Just had to put this in the blog. From Jim Morin of the Miami Herald:

No doubt they are everywhere. From the NY Post:

The red-faced Finance Ministry yesterday admitted widespread corruption, bribery and tax-cheating among its official ranks as it launched wholesale firings and sweeping investigations.

As many as 234 of its officials haven’t paid a penny in taxes since 2007 or earlier, the ministry said. Another 70 highly paid senior officials who each own homes worth an average of $1.6 million filed phony tax reports claiming relatively modest incomes of $67,000. All were under investigation.

In Europe, austerity is the watchword. Meaning European governments are attempting to reduce their deficits by cutting spending. Except for France which claims not to be implementing any austerity measures. Just raising taxes and “reforming” pensions. The short summary is that the European countries that are running large trade deficits can’t continue to do so because they can’t finance them anymore, which means they must reduce their government deficits. The accounting (not economics, accounting) shows that:

CurrentAccount = (PrivateSavings – Investment) + (Tax – GovernmentExpenditure)

Michael Pettis of Bloomberg does an excellent job of explaining what is happening.

Something similar happened in 1930 when the U.S., the leading trade-surplus nation at the time, foolishly used the Smoot-Hawley Tariff Act in an attempt to protect itself from the trade consequences of a collapse in the ability of European trade-deficit countries to finance themselves. U.S. protective measures implicitly required other deficit countries to absorb the full brunt of the impact, and this caused them to retaliate with tariffs, currency depreciations and import quotas.

What does all this have to do with Greece? For the foreseeable future, the major trade-deficit countries in Europe are going to find it very difficult to attract net new financing. At best they will be able, with official help, to refinance part of their existing liabilities.

If they can’t attract net new capital inflows, they can’t run current-account deficits. There must be an equal, obverse reaction in the global balance of trade if there is a contraction in these large trade gaps, now equal to two-thirds that of the U.S. Either the trade surpluses of Germany and other European surplus countries must shrink by the same amount, or Europe’s overall surplus must expand by the same amount.

We will probably see a combination of the two, but a weaker euro — as well as credit contraction, rising unemployment and a German reluctance to reverse policies that constrain domestic consumption — will push most of the adjustment abroad via an expanding European current-account surplus.

If Europe’s current-account surplus grows, there must be a trade adjustment elsewhere. Either the current-account surplus of countries such as China and Japan must contract by the same amount, or the current-account deficits of countries such as the U.S. must grow (or some combination of both).

According to the Financial Times, the Obama administration asked Congress on Monday to pass a new set of spending measures in order to help dig the economy “out of a deep valley”. The FT said that Lawrence Summers told Congress that last year’s stimulus was “wearing off” and that another $200bn was needed.  If the previous “stimulus” is “wearing off” then it failed, didn’t it? Wasn’t it supposed to restore growth? Oh never mind, the Keynesian myth will not die until the economy collapses completely, I suppose.

At any rate, it seems that the Obama administration doesn’t want to get on the austerity bandwagon until there is no other alternative. This will happen when the downgrades of US Treasury debt start. Then there will be real trouble. But in the meantime, it is doing everything that it can to protect China’s trade surplus and support the Chinese economy. I presume that President Obama plans to retire to the beach at Beidaihe. He is certainly doing everything he can to assure his welcome.  Perhaps he is afraid that he will no longer be welcome in the USA when the consequences of his decisions become apparent.

Edit: Q&A on this subject from down under: ABC News (Australia Broadcasting Corp., not the US propaganda network).

Government has lost its way. It has been subverted and taken over by the self-interest of politicians and government employees. I read this article, which recounts the travails of a woman trying to deal with a difficult situation and looking for a helping hand from the community. I’m a libertarian, but that doesn’t mean I don’t see her situation as an opportunity for the community to make an investment, as well as being compassionate. But she is denied that help.

In California. Governor Schwarzenegger is about to terminate the entire welfare-to-work program because it doesn’t have the money. The fact is it has the money, but it is sucked up by the huge burden of overpaid employees and overwhelming bureaucracy. There are hundreds of boards and agencies – quangos, the British would call them – that serve no purpose except to provide well-paid sinecures for political hacks. We wouldn’t miss any of them.

Then there’s the bloated payroll. Government employees receive high salaries, and then retire as  multimillionaires. Thousands of employees retire each year, as early as age 50, with pension and health care packages worth usually three or four million dollars, and sometimes much, much more, in present value. And these are mostly very ordinary bureaucrats. Some of them are so-called public safety employees, who claim that they risk life and limb and therefore deserve their high pay – like $175,000 for a firefighter. Nonsense. They don’t even make the top 10 most dangerous jobs (police are #12 and firefighters #13).

It is the firefighters that make me angriest. Fires are rare, many communities are happy with volunteers who can be quickly called together. But the unions arrange to drive away the volunteers by making it too difficult or by contract – not just in firefighting, but anywhere in public service. My wife was told she couldn’t volunteer at school anymore after a union aide position was created. The union contract forbade any volunteer performing any task in the aide’s job description. And so it goes, more wealthy employees. We have wealthy firefighters coming in to the station to loaf around twelve days a month, running their side businesses while collecting high wages and planning to retire in luxury on the public purse,  and yet claiming to be in the public service. Hypocrites. At least the police do actually work for a living, and do take risks.

I can’t get out of my head that video of the SEIU woman lecturing the California legislature, “Remember that we put you in here, and we can take you out again.” Well she knows legislators will never jeopardise their re-election by acting in the public interest, rather than the union interest. They like the money and the perks far too much.

I suppose the good news is that this is unsustainable. The economy of California is cratering, and people are leaving in droves. Most likely including my wife and I in the not too distant future. High taxes going only to the wealthy employees, no money left for the poor or those needing help. After all, welfare moms don’t make political contributions. Time to vote with our feet, because the gerrymandering and sheer corruption have denied us any other vote. Let the government employees tax the economy into oblivion. Maria Shriver, the peasants have no bread.

The U.K. is trying not to drink the retsina, and so is talking about reducing government spending. According to the London Times:

At least 300,000 Whitehall and other public sector workers may lose their jobs as the coalition government sets to work cutting the £156 billion budget deficit.

As George Osborne, the chancellor, prepares to unveil the first £6 billion of cuts tomorrow, the full scale of the job losses that will follow has begun to emerge.

The initial savings to be announced will target such items as civil servants’ perks, which include taxis, flights and hotel accommodation.

The package will also include a £513m cut in the budgets for quangos, with some being abolished altogether.

“The outgoing chief secretary [Liam Byrne] said it all, there is no money,” said a Treasury source. “There is no time either.”

While the first wave of cuts will mainly target Whitehall waste, more severe reductions of up to 25% in some departmental budgets will follow in a comprehensive spending review in the autumn.

Fortunately, this is the age of the Internet. We are therefore able to provide a video report of one ministry’s preparation for, and submission of evidence to, this fall’s “comprehensive spending review.”