The gathering revolt against government spending

This just in from Michael Barone. Perhaps the country will wake up soon!



This month three members of Congress have been beaten in their bids for re-election -- a Republican senator from Utah, a Democratic congressman from West Virginia and a Republican-turned-Democrat senator from Pennsylvania. Their records and their curricula vitae are different. But they all have one thing in common: They are members of an Appropriations Committee.





Like most appropriators, they have based much of their careers on bringing money to their states and districts. There is an old saying on Capitol Hill that there are three parties -- Democrats, Republicans and appropriators. One reason that it has been hard to hold down government spending is that appropriators of both parties have an institutional and political interest in spending.



Their defeats are an indication that spending is not popular this year. So is the decision, shocking to many Democrats, of House Appropriations Committee Chairman David Obey to retire after a career of 41 years. Obey maintains that the vigorous campaign of a young Republican in his district didn't prompt his decision. But his retirement is evidence that, suddenly this year, pork is not kosher.



It has long been a maxim of political scientists that American voters are ideologically conservative and operationally liberal. That is another way of saying that they tend to oppose government spending in the abstract but tend to favor spending on particular programs. It's another explanation of why the culture of appropriators continued to thrive after the Republican takeover of Congress in 1994 and during the eight years of George W. Bush's presidency.



In the past rebellions against fiscal policy have concentrated on taxes rather than spending. In the 1970s, when inflation was pushing voters into higher tax brackets, tax revolts broke out in California and spread east. Ronald Reagan's tax cuts were popular, but spending cuts did not follow. Bill Clinton's tax increases led to the Republican takeover and to tax cuts at both the federal and state levels but spending boomed under George W. Bush.



The rebellion against the fiscal policies of the Obama Democrats, in contrast, is concentrated on spending. The Tea Party movement began with Rick Santelli's rant in February 2009, long before the scheduled expiration of the Bush tax cuts in January 2011.



What we are seeing is a spontaneous rush of previously inactive citizens into political activity, a movement symbolized but not limited to the Tea Party movement, in response to the vast increases in federal spending that began with the Troubled Asset Relief Program legislation in fall 2008 and accelerated with the Obama Democrats' stimulus package, budget and health care bills.



The Tea Party folk are focusing on something real. Federal spending is rising from about 21 percent to about 25 percent of gross domestic product -- a huge increase in historic terms -- and the national debt is on a trajectory to double as a percentage of GDP within a decade. That is a bigger increase than anything since World War II.



Now the political scientists' maxim seems out of date. The Democrat who won the Pennsylvania 12th Congressional District special election opposed the Democrats' health care law and cap-and-trade bills. The Tea Party-loving Republican who won the Senate nomination in Kentucky jumped out to a big lead. The defeat of the three appropriators, who among them have served 76 years in Congress (and whose fathers served another 42), is the canary that stopped singing in the coal mine.



Will Republicans come forward with a bold plan to roll back government spending? The natural instinct of politicians is to avoid anything bold. The British Conservatives faced this question before the election this month. When Britain was prosperous they promised no cuts at all. When recession hit, they were skittish about proposing cuts and mostly unspecific when they did.



That may have been why they fell short on May 6 of the absolute majority they expected. Now they're in a coalition with the third-party Liberal Democrats, who proposed more cuts, and the cuts they've announced have been widely popular. Boldness seems to work where skittishness did not.



Unlike the Conservatives, Republicans have no elected party leader. But House Republicans like Eric Cantor, Kevin McCarthy and Peter Roskam are setting up web sites to solicit voters' proposals for spending cuts, while Paul Ryan has set out a long-term road map toward fiscal probity. Worthy first steps. I think voters are demanding a specific plan to roll back Democrats' spending. Republicans need to supply it.



Michael Barone, The Examiner's senior political analyst, can be contacted at mbarone@washingtonexaminer.com. His columns appear Wednesday and Sunday, and his stories and blog posts appear on ExaminerPolitics.com.



Read more at the Washington Examiner: http://www.washingtonexaminer.com/politics/The-gathering-revolt-against-government-spending-94603774.html#ixzz0oofUGSmt

Emergency fund to quarantine euro

JAMES G.NEUGER AND GREGORY VISCUSI

May 9, 2010

BRUSSELS: European leaders have agreed to set up an emergency fund to halt the spread of Greece's fiscal woes, seeking to prevent a sovereign debt crisis from shattering confidence in the 11-year-old euro.

