Europe opted for small stimulus; U.S. went big: Europe won

"Just as the German chancellor vetoed a bailout for eastern Europe on March 1, she is now leading European opposition to US President Barack Obama's call for a global pump-priming package... Merkel's rejection of more stimulus touched off the first trans-Atlantic clash of the Obama administration and led critics to say she risks deepening the global recession." The Financial Express, March 2009.

"Reports from the twelve Federal Reserve Districts suggested continued growth in national economic activity during the reporting period of mid-July through the end of August, but with widespread signs of a deceleration compared with preceding periods." [Emphasis added.] The Federal Reserve's Beige Book , Sept. 8, 2010.

Hoven's Index for September 10, 2010

US: 101.3

Germany: 102.6

Euro Area: 101.8

OECD Europe: 101.6

Sources: OECD.

More than 1 million illegals have left the U.S. in recent years

A slew of stories today about a new report from the Pew Hispanic Center estimating that as of March 2009, the illegal population had dropped to 11.1 million. Pew, though institutionally inclined toward amnesty and mass immigration, does honest work, and this is no exception. But many of the press reports are treating this as momentous, previously unknown news when, in fact, it’s already been reported — twice.

In January of this year, DHS’s Office of Immigration Statistics estimated that the illegal population as of January 2009 was 10.8 million (which, given the margin of error in such estimates, is basically the same as the Pew number). And fully six months before that report, my colleague Steven Camarota estimated that the illegal population as of February 2009 was — 10.8 million.

Pew did more slicing and dicing of the numbers (by state and country) than DHS, which in turn did more than CIS, but the bottom line for policymakers is the same: the illegal alien population can indeed be shrunk without amnesty. The decline started before the recession, in response to the stirrings of enforcement activity at the tail-end of the Bush administration, and then was accelerated by the economic downturn. Steve estimated that from August 2007 to February 2009 the illegal population declined from 12.5 million to 10.8 million — that’s more than 1.5 million illegal aliens we didn’t legalize. Let’s keep trying and see how much more we can reduce the total before we surrender and declare an amnesty. Unfortunately, the current crowd in the White House is undoing enforcement, not ramping it up, so if and when the economy ever turns around, we can expect a new surge in the illegal population.

The west is facing a demographic time bomb

"Britain and the rest of the European Union are ignoring a demographic time bomb: a recent rush into the EU by migrants, including millions of Muslims, will change the continent beyond recognition over the next two decades, and almost no policy-makers are talking about it." Adrian Michaels, The Telegraph (UK), August 2009.

"Baby Boom Intifada: European Muslim Population Time Bomb. A high birth rate among Muslim immigrants to Europe will make followers of the religion a majority of the population in many European Union countries in less than 40 years, according to demographers." Tzvi Ben Gedalyahu, Israel National News.

Hoven's Index for September 1, 2010

Selected US demographic statistics:

Median age: 36.8

65 years and older: 12.8%

Muslim: 0.6%

Urban: 80%

Same statistics, world average:

Median age: 28.4

65 years-old and older: 7.6%

Muslim: 21.01%

Urban: 50.5%

Source: CIA World Factbook.

Niall Ferguson: Is the sun setting on the American empire?

The Bourbon monarchy in France passed from triumph to terror with astonishing rapidity. The sun set on the British Empire almost as suddenly. The Suez crisis in 1956 proved that Britain could not act in defiance of the US in the Middle East, setting the seal on the end of empire.

What are the implications for the US today? The most obvious point is that imperial falls are associated with fiscal crises: sharp imbalances between revenues and expenditures, and the mounting cost of servicing a mountain of public debt.

Think of Spain in the 17th century: already by 1543 nearly two-thirds of ordinary revenue was going on interest on the juros, the loans by which the Habsburg monarchy financed itself.

Or think of France in the 18th century: between 1751 and 1788, the eve of Revolution, interest and amortisation payments rose from just over a quarter of tax revenue to 62 per cent.

Finally, consider Britain in the 20th century. Its real problems came after 1945, when a substantial proportion of its now immense debt burden was in foreign hands. Of the pound stg. 21 billion national debt at the end of the war, about pound stg. 3.4bn was owed to foreign creditors, equivalent to about a third of gross domestic product.

