Out of the Recession...Out of Debt??

The legalization of marijuana has become an increasingly popular subject of conversation nowadays, with pot use increasing in every single demographic. Our government has shown strong distaste for the small plant, but some have shown that pot could be our country's way out of not only our recession, but out of debt. The global war on "drugs" has taken the control of a substance no more harmless to one than alcohol, and given control of it to crime syndicates and drug lords across the world, increasing the number of those incarcerated (tax dollars spent) and doing everything to prevent the use of the now seemingly harmless drug.

"The racial disparities are appalling. As Michelle Alexander so eloquently shows in her new book, "The New Jim Crow," a drug conviction automatically makes a person a second-class citizen who can be legally discriminated against in housing and employment, denied school loans, and barred for life from serving on juries, accessing public benefits and even voting. While African Americans make up only about 13 percent of the U.S. population and about 15 percent of drug users, they make up about 38 percent of those arrested for drug law violations and a mind-boggling 59 percent of those convicted for drug law violations.

Like Prohibition did for alcohol, drug prohibition is also enriching organized crime. Instead of regulating marijuana to control who can access it, policymakers have ceded control of the $400-billion-a-year global drug market to crime syndicates and thugs.

In Mexico, where parts of the country are like Chicago under Al Capone on steroids, 28,000 people have died since President Calderón launched a war three years ago against well-armed, well-funded drug trafficking organizations. The U.S. government doesn't report its prohibition-related deaths, but law enforcement officers, drug offenders and civilians die every day in our country's war on drugs, too."

Is it finally time to really considering legalizing what was once thought to be the worst thing to come to our country? It seems that the tax revenue from the sales alone will help our country's economic growth in huge ways.

Universal Taxes?

It appears that across different cultures, the value of the tax increase to satisfy public debt is different. In developed countries the people want service cuts instead of higher taxes. In developing counties people would rather raise taxes.

"Many countries, especially developed ones, have a problem with their government finances. Just over half of respondents supported action to cut government borrowing.

The preferred method of doing it was cuts in services, rather than increased taxes, in every country except Egypt (where taxation was the more popular option).

The preference for spending cuts was especially marked in Brazil, China, Germany, France and Azerbaijan."

Looks like governments have to have a feel for what the governed want in order to legislate properly.

Portugal Minister: Debt Reduction a 'Priority'

LISBON—Bringing Portugal's public finances in order is an "immediate priority of the Portuguese government," the country's Finance Minister Fernando Teixeira dos Santos said Monday.

Reducing the budget deficit and public debt is "fundamental to regain the confidence of investors and ensure that conditions for the financing of the Portuguese economy [exist]," Mr. Teixeira dos Santos said at a press conference presenting the Organization of Economic Coordination and Development's most recent economic survey on Portugal.

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Bloomberg News

Fernando Teixeira dos Santos, Portugal's finance minister.

The cost of financing Portugal's debt has been rising as international financial markets are worried about the minority government's ability to get its 2011 budget approved and to meet its deficit-reduction targets. Portugal's biggest opposition party, the Social Democratic Party, last week said it won't approve the budget if the government insists on further tax increases.

Portuguese Prime Minister Jose Socrates said on Friday that if the budget weren't to be approved, the government wouldn't be able to function. Portuguese media interpreted his statement as hint the government could resign if the budget weren't passed.

Mr. Teixeira dos Santos Monday said that the government will continue its program of structural reforms, including reforms of the labor market, education system, and reforms intended to increase the competitiveness of the Portuguese economy and reduce red tape. He also said the government will soon propose legislation that sets budget spending limits within a framework of multiyear planning.

OECD Secretary General Angel Gurría said that Portugal needs a fast consolidation of its public finances in order to win back investors' trust. "The best way to regain their confidence is a rapid reduction of the deficit," Mr. Gurría said. Mr. Gurría supported the government's focus on structural reform, but also stressed the need for strong political consensus to achieve "ambitious budget cutting."

Euro-Zone Lending Picks Up

LONDON—Bank lending to euro-zone businesses increased in August following a decline in July, boosting overall lending to the private sector, the European Central Bank said Monday.

The euro zone's recovery from the deep recession that followed the global financial crisis has been hindered by weak bank lending, particularly to businesses.

However, the ECB said lending to businesses was €17 billion ($22.93 billion) in August, more than reversing a €11 billion decline in July and trimming the annual rate of decline to 1.1% from 1.4%.

"The fact that broad money and overall credit growth have moved back into clear positive territory is encouraging," said Martin van Vliet, an economist at ING Bank NV. "But the still-sluggish growth rates highlight the underlying fragility of the economic recovery. We are hopeful... that... growth in bank lending to non-financial firms eventually... turns positive. This would bring the prospect of a self-sustaining recovery a step closer."