Jolted into action by the sliding currency and soaring bond yields in Portugal and Spain, leaders of the 16 euro countries said the workings of the financial backstop would be hammered out before the markets opened tomorrow.



"We will defend the euro, whatever it takes," European Commission president Jose Barroso told reporters early yesterday after the leaders met in Brussels.

Europe's failure to contain the Greek fiscal crisis triggered a 4.3 per cent drop in the euro this week and led the US and Asia to rally around in an attempt to prevent a global sovereign debt crisis pitching the world back into recession.

European officials declined to disclose the size of the stabilisation fund, to be made up of money borrowed by the European Union's central authorities with guarantees by national governments. Finance ministers were scheduled to meet to flesh out the details.

"It will be a very clear signal against those who want to speculate against the euro," German Chancellor Angela Merkel said.

Mr Barros said steps were being considered to stop speculation, including restrictions on short sales and credit default swaps.

He said he would not push the independent European Central Bank to buy government bonds, for example. Bank president Jean-Claude Trichet had accelerated the market sell-off by rejecting that measure.

With the euro facing its stiffest test since its introduction in 1999, the summit – called to discuss longer-term efforts to co-ordinate economic policies – turned into a crisis-management session that dragged past midnight.

The euro slid to $US1.2715 from $US1.3293 during the week, and is down 15 per cent since late November. European stocks sank the most in 18 months. The STOXX Europe 600 Index tumbled 8.8 per cent to 237.18.

The extra yield investors demand to hold Greek, Portuguese and Spanish debt instead of safer German bonds rose to euro-era highs on Friday, with 10-year bonds jumping 973 basis points for Greece.

Europe came under pressure in a hastily arranged conference call of finance ministers from the Group of Seven industrialised nations on Thursday. All agreed on "the need for a clear, timely and strong response", said Canadian Finance Minister Jim Flaherty, who chaired the call.

The contagion also drew the attention of US President Barack Obama, who said regulators would examine the "unusual market activity" that on Thursday briefly drove the Dow Jones Industrial Average down by almost 1000 points

The Calm Before the Coming Sovereign Debt Storm

by Martin D. Weiss



If I’ve learned anything in the 39 years since I founded Weiss Research, it’s this: I can only help those who are ready to help themselves.



I’ve seen it happen so many times and it never ceases to concern me deeply:

Our research reveals a crisis on the horizon — something with the power to wipe out millions of portfolios and retirement plans. 

We shout our warnings from the rooftops over many

months — doing our very best to demonstrate that the crisis is inevitable and approaching quickly, urging investors to protect themselves.

But although a sizable minority do get their money to safety, the MAJORITY are lulled by the calm before the storm. They do not heed our warnings. They do not make it to a safe haven in time. And they do not take steps that could multiply their wealth in the worst times.

What concerns me the most, however, is the undeniable reality that …

Each major new crisis is coming with greater frequency AND breadth

The first major crisis of the 21st Century came with the Tech Wreck of 2000-2002, causing U.S. investors and households losses of $6.5 trillion in their stocks, mutual funds, life insurance and pensions, according to the Fed.

The second major wipeout struck six years later, with the Housing Bust of 2008-2009, causing more than DOUBLE the damage — $15.5 trillion.

Now, just ONE year later, we can already see a third big round of losses on the horizon because of the Great Sovereign Debt Crisis. And, unfortunately, this new episode has the potential to cause even deeper wounds — not only to individuals, but to entire nations … not only bringing turmoil to financial markets but also threatening to destabilize governmental institutions.

The signs are everywhere and they’re so clear even the most secretive among our leaders have been forced to admit them:

• We have reckless stimulus spending. We have shrinking tax revenues. And, we have the greatest explosion of government debt in history.
  
  
  
  


• Major euro-zone nations — Greece, Portugal, Spain, Italy, Ireland and others — are now so indebted that some could find it difficult — if not impossible — to make payments on that debt in the weeks and months ahead.
  
  
  
  


• Other countries outside the euro zone — the Ukraine and Iceland … Latvia and Lithuania … Pakistan and Dubai … Argentina and Venezuela — are even more likely to default than Greece, according to the latest cost of 5-year insurance contracts (credit default swaps). 
  