Alarm bells should therefore be ringing very loudly indeed in Washington, as the US contemplates a deficit for 2010 of more than $US1.47 trillion ($1.64 trillion), about 10 per cent of GDP, for the second year running. Since 2001, in the space of just 10 years, the federal debt in public hands has doubled as a share of GDP from 32 per cent to a projected 66 per cent next year. According to the Congressional Budget Office's latest projections, the debt could rise above 90 per cent of GDP by 2020 and reach 146 per cent by 2030 and 344 per cent by 2050.

These sums may sound fantastic. But what is even more terrifying is to consider what ongoing deficit finance could mean for the burden of interest payments as a share of federal revenues.

The CBO projects net interest payments rising from 9 per cent of revenue to 20 per cent in 2020, 36 per cent in 2030, 58 per cent in 2040 and 85 per cent in 2050. As Larry Kotlikoff recently pointed out in the Financial Times, by any meaningful measure, the fiscal position of the US is at present worse than that of Greece.

For now, the world still expects the US to muddle through, eventually confronting its problems when, as Churchill famously said, all the alternatives have been exhausted. With the sovereign debt crisis in Europe combining with growing fears of a deflationary double-dip recession, bond yields are at historic lows.

There is a zero-sum game at the heart of the budgetary process: even if rates stay low, recurrent deficits and debt accumulation mean that interest payments consume a rising proportion of tax revenue. And military expenditure is the item most likely to be squeezed to compensate because, unlike mandatory entitlements (social security, Medicaid and Medicare), defence spending is discretionary.

It is, in other words, a pre-programmed reality of US fiscal policy today that the resources available to the Department of Defense will be reduced in the years to come. Indeed, by my reckoning, it is quite likely that the US could be spending more on interest payments than on defence within the next decade.

And remember: half the federal debt in public hands is in the hands of foreign creditors. Of that, a fifth (22 per cent) is held by the monetary authorities of the People's Republic of China, down from 27 per cent in July last year. It may not have escaped your notice that China now has the second-largest economy in the world and is almost certain to be the US's principal strategic rival in the 21st century, particularly in the Asia-Pacific. Quietly, discreetly, the Chinese are reducing their exposure to US Treasuries. Perhaps they have noticed what the rest of the world's investors pretend not to see: that the US is on a completely unsustainable fiscal course, with no apparent political means of self-correcting. That has profound implications not only for the US but also for all countries that have come to rely on it, directly or indirectly, for their security.

(snip)

A favourite phrase of this great country (Australia) is "No dramas". But dramas lie ahead as the nasty fiscal arithmetic of imperial decline drives yet another great power over the edge of chaos.

Is this a spy swap, or is Russia propping up Obama with a deal?

A Cold War-style spy swap for the alleged Russian agents is being hammered out.

All ten Russians held by the U.S. - including 'femme fatale' Anna Chapman - will reportedly be exchanged for ten prisoners being held in Russian jails who have spied for the West.

The swap could begin as early as today, with Britain playing a pivotal role.

It is reportedly being hurried through to minimise the diplomatic fall-out between Washington and Moscow - and it means the U.S. will avoid sensitive intelligence techniques being made public in court.

The Kremlin will also be keen to sidestep the embarrassment of Chapman and others giving testimony on their espionage.

Its willingness to negotiate suggests that grave damage could have been done to the reputation of the Russian spy service if a trial had gone ahead.

The deal was revealed by a lawyer for nuclear researcher Igor Sutyagin, jailed in 2005 for 15 years for spying for a British company the Russians claimed was a front for the CIA.

He was moved yesterday from a high-security prison in Arctic Russia to Moscow pending an expected release today to Britain.

Another believed to be on the swap list is Sergey Skripal, an FSB intelligence service colonel sent to prison for 13 years after being convicted of passing secrets to Britain

In further signs of movement, a bail hearing in Virginia for three alleged spies was cancelled and two other alleged spies waived their right to a local hearing in Boston and were being sent to New York.

Why can't we be more like Sweden, which has seen the light?

"The Obama administration has been racing to transform the U.S. into a copy of the European social-welfare system, while at the same time those countries are being forced to come to grips with the failure of that welfare state. Greece, Hungry and Portugal have received the most news media attention as their growing debt has threatened the viability of the euro. But all across the European Union, countries are discovering that they can no longer afford the massive cost of providing cradle-to-grave government benefits." Michael D. Tanner, in USA Today, June 30, 2010.

America bailed out GM, but who will bail out America?

Today is the first anniversary of one of this country's less-than-crowning milestones: the bankruptcy of General Motors, once the largest and richest company in the country, and indeed the world.

