President Barack Obama is welcomed by the French President Nicolas Sarkozy to the G20 Summit on November 3, 2011 in Cannes, France. World's top economic leaders are attending the G20 summit in Cannes on November 3rd and 4th, and are expected to debate current issues surrounding the global financial system in the hope of fending off a global recession and finding an answer to the Eurozone crisis. (Photo by Dan Kitwood/Getty Images)
Aren't you glad we don't have Greece to worry about anymore? After two years of crisis, the Greek economy is in full meltdown mode and the country's political system is falling apart. It has no hope of paying back its debt. The only question now is whether it will remain the Euro currency union, or whether default and bankruptcy will mean a return to drachma.
We now turn our attention to Italy, number three in economic size, behind German and France. There's enough money sloshing around the euro currency union to deal with Greece and similar small economies, but if Italy can't refinance its 1.9 trillion euros of debt, a bailout isn't currently a realistic option.
Unless maybe the Chinese pitch in. China has more than $3 trillion in foreign currency reserves, which it could pump into Europe. The question is what this would ultimately cost Europe, in terms of various trade-offs (pun intended), not to mention what it would cost China itself. This is Yu Yongding, former member of China’s central bank monetary policy committee, writing recently in the Financial Times:
Many students who graduate from 4-year universities have student loan debt
President Obama, to his credit, is doing what he can to address problems in two of the three big debt markets in the U.S. He's rolled out a plan to enable borrowers who are underwater on their mortgages to refinance, taking advantage of historically low interest rates. And now he's turned his attention to student loan debt, which has ballooned in recent years as the cost of higher education has risen beyond the rate of inflation.
That leaves credit card debt and to a lesser extent auto loan debt. We're unlikely to see anything on that front, however, because the government doesn't backstop that kind of lending.
The student loan initiative is being driven by the crappy economy. Students have borrowed very large sums to fund their educations, but in many cases they can't get jobs in the face of 9 percent national unemployment. If they can find work, the pay isn't enough to service the debt. And overall student loan debt is now massive, at more than a trillion bucks.
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Did little Slovakia just exercise its muscle and kill the Euro bailout package?
The Slovaks have spoken! A nation with a population roughly the size the San Francisco area and a GDP of $86 billion has failed to ratify the eurozone's plan for it to contribute $10 billion — about 12 percent of that GDP — to the currency union's bailout plans. This is the latest chapter in a debt-crisis melodrama that's forcing Greece into default and threatening Italy, Spain, and the banks of German, France, and possibly the United States.
Slovakia was the only eurozone country that voted nay. This is from the New York Times:
If nothing else, the unwieldy process underscored how the entire $590 billion euro stability fund, approved by the 16 other members of the euro currency zone, could be held hostage to the domestic politics of one tiny country, in this case Slovakia. It showed as well how a measure intended to increase confidence in the euro zone could instead emerge as a telling example of the shortcomings of a system that relies on an unwieldy group of nations to make and execute difficult decisions.
"Moneyball" author Michael Lewis looks at California's finances and runs screaming.
Michael Lewis, author of "Moneyball" and "Liar's Poker," has a big article in the November Vanity Fair about how dire California's public finances are. His thesis is blunt: escalating pension costs are pushing California cities into bankruptcy — if they aren't already there.
It's a lengthy article, running many thousands of words. It covers a lot of territory. In it, we meet municipal-bond naysayer Meredith Whitney, bicycle hellion and former California governor Arnold Schwarzenegger, and a beleaguered local California government official from the ruined town of Vallejo who's trying to invent a whole new way to fight fires. Boilerplate Michael Lewis, right?
It's a good read, but if you want just the summary — the extremely worrisome summary about where California's cities could be headed — then here you go:
Gov. Jerry Brown just vetoed a measure that would have forced him to debate whether so-called "trigger cuts" will kick in if the state runs short on its revenue goals this year. As the LA Times PolitiCal blog notes: "If those taxes don't materialize, up to $2.5 billion in cuts would occur automatically, including the option for local schools to reduce the academic year by up to a week."
What Brown wants is for the state to retain its capability to borrow at historically low interest rates. This is from the governor's press release:
"I am vetoing a third bill that would have undermined investor confidence in California by altering the budget’s mechanisms for automatic trigger cuts. The trigger mechanisms were adopted when I signed the budget and were essential to improving our credit standing. Indeed, our no-gimmick, on-time budget was the reason S&P assigned its highest rating to the short-term notes sold this past week—the first time that’s happened since 2007,” said Governor Brown.