  
  
  


• ANY kind of default by just ONE of the major nations could trigger a chain reaction of bond market price collapses, ultimately costing investors trillions of dollars.
  
  
  
  


• Interest rates would spike and credit markets, already shaky, could freeze globally.
  
  
  
  


• And the fledgling recovery in the U.S. would be crushed, prompting a potentially vicious double-dip recession.

Right now, in order to help major euro-zone nations avoid default, bailouts are being discussed — even promised — by European leaders. But any such bailouts could be both too little and too late.

They would be too LITTLE because they would do nothing for the counties outside the euro zone.

And they would be too MUCH because any such bailouts would …

1. Be a blatant violation of the rules upon which the European Monetary Union was founded. Breaking them can only shatter confidence in its bonds and its currency, the euro.
   
   
   
   


2. Tacitly commit European leaders to bailing other member states.
   
   
   
   


3. Potentially sink the finances of the “stronger” euro-zone countries that would, in effect, be assuming the bad debt of the weaker ones.
   
   
   
   


4. Destroy the value of the euro, quite possibly ending its tenure as a world currency.

As a result, euro-zone officials find themselves in a classic lose-lose situation: 

If they allow Greece to default, investors will dump sovereign debts in up to a dozen other countries, setting off a chain reaction of bond market collapses in the euro zone, driving the euro deep into the gutter and gold sharply higher.

I they bail Greece out, they will effectively assume a direct or indirect liability for the bad debts of nearly every nation in the euro zone, also driving the euro into the gutter and gold higher.

Either way, Either way, you MUST not ignore what’s happening and how it can impact you. If you haven’t done so already.

1. Dump long-term bonds of any color or shape.
   
   
   
   


2. Except for some very special situations we’ve recommended in our services, reduce your exposure to the stock market dramatically.
   
   
   
   


3. Maintain a very LARGE cash position, stashed in the safest, most liquid instruments in the world — short-term Treasuries.
   
   
   
   


4. To help protect yourself against money printing and currency erosion, hold a long-term position in gold.
   
   
   
   


5. Above all, approach all investments with caution. Do NOT overinvest.

Good luck and God bless!

Martin



Source:  Uncommon Wisdom is a free daily investment newsletter from Weiss Research analysts offering the latest investing news and financial insights for the stock market, precious metals, natural resources, Asian and South American markets. From time to time, the authors of Uncommon Wisdom also cover other topics they feel can contribute to making you healthy, wealthy and wise. To view archives or subscribe, visit http://www.uncommonwisdomdaily.com.

UPDATE:Asian Shares Tumble; Europe Debt Concerns Spur Sell off

By Colin Ng and Leslie Shaffer

Of DOW JONES NEWSWIRES

SINGAPORE (Dow Jones)--Asian equity markets tumbled Friday, dragged by sharp losses in Wall Street Thursday as heightened concerns over European sovereign debt hurt demand. Resources stocks were hit hard as a spike in risk aversion and renewed strength in the U.S. dollar dented commodities.

"The concerns are global, with sovereign debt issues in Greece, Spain and Portugal affecting investor sentiment," said Macquarie Private Wealth Associate Director Marcus Droga in Sydney. Investors were worried that the European nations could not bring their budgets under control, jeopardizing a fragile euro-zone economic recovery.

Investors cashed out of stocks in the wake of the Dow Jones Industrial Average's 2.6% fall, for its biggest percentage-point drop since July 2.

Min Sang-il at E*Trade Securities in Seoul said: "Investors are anxious that more negative factors may emerge. European debt concerns have strengthened the U.S. dollar and this has stoked concerns that the dollar carry trade may end soon and risk aversion may heighten further."

Japan's Nikkei 225 was down 2.5%, Australia's S&P/ASX 200 lost 2.3%, touching five-month lows, and South Korea's Kospi Composite was down 3.1%. Hong Kong's Hang Seng Index dropped 2.9%, while on the mainland, the Shanghai Composite shed 1.8%. DJIA futures were 21 points higher in screen trade.