Keeping GM alive, albeit in shrunken form, was an expensive undertaking for America's taxpayers: about $65 billion in all, if one counts government aid to the company's former financial arm, formerly GMAC, now renamed Ally Bank. For all that money we, as a country, should take away some lessons from the experience. The following get my vote for the three most important:

• Problems denied and solutions delayed will result in a painful and costly day of reckoning.

• In corporate governance, the right people count more than the right structure.

• Appearances can be deceiving.

All three might sound blindingly obvious, but it's amazing how frequently they're ignored. That's especially true for the first lesson, about denial and delay.

Everybody knew it was ridiculous and unsustainable to pay workers indefinitely not to work (in the United Auto Workers union's Jobs Bank), to keep brands such as Saturn and Saab that hardly ever made money, and to pay gold-plated pension and health-care benefits to employees. But all of these practices, paid for by mounting debt obligations, continued for decades in GM's 30-year, slow-motion crash.

Yet there were plenty of warnings. A dramatic one came in a January 2006 speech by auto-industry veteran Jerome B. York, who represented the company's largest individual shareholder at the time, Kirk Kerkorian. Unless GM undertook drastic reforms "the unthinkable could happen" within 1,000 days, predicted York (who died recently). As things turned out he was a mere 30 days off.

The relevant question looking forward is whether the unthinkable—going broke—also could happen to America.

Everybody knows that we're running unsustainable federal deficits. And that Fannie Mae and Freddie Mac created financial sinkholes by helping lenders make mortgages to people who couldn't afford them. And that many states' public-employee pensions funds are hopelessly underfunded for the level of benefits they provide. And that shoveling more money into the public schools without insisting on structural reforms and accountability hasn't produced results and won't do so in the future.

Addressing these issues inevitably means enforcing spending discipline and standing up to public-employee unions in a way that GM failed to do with the UAW. Continued denial and delay will prove ruinous. To put it another way: America bailed out General Motors, but who will bail out America?

Why is deportation not one of the answers?

Most Mexicans want to go to the U.S.; most would do so illegally

Facing a variety of national problems – crime, drugs, corruption, a troubled economy – Mexicans overwhelmingly are dissatisfied with the direction of their country. With drug-related violence affecting much of Mexico, large majorities describe crime (81%) and illegal drugs (73%) as very big problems, and Mexicans overwhelmingly endorse President Felipe Calderón’s tough stance against drug traffickers.

Most believe life is better in the United States. Close to six-in-ten (57%) say that people who move from Mexico enjoy a better life in the U.S., up from 51% in 2007. And the vast majority of those who are in regular contact with friends and relatives living in the U.S. say those friends and relatives have largely achieved their goals.

A substantial minority of Mexicans say that if they had the means and opportunity to go live in the U.S. they would do so, and more than half of those who would migrate if they had the chance say they would do so without authorization.

Nonetheless, immigration data show a drop-off in recent years in the annual flow of Mexican immigrants to the U.S. 1 This decline may be tied in part to the economic downturn in the U.S., which has resulted in fewer jobs for immigrants. Four-in-ten Mexicans say they know someone who left for the U.S. but returned because they could not find a job, although even more (47%) report knowing someone who returned because they were turned back by the border patrol.

Singapore and Hong Kong surpass U.S. in competetiveness

GENEVA (AP) - Singapore and Hong Kong are the world's most competitive economies, an annual survey said Friday, demoting the United States from the top spot for the first time since 1993.

The study lists 58 economies according to 328 criteria that measure how the nations create and maintain conditions favorable to businesses - a formula that had favored the U.S. for 16 years.

"They are so close in the rankings, that it would be probably better to define them as a leading trio," said Stephane Garelli, professor at the Lausanne, Switzerland-based IMD business school, publisher of the World Competitiveness Yearbook.

Despite high unemployment and debt, and continued market instability, the United States was better placed than European nations and others to attract new investments and help companies grow.

"The U.S. has weathered the risk of the financial and economic crises thanks to the sheer size of its economy, a stronger leadership in business and an unmatched supremacy in technology," Garelli said.

Switzerland and Australia rounded out the top five. Then came Sweden, Canada, Taiwan, Norway and Malaysia.

By failing to control immigration the U.S. imports poverty and low skills, placing a long-term drag on the economy

Since 1970, America's largest source of immigrants has been Latin America, especially Mexico. More than half of these Latino immigrants lack a high school diploma.

Compare the U.S. experience with Canada's. More than half of all immigrants to Canada possess a university degree. Half of all Canada's Ph.D.s are foreign-born.

