Markets slide down this week on news that Spain was a complicated country filled with people who are concerned for their future. Who knew?!?!? Anyway, the complications in Spain started YAEC (Yet Another Euro Crisis). Then, Thursday, All Is Better! Spain announced their new budget, and they won't be needing a bailout after all - no nasty IMF people digging around in their papers, no need for the ECB to get involved. Because they promise to fix it all themselves. Young people will get jobs, old people will work longer and need less pension, a new tax on lottery winnings was introduced, and the current recession will be over in just a few months. Because. My prediction for next week: cloudy with changing conditions and a chance of storms.
Last week I wrote about a "Greek Surprise." Information about that is coming out now. Apparently the IMF financial analysts have found that Greece has a budget deficit roughly twice the previous estimate. For example, Greece is cutting government workers, as agreed, but by moving them over to a retirement plan that pays them roughly the same amount to sit home. This type of problem has been understood by economists for a century - wages are sticky on the downside, meaning it's very hard to get a worker to take a cut in pay. This is one of the main reasons for recessions: you lay off under performing workers, or workers in under performing industries, and they have to get jobs elsewhere, typically at lower wages. If you can't lay off workers like in much of Europe, then you have to devalue your currency and make everyone accept a virtual pay cut due to inflation. If you can't do that either because you don't control your own currency, then you get involved in multi-year recessions and ongoing dialogs with officials who ask something that's more or less never been done before: get workers to volunteer to accept pay cuts. Or lay off a significant percentage of your population and try to get re-elected. Rumors are that the ECB will loan Greece enough money to get through the US elections. Expect the real drama to start next year.
Super Mario Draghi invented a new ECB policy - all you had to do was ask, submit to the IMF running your checkbook, and he would personally see to it that your government bonds stayed cheap. How's that working out? Spain hasn't asked - they're haggling terms behind the scenes. Meanwhile in full view, Catalonia, Spain's largest and richest provence is talking succession; a Spanish General has said publicly that that won't be allowed to happen (How do you say "Gettysburg" in Spanish?). And riots are breaking out all over Spain in anticipation of more budget cuts, more job losses, more pay and pension cuts. Spanish Prime Minister Rajoy looks kinda stuck to me. I'm not sure if he asks for his promised ECB help that Spain will survive the IMF-imposed austerity. And if he doesn't ask for help, I'm not certain the Euro will survive. Meanwhile Spanish 10 year bonds jumped up in interest rates to over 6% again - into the deep concern range, but not quite to 7%, the imminent death range.
Spain has a new budget that Fixes Everything! Their short term funding problems are over, because they're going to borrow from their social security. Lots of people are going to get shiny new (unspecified) jobs, and that will raise income tax revenues by 4%. Government spending will go up only 5.6% in 2013, so there will be no need to cut social spending any more, so please everyone stop rioting. Yup, with 255 unemployment, 50% youth unemployment, bonds at 6% and climbing, riots all over the country, Spain now has a Shiny New Piece of Paper that says it will all get better! Will it work? Not a chance. This guarantees further Spanish crises next year, imho.
The U.S. Congress Joint Economic Committee said with state debt topping $4 trillion, including $2.8 trillion in unfunded pension benefits and at least $627 billion for retiree health care, states may buckle under the pressure to raise taxes, cut spending and take other measures to pay off their debt. "Despite the massive federal debt and fiscal imbalances, it will be hard for Washington policy makers to deny sympathetic retired teachers, police and firefighters after a previous Congress bailed out Wall Street and U.S. automakers," the Republican staff commentary said. But it warned that any federal bailout would test the political fabric of the nation, citing the tensions in the European Union over the Greek bailout as a similar situation. Taxpayers in states keeping up with their pension liabilities would be paying for states with underfunded and over-promised public retirement systems.
Baring an "October Surprise," the election seems over. Obama has made progress in both the popular and the electoral vote, moving several of the swing states into his column. Michigan, Wisconsin and Ohio now seem to be clearly in Obama's camp. Romney has helped with his unfocused campaign and seemingly endless gaffes, the latest one revealed being his statement that 47% of Americans don't pay taxes and don't count. It seems simple enough to me: we'll have a republican president when the republicans give us a serious candidate.
Kim Ott-Gray, a dentist and a grandmother from Michigan, found out she had a tumor the size of a golf ball on the left side of her brain. When doctors removed it they took out a fair bit of the left side of her brain. She can no longer work, has trouble figuring out how to pay her bills, and describes herself as often confused. But suddenly, just since the surgery, she can paint. Ott-Gray has never had lessons, she just picked up a brush and started doing things like this. The portrait is of her granddaughter Jaime trying on her wedding dress. Ott-Gray writes that "Dreams Of Tomorrow" captures "that very moment, when Jaime was no longer a young lady, but a grown woman. It happened right before my eyes and it took my breath away and was so beautiful that it will be forever indelible on my brain." My offer still stands to sit you down at my piano and hit you on the head until you can play at a professional level, but I'm not willing to perform brain surgery on you until you can paint as an accomplished impressionist.
Some of you are perhaps new to my blog; let me give you a bit of background. I'm trained as an engineer. I'm not so bad at physics, I'm learning molecular and micro biology, and my neural network software programmed every neural network chip ever made by mankind. My 15 years working with artificial neural networks left me profoundly dissatisfied with the notion that the brain is the mechanism by which memories are stored and thoughts are generated. I believe the brain is a combination antenna / amplifier - it lets "us" access physical reality by picking up and amplifying our thoughts into actions, like throwing a baseball. Our memories are stored elsewhere - the Hindu mystics have a name for this place, the Akashic Records, a postulated "library" somewhere else where each of us has a "book" containing a complete record of our thoughts, feelings and actions. There is an ongoing war in the west between science and Christianity, and I am profoundly dissatisfied with some of the collateral casualties of that war. "Rational" people are to accept without question the dogma of western science: life evolved on earth due to random processes; people are nothing but a sack of chemistry; life is a biochemical accident with a compelling but false sense of spiritualism. If you believe this, then it begs the question of the source and purpose of morality: after all, if I put a bullet through your head you're still a sack of chemistry. On the molecular or even cellular level, nothing much has changed. Copernicus stood physical science on its head when he announced that the earth was not the center of creation; unfortunately biology has not yet had their Copernicus, so in biology courses we're still taught that earth is the center of life in the universe. "We are not human beings having a spiritual experience. We are spiritual beings having a human experience." -- Teilhard de Chardin