Lending to households picked up, rising to €14 billion during August from €5 billion in July, with the annual rate of growth rising to 2.9% from 2.7%. As a result, the annual rate of growth in loans to the private sector picked up to 1.2% from 0.8% in August.

The ECB said the M3 measure of broad money supply grew at a more rapid annual rate in August, up to 1.1% from 0.2% in July. The three-month average for the annual increase in M3 over the period from June to August was 0.5%, up from 0.1% in the period from May to July.

The increase in the money supply was much more rapid than expected. Economists surveyed by Dow Jones Newswires last week had estimated that M3 increased by 0.4% on a year-to-year basis, while the three-month average was estimated to have risen to 0.2%.

"Despite the significant rise in August, the euro-zone money-supply data still point to muted underlying inflationary pressures," said Howard Archer, an economist at Global Insight. "Consequently, the ECB still looks likely to keep interest rates down at the current level of 1.00% not only throughout 2010 but deep into 2011, given that the euro zone's economic recovery continues to face serious including tighter fiscal policy increasingly kicking in across the region and slower global growth."

Currency Union Teetering, 'Mr. Euro' Is Forced to Act

LISBON—On May 6, top officials of the European Central Bank were sitting down to dinner with their spouses in the elegant Emperor's Room of the Palacio da Bacalhoa, a 15th-century estate and winery south of the Portuguese capital, when stocks in New York began a terrifying slide.

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Trichet: Life's work on the line.

The bankers' BlackBerrys lit up with frantic notes. The euro was swooning. The Dow Jones Industrial Average had plummeted 1,000 points in the "Flash Crash."

Jean-Claude Trichet, the ECB's president, feared that a fiscal mess in tiny Greece, which had consumed Europe for months, was now touching off another global financial crisis.

It was perhaps the worst of many stomach-churning moments that spring for Mr. Trichet, an urbane 67-year-old Frenchman known as "Mr. Euro" for devoting much of his 40-year career to building the common currency. It now seemed possible the panic could derail his life's work.

Small Businesses Uncertain due to Political Wavering on Tax Cuts

An unforeseen effect of the tax cut debate is currently hampering growth in the US. Small business owners are currently reporting that they will not be hiring new employees until Congress comes to a decision regarding the Bush tax cuts. They claim that they have limited information and cannot expand until they are certain of the impacts of tax legislation on their businesses. The delays are making them uncertain about their bottom line, making it so that they have no idea whether it is economically advisable to invest or hire. Considering that unemployment is far above the natural rate, this uncertainty can only make matters worse. Politics cannot come in the way of economic recovery and growth when it is at all possible to avoid this.

What the Rich Don’t Need

According to top Washington insiders, there is a push to enact a tax cut targeted towards the rich. Essentially, Obama seeks to bring back the financial plan enacted by Clinton officials a decade and more ago. Under this framework, couple's with a household income exceeding $250,000 would receive a yearly tax cut of approximately $6,000 which nationally would equate to what the author referred to as "a $700 billion gift over the next decade." The philosophy behind this is that since the poor spend nearly all of their income, giving them tax cuts wouldn't invigorate the economy. However, the rich would be more likely to spend this tax cut money and re-invest into the economy thus helping the nation out of the current recession.

The only question I have is, Does NO ONE in Washington remember what happened during the Reagan era?

Number of the Week: When Job Creation Is Troubling

36%: The share of the U.S. population that is obese, according to the OECD

Does economic growth always mean our lives are getting better? The case of obesity and the U.S. health-care industry offers reason to wonder.

Through good times and bad, health care has consistently been a driver of the American economy. Even in the latest recession, from 2007 to 2009, the sector added 413,000 workers as the wider economy lost 7.3 million jobs. That’s partially because we have an aging population that naturally pays more visits to doctors and hospitals. But it’s also related to the fact that people in the U.S. are getting troublingly fat.

As of 2009, about 36% of the U.S. population was obese and another 32% was merely overweight, according to estimates from theOrganization for Economic Cooperation and Development. That makes the U.S. the fattest among advanced nations, where the average obesity rate stands at about 16%.

Our weight isn’t a function of our wealth. Rather, obesity tends to be concentrated among the poorer and less-educated parts of the population. These people, according to a new OECD report, are more vulnerable to a convergence of factors — including changes in processing technology, government subsidies and marketing — that have made fats and sugars cheaper and more easily accessible than healthier foods, particularly in the places where the poor tend to live.

Obesity has been a boon for parts of the health-care industry. Consider kidney disease, which according to a 2006 study is three times more likely among the obese. From 1991 to 2009, the share of U.S. workers employed at kidney dialysis centers has more than doubled, tracing a path similar to that of the obesity rate. Population aging probably can’t account for much of the change: The number of people aged 65 or older grew 28% over the same period, while the total number of dialysis workers grew 164%.