Why does America choose poorly educated immigrants? The short answer: America does not choose them. They choose themselves.

In the last decade, half of all the immigrants to the United States arrived illegally. Even many of the legal arrivals gained entry courtesy of relatives who originally slipped into the country against the law, then somehow regularized themselves.

By contrast, Canada (a country of 1/10 the U.S. population that takes proportionately many more immigrants than the United States) allows almost no illegal immigration.

The result: While immigration has enhanced the average skill level of the Canadian population, it has detracted from the average skill level of the U.S. population.

Many Americans carry in their minds a family memory of upward mobility, from great-grandpa stepping off the boat at Ellis Island to a present generation of professionals and technology workers. This story no longer holds true for the largest single U.S. immigrant group, Mexican-Americans.

Stephen Trejo and Jeffrey Groger studied the intergenerational progress of Mexican-American immigrants in their scholarly work, "Falling Behind or Moving Up?"

They discovered that third-generation Mexican-Americans were no more likely to finish high school than second-generation Mexican-Americans. Fourth-generation Mexican-Americans did no better than third.

If these results continue to hold, the low skills of yesterday's illegal immigrant will negatively shape the U.S. work force into the 22nd century.

The failure to enforce the immigration laws in the 1990s and 2000s means that the U.S. today has more poorly skilled workers, more poverty and more workers without health insurance than it would have generated by itself.

Arizona's new law against illegal immigration can do only so much to address the problem:

U.S. has risked at least $50 billion on Greece bailout; no one knows the maximum for sure; everyone is sure the money won't be tapped

The US exposure to the European debt bailout could be at least $50 billion, but the chance of taxpayers actually being on the hook for that appears remote.

Determining the exact amount of exposure is nearly impossible until governments start stepping up to the window created by the European Union and the International Monetary Fund to stem the crisis in Greece and elsewhere on the continent.

But one rule-of-thumb formula puts potential US exposure at $54 billion should the entire IMF loan fund be tapped.

And that doesn't count the added exposure created by the Federal Reserve's decision over the weekend to participate in currency swaps to provide liquidity to jittery European banks. The swaps move resembles the Term Auction Facility the Fed instituted when the worst of the US financial crisis hit in 2007-08.

And the entire bailout package has been nicknamed "Le Tarp" by some for its similarity to the Troubled Asset Relief Program that bailed out US companies with taxpayer-backed loans.

US involvement in the European crisis already has drawn critics from Congress and economists who think the domestic financial issues should be cleared up first.

"Inflation and debt is not the answer to a problem caused by inflation and debt," said Michael Pento, chief economist at Delta Global Advisors and a critic of both the European plan and the Fed's approach to US fiscal stability. "It's a European problem that should have been dealt with by Europeans."

In Washington, senior administration officials said taxpayers will not be liable for the European bailout.

Looking for scapegoats for the influx of foreigners? Ted Kennedy wrote the invitation and congress approved it

Pre-1970 America is what many of us were born to and raised in . . . an America that was successfully assimilating a modest influx of immigrants (probably a little too modest, actually), and which was suffering from a very mild version of today’s balkanization and illegal immigration problems. As the chart shows, that all changed once the Immigration and Nationality Act of 1965 was passed (thanks, Ted Kennedy!). The Immigration Reform and Control Act of 1986 (Reagan’s amnesty) further accelerated the rate of foreign-born population growth.

IBD: U.S. surpasses Europeans in key measure - productivity

...let's get real. There's almost no comparison between the U.S. and Greece or other failed European states. By almost any measure, the United States has outperformed Europe for decades.

This is especially true when it comes to productivity, a fact that only now seems to be dawning on the people of Greece if not Europe in general. We have noted with interest that, from 2002 to 2008 alone, American productivity grew 28% — a rate 50% higher than among the 10 biggest economies in Europe.

From 1980 to 2009, real GDP per person — the best broad measure of both productivity and standard of living — grew 6% faster in the U.S. than in Europe. Sounds like a small difference, but it isn't. In 1980, the average American produced just $4,500 more in GDP, after adjusting for inflation, than the average European. Today, the gap is $8,236 — and growing wider.

Thanks to its emphasis on free markets and entrepreneurship, and until now relatively little government meddling, the American economic system is a marvel that has created more prosperity and a higher standard of living than the world has ever known.

Another triumph for the world's greatest man-made catastropthe

                               Data source: US Statistical Abstract, Table 1351.