Resources and energy plays were among the region's biggest decliners as a stronger U.S. dollar spurred declines in underlying commodity prices. In Australia, heavyweights BHP Billiton shed 3.6% and Rio Tinto dropped 5.4%. Jiangxi Copper's Hong Kong-listed shares dropped 4.5% and its mainland-listed stock fell 3.5%.

Energy firms lost ground after crude futures dropped sharply Thursday. Australia's Woodside Petroleum fell 3.5%, Japan's Inpex lost 2.1% and Hong Kong-listed Cnooc fell 3.3%.

"We suspect that the bias in energy will be lower over the next two days, particularly if the dollar continues to regain its footing, as it seems to be doing over the past 24 hours," said Edward Meir at MF Global.

In Tokyo, Sony bucked the market, rising 0.3% after posting better-than-expected results for the fiscal third quarter after the market closed Thursday. Hitachi added 0.7% after posting solid results for the fiscal third quarter. But other key exporters fell, with Nikon losing 4.0% and TDK falling 4.5%.

"The stronger yen is offsetting positive sentiment in some exporters' earnings," said Kazuhiro Takahashi, general manager at Daiwa Securities Capital Markets, after the dollar dropped below the psychologically-important Y90 level Thursday.

Toyota Motor added 1.0% despite concerns it may have to extend its vehicle recall to its popular Prius hybrid model. Shares were boosted by its announcement Thursday that it swung into the black in the quarter ended December and now expects to post a profit for the full year. Toyota also raised its earnings forecast for the current fiscal year despite taking a hit from its massive vehicle recalls in Europe and the U.S.

In Korea, Taihan Electric Wire bucked the trend and rose 1.8% after the company sold its entire 9.9% stake in Italy's Prysmian SpA in a block sale for about KRW400 billion, or $348 million, to improve its financial standing. Taihan sold the stake for less than it paid.

Among other markets, New Zealand's NZX-50 lost 1.3%, Singapore's Straits Times Index shed 1.9%, Malaysia's KLCI fell 1.1%, Taiwan's Taiex dropped 4.2% and Philippine shares were down 1.9%. Thailand's SET index shed 1.4% and India's Sensex was down 2.1%.

In the foreign exchange market, the Swiss franc lost ground against the U.S. dollar and the euro, apparently led by intervention moves from the Swiss National Bank. The dollar was buying CHF1.0736, after earlier touching CHF1.0795, compared with CHF1.0666 in late New York trade Thursday. Against the euro, the franc traded at CHF1.4727 after hitting CHF1.4809 earlier.

Several traders in Tokyo said the SNB has been in market, and the main move did come in the euro/Swiss franc cross, which seems to have been the central bank's main intervention vehicle in recent times.

The U.S. dollar and the euro were also higher against the yen, buoyed by speculators covering short positions after sharp falls Thursday.

The dollar bought Y89.63, from Y88.94 in late New York trade Thursday while the euro fetched Y123.00 from Y122.20. The single currency was at $1.3715 from $1.3741.

The U.S. dollar was also stronger against Asian currencies as traders moved into the safe haven of the greenback. It was sharply higher against the Korean won, at KRW1,167.70 from KRW1,150.9 late Thursday in Seoul. Against the Singapore dollar, the greenback traded at S$1.4198, after touching its highest level since September 2009.

Still currency traders were particularly wary of key U.S. nonfarm payrolls data due later in the global day, especially after Thursday's news of worse-than-expected jobless claims. A flat reading was expected for January's payrolls, after December's 85,000 job drop.

Japanese government bonds were sharply higher as investors shied away from risk. Lead JGB futures were up 0.25 at 139.05 points and the 10-year cash JGB yield was down 2.0 basis points at 1.355%.

Spot gold was last bid at $1,065.10 per troy ounce, down $1.90 from late New York trade, after tumbling about $45 Thursday and breaking key technical support around $1,075.

March Nymex crude oil futures were up 12 cents at $73.26 per barrel on Globex after plunging $3.84 Thursday.

The three-month London Metals Exchange copper futures contract was stabilizing in Asia after its second consecutive session of heavy losses in London Thursday. The contract was at $6,373 per ton, down $7.00 from the London afternoon kerb after dropping 3.2% Thursday, hurt by the rallying dollar. LME three-month aluminum was at $2,045 a ton, up $1.00.

-Colin Ng, Dow Jones Newswires; +65-6415-4140; colin.ng@dowjones.com