Rosebud

Rosebud are the last words of Charles Foster Kane, Welles transcript created by narrating the life of William Randolph Hearst, american billionaire who came to have 28 headers of newspapers and that, among other things, used for political ends. A front page dictated the media and was responsible, for example, the end of the Spanish empire in 1898 to support and promote the war in Cuba and being, therefore, responsible for the loss of the last Spanish colonies overseas.

The need to sell newspapers is seen in current publications as Newsweek, featuring Obama as the first gay president of the U.S. to defend gay marriage. Obviously one thing to defend and another very different practice.

In our country we also have our dose of sensationalism, but is unknown for the time recipient of some news. So we have one of the most important national newspapers giving news to the first rank of a blog post by Paul Krugman. Krugman uses this blog for many things, obviously is a blog and not The Economist or other specialized published by a prestigious university. Lectures are colloquial and do not have, of course, the same depth of analysis research papers produced after months of study.

Well, they use a blog entry, even that of Krugman, who used to teach doctrine so as to mock his enemies (which aren´t few), to whip do not know who. The news that Krugman see that is possible in a few weeks out of Greece to the euro and a "corralito" in Spain and Italy is not only biased and irresponsible, but is practically constitute a crime against the country.

How far do you get in this spiral of the worse better?

Moral hazard

I would like to highlight several recent article, first is an interview with Juergen Stark, ECB chief economist resign shortly to disagree with the policy of the ECB. The other is the article published by Nobel Prize Stiglitz and a statement (rather than paper) from the French president Giscard d'Estaing on the visit to Europe by U.S. Treasury Secretary Timothy Geithner.


In the first, Stark, says basically that the ECB should ask for help since this is a moral hazard. If allowed to help governments "sinners" will not have his "punishment", so in the future does not adequately correct the imbalances. You may forget that they are special circumstances which have focused on certain countries to this situation, except for Greece, other countries have a growth problem, not debt. The markets believe that they are not paid for what they believe incapable of generating income to the debtor countries, not why your debt is exorbitant.


Stglitz reminds us that debt levels have been caused by an excess of liberalism in the financial markets, taking advantage of deregulation have failed to properly quantify the risks. The states have borrowed to save the financial system from collapse result of the greed (greed is good) of some and the overconfidence of others.


Giscard makes the counterpoint of classical Europe, that of the "grandeur". Who are the Americans to teach us? We know sink alone.


At a time when we discuss the role of the ECB contradistinction precisely with the Federal Reserve and the myth that expansion policies with recession generate long-term inflation. The curve of U.S. 10 years should be through the roof in that case. Why markets continue to provide cheap money to the Americans with current account deficits have? Trust ¿?.


How can we generate in the euro zone that trust?

Standard & Poor's

S&P (Standard & Poor's) as well as Moody's and Fitch Group are risk rating agencies. Develop and regularly publish the credit rating of stocks and bonds, as well the sovereign risk debt issuers. 

S&P is owned by McGraw-Hill group.

So far nothing that is not abnormal, we have a company that helps along with two other at investors to know what the compensation to be required for the purchase of assets issued by governments and businesses. Criteria are based on macro and micro. If an economy is in recession, produce less, consume less and therefore earn less in taxes.

Economists use elasticity to explain how prices are adapted to the reality of things. The government revenues are highly elastic, lowering the activity immediately moves to the amount that is collected, however, the other side of the equation, the costs are quite inelastic, there are some items that can be cut effectively with fairly easily but the most important, require a period of accommodation. These are measures that affect many people, teachers, doctors, policemen, judges to put the best known, who nevertheless have their rights. A quick measure is to reduce payroll, but the cut, not being excessively high payroll, is relative. The savings must come from the rationalization of the use of resources more efficient and requires planning, ie time.

On the one hand, the adjustment is immediate (income) and not the other (expense). As they are also measures that affect people, leaders are reluctant to take action based on assumptions. The optimum would take action before they occur is anticipated that the event will happen. If the measurement is taken when we're in recession, the first effect is procyclical, so that, finally, just what we wanted to avoid getting worse. When revenues fall and spending increases, and want to maintain the level of activity and welfare of an economy, there is debt, and that has a cost, interest rates; and one limit, the capacity allocated by the market's to return loans (based on ratings).

The strength of S&P and other agencies is the fact that their values ​​are taken into consideration by the governments themselves, by the monetary authorities and the markets to set interest rates. A greater risk of default higher interest rates required to economies.

S&P has warned tonight in a statement that in the coming days, if possible before the summit on december 9th, it will issue a new downgrading the ratings of all countries in the euro area and most likely will be downgraded to all.

What gives us a new note which tells us that things will go wrong (we know) and just the very issuance of the note will actually cause things to go worse (and we fear)?