Australia, New York, China, Germany ... and of course ... more Greece.

Some days we get up and can't find any articles that inspire us. Today is not one of those days, for the world has gone crazy ... almost as crazy as us.

First, we bring your attention to an article in the Globe and Mail that comments on the $1 trillion bailout for the euro. Apparently, a day after markets went wild with euphoria, traders woke up and thought about the implications. Seems the deficit spending problem has not been cured and the threat to the euro has only been temporarily abated. Wish someone had said something earlier ... wait ... we did!!

Meanwhile, an article in the Telegraph suggests that German voters are upset with Chancellor Angela Merkel for saddling them with Greece's inability to restrain themselves. The German voters were so upset that they trounced Ms Merkel's Christian Democrat Party in regional elections over the weekend striping her of her majority. Speculation in Der Spiegel magazine is that she will soon lose her role as party leader. Germany will have to forego planned tax cuts to fund their share of the bailout. The Greeks are happy ... the Germans, not so much.

And just so you don't start to think that this problem is restricted to Europe, we draw your attention to an article in the NY Post. Seems that the state government is unable to balance their budget and the state workers' union is unwilling to accept pay freezes and are now protesting the planned furloughs decreed by the Democratic governor of the state. How do you spell "New York" in Greek? There is an underlying similarity here, neither Greece nor the State of New York has access to monetary policy as a stimulative tool. If California wasn't in worse shape, maybe they could bail out New York.

An interesting aside to the debt problem. As we mentioned yesterday, the United States is in a different position from the European countries. China has been using exchange rate policy to stimulate their economy. This occurs when the exchange rate is pegged at a rate below the market equilibrium. The yuan (renminbi)is undervalued in comparison to the US dollar. This makes Chinese exports cheaper and stimulates the domestic economy. China's trade surplus must be balanced by a Capital account surplus - US dollars flowing into China. To maintain the low exchange rate, the Chinese central bank must sell yuan into the market, increasing liquidity and the money supply. This may be one cause of the current housing boom. However, increasing the money supply in excess of the economic growth rate is sure to cause inflation. An article in the China Post indicates that the government may not be able to meet the 3% target this year. Monetary policy only works if it's credible. Setting an inflation target and missing it reduces the credibility of the central bank and increases expected inflation making it more difficult to control future inflation.

And while we're on that side of the world, we are reserving judgement on Australia's plan to impose a "Resource Super Profits Tax" on big miners operating in that country. See the Reuters article. We applaud the effort to avoid budget deficits but have to wait and see if Prime Minister Kevin Rudd and his colleagues in the Labour Party have done their homework. Mining giants BHP Billiton, Rio Tinto and Xstrata are all opposed to the tax ... no surprise there, their after tax profits will fall. Whether or not the tax has an effect on investment in that coountry will depend on the cost structure of the firms and the investment opportunities that exist in other countries. If the Net Present Value of a project was positive before the proportional tax, it should also be positive after the tax. Unless the companies are capital constrained, those projects should still go ahead.

Stay tuned.