To be sure, the health-care industry also works to prevent people from getting fat and sick — one of the aims of expanding health-insurance coverage. But where it’s growing along with our own misery, it’s hard to see that growth as progress.

Central Bank's Move to Spur Loan Demand Falls Short

TOKYO—The Bank of Japan earlier this month took the unorthodox step of providing funds to the country's financial institutions in a bid to kick-start perennially sluggish lending. But the effort hasn't been a hit: Many banks say they don't expect a dramatic improvement in loan demand.

The central bank has made up to three trillion yen ($35 billion) available to commercial banks at a rock-bottom 0.1% interest rate. In return, the banks are required to make new low-interest loans to companies in growth sectors the central bank has designated, such as environment-related businesses and nursing care. Although banks are eager to lend and some companies have tried to draw on the program, many others remain reluctant to tap banks for funds, remaining cautious about borrowing because of concerns over the economic downturn and a strong yen.

The central bank's move was considered a last resort designed to spur lending, which has been declining year on year for nine consecutive months. The bank was also facing pressure from the government to take action to help bring the economy out of deflation.

The central bank hoped the low-cost funds would act as a catalyst to stimulate economic growth. The one-year Tokyo Interbank Offered Rate, or Tibor, a benchmark for financial institutions' borrowing rates, stands at around 0.5%, compared with the 0.1% offered by the Bank of Japan.

U.K. Commission Considers Bank Breakups

LONDON—The U.K. government's Independent Commission on Banking said it will consider recommending breaking up banks, imposing higher capital requirements and taxes for larger ones, and potentially forcing some to sell assets to make the sector more competitive.

In a paper laying out its goals, the commission said Friday that although it is still at the early stages of its investigation, its primary goal will be to find ways to provide stability and competitiveness to the hard-hit U.K. banking sector.

It has asked for feedback from the industry on the issues by mid-November. The commission will then narrow reform options by spring. It is expected to make recommendations to the government by September.

The commission was set up in June following the near-collapse of the banking system during the financial crisis and is headed by former Bank of England Monetary Policy Committee member John Vickers.

Among the reform options being considered, separating banks' retail and investment-banking operations is among the most controversial, and has led bank executives to lobby against the idea, saying the problem lies in regulation, not size.

In a statement, the British Bankers' Association welcomed the commission's work, but added that the sector had "already taken significant steps to improve its financial position."

"We believe that when you look at the issues the commission identifies, and place them against the experience of the crisis, then we have the potential for constructive solutions that take us where we ought to be," BBA Chief Executive Angela Knight said.

Stephen Hester, the CEO of Royal Bank of Scotland Group PLC, said: "We welcome the thoughtful and thorough approach signalled today by the banking commission. We see competitive markets as a good thing and, as shown in our own radical restructuring and recovery efforts, embrace the need for banks to operate more safely than before the crisis."

In the paper, the commission said a breakup could be an internal one, under which a holding company would have two separate units focused on retail and investment banking. It also said it will consider forcing banks to back 100% of retail deposits with "safe, liquid assets, of which government bonds of short-to-medium maturity are the prime example."

The commission's considerations come as at least two U.K. banks are poised to put their investment-banking heads in chief-executive posts, which could increase the pressure against such reform.

Barclays PLC recently announced Barclays Capital's Robert Diamond Jr. will become its CEO when John Varley retires next year. HSBC Holdings PLC on Friday confirmed that investment-banking head Stuart Gulliver will replace Michael Geoghegan as CEO, who is stepping down at the end of this year after being passed over for the chairman's job.

Analysts and industry insiders, however, have said radical ideas such as breakups aren't likely to be imposed by the government, which will have to tread a fine line between promoting stability in the sector and not scaring banks out of the country.

Some banks, including Barclays and Standard Chartered PLC, already have threatened to move their headquarters from London if harsh changes are imposed. Asia-focused HSBC, whose CEO already is Hong Kong-based, could also decide to relocate.

The commission said it will look into competition issues in the sector, which has shrunk amid a wave of consolidation triggered by the financial crisis. The U.K. has about 340 banks, compared with 390 in France and 2,000 in Germany. The U.K.'s six largest banks account for 88% of retail deposits, the commission said.

The top two spots are held by partly state-owned Lloyds Banking Group PLC and Royal Bank of Scotland Group PLC, which could be forced to sell assets if the commission imposes some of the options it is weighing. "A related option would be to impose a limit on the size of a bank's overall operations, by limiting the maximum size of a bank's balance sheet to no more than a certain percentage of gross domestic product," the paper added.

The commission said it will consider imposing higher taxes and capital requirements to larger institutions that pose a higher systemic risk. Foreign operations at U.K. banks could also be affected by the group's recommendations, it added.