"China has become the largest provider among developing nations of carbon credits under the Kyoto Protocol after approving more than 350 foreign-invested carbon reduction projects. As a developing country, China is not obligated to meet targets set by the Kyoto Protocol, but under the Clean Development Mechanism (CDM) it can provide so-called carbon credits..." China.org.

"China is effectively being singled out for the successful way it has adapted to the CDM, Anders Brendstrup, managing director for China for Camco, told Reuters. ‘They should be praised, not criticised, for this success,' he said. Camco is one of the larger CDM project developers and advisers in China." Reuters.

Greece is on the precipice, Portugal is in trouble, but both are in better financial shape than U.S.

Of the 124 countries S&P ranks, only 17 have a triple A rating. Moody’s recently identified four triple A countries under pressure and warned that France and Germany are “resistant” while the U.S. and U.K. are only “resilient” to downgrade—financial idioms that mean we are closer to losing the vaunted mark.

Fitch recently downgraded Portugal’s debt; Greece’s problems are well-known and have put pressure on all of Europe and the Euro; and lest we think this can’t happen to a major industrial country, Japan was already downgraded to double A. Rating agencies are concerned about the heavy debt countries bear, which raises the cost of interest on new debt needed to finance growing deficits—a vortex that can be escaped only by making hard choices with suppurating results: bankruptcy, drastic cuts in spending, or raising revenue.

The markets are starting to show concern over U.S. debt, as the price of Treasuries fell last week, raising interest rates. Coincidentally, last week the CBO released an analysis of the entire 2011 budget proposal (excluding healthcare) and concludes, “If the President’s proposals were enacted, the federal government would record deficits of $1.5 trillion in 2010 and $1.3 trillion in 2011. Those deficits would amount to 10.3% and 8.9% of gross domestic product (GDP), respectively.” By comparison, Portugal’s deficit is 9.3% of their economy. And Greece must reduce its deficit from 8.7% of GDP in 2010 to less than 3% by 2010—the threshold the European Union considers “excessive”. That is a level the U.S. is not expected to reach ever, according to the CBO analysis.

U.S. has a split personality that brings out individual excellence and governmental depravity

While the Vancouver Olympics aren't finished, the medal races are - and in spectacular fashion for North Americans.

The United States is guaranteed 37 medals and Canada will finish with at least 13 gold medals. Both are the best of these games and part of the greatest hauls ever at a Winter Olympics.

The Americans will leave with the most medals by any country at any Winter Games. They also will win the medal count for only the second time, the other being at Lake Placid in 1932.

Steven Holcomb and the "Night Train" delivered the 36th medal, and ninth gold, for the United States by winning the four-man bobsled event Saturday. The 37th will come from the men's hockey team. Whether it is gold or silver will be determined Sunday.

Foreign born workers in U.S.

Cato: U.S. medicine leads world in innovation

Studies that compare America's health care sector to other countries typically omit any measure of innovation. A new study by Glen Whitman and Raymond Raad shows that America far and away leads the world in medical innovation. Since American innovations improve health world-wide, that is a virtue of the American system that is not reflected in comparative life-expectancy and mortality statistics. The authors argue that innovation should play a central role in the health care debate, and that the legislation before Congress could hinder the ability of creative individuals to innovate.

Peggy Noonan: America is governed by the lucky, unimaginative, stupid and callous

When I see those in government, both locally and in Washington, spend and tax and come up each day with new ways to spend and tax—health care, cap and trade, etc.—I think: Why aren't they worried about the impact of what they're doing? Why do they think America is so strong it can take endless abuse?

I think I know part of the answer. It is that they've never seen things go dark. They came of age during the great abundance, circa 1980-2008 (or 1950-2008, take your pick), and they don't have the habit of worry. They talk about their "concerns"—they're big on that word. But they're not really concerned. They think America is the goose that lays the golden egg. Why not? She laid it in their laps. She laid it in grandpa's lap.

They don't feel anxious, because they never had anything to be anxious about. They grew up in an America surrounded by phrases—"strongest nation in the world," "indispensable nation," "unipolar power," "highest standard of living"—and are not bright enough, or serious enough, to imagine that they can damage that, hurt it, even fatally.

We are governed at all levels by America's luckiest children, sons and daughters of the abundance, and they call themselves optimists but they're not optimists—they're unimaginative. They don't have faith, they've just never been foreclosed on. They are stupid and they are callous, and they don't mind it when people become disheartened. They don't even notice.