The Eurocrats finally seem to have realized time is running out. The abrupt market downdraft of last week appears to have focused their minds on the need for a much larger scale rescue mechanism of some form, with numbers like trillions attached, and that will move the Eurozone further towards fiscal integration, another badly needed outcome.
Your truly, along with a lot of the English language press, seems to have misread the resignation of Jurgen Stark from the ECB as a Bundesbankian repudiation of sorts. Instead, it’s a sign that Germany realizes its interests lie in preserving the Eurozone. Per Marshall Auerback:
Most of the ‘blame the Mediterranean profligates rhetoric we’ve been hearing has been diversionary, to draw local attention away from the fact that Germany’s hardcore Bundesbankers are losing this battle. .
The pan-Europeanists are the ones who will support a coordinated response to financial issues, not coincidentally because this will be the only way to retain existing benefit levels once some sovereigns and the banks exposed to them go soft.
Stark’s replacement, Asmussen, is an SPD guy and even though he makes all of the same hawkish noises, he’s not as hard-line as Stark.
Remarks from Angela Merkel over the weekend confirm that the Germans understand full well that they can’t afford a Greek exit:
Merkel rejected Greece leaving the euro area, saying that “we can’t force it, but I don’t believe in that in any case” because it would send a signal to financial markets that attacks on euro-area sovereigns can succeed.
“Maybe Greece leaves, the next country leaves and then the next country after that,” she said. “They would speculate against all the countries.” A small group of euro countries would be left at the end, deprived of the euro’s advantage as the currency appreciates, she said.
Thus Germany is going to pass its version of the TARP on Thursday, which is legislative approval of increased powers of the EFSF, which looks like a sovereign bailout device but is really a “save the French and German banks” vehicle.
The problem is now that the European elite finally realizes it needs to Do Something Big, Fast, political timelines look way out of synch with market demands. As Wolfgang Munchau notes:
The debate has focused entirely on what cannot be done rather than what can – no eurozone bond, no monetisation, no bail-out, no break-up, no this, no that. As the world is discussing the next crisis resolution steps, the European authorities are still struggling with the implementation of the ratification of the rather minor changes to the EFSF agreed by the European Council on July 21, or the perverse debate about Finland’s request for collateral. European policy has been constantly lagging behind.
This will continue. On Thursday, the Bundestag will vote on the EFSF. In October, it will vote on the next loan tranche for Greece. In the new year, it will vote on the European stability mechanism, the successor to the EFSF. By then it may have to vote on a third Greek programme, as the second, not yet ratified, programme is already way out of date. There may be second programmes for Portugal and Ireland as well. Each, of course, will require a separate vote in the Bundestag.
Berlin, however, is not the only source of uncertainty. Parliamentary majorities are melting in Helsinki, The Hague, Bratislava – and Athens. Do we really believe the Greek government can implement one austerity plan after another with a majority of five seats?
So even if Europe’s leaders were to come together tomorrow and agree on all the necessary steps to end the crisis, they would not have solved it until they could demonstrate that they enjoyed full political support. That is unlikely to be the case for a while yet.
And this presupposes they can agree on what to do. The supposed experts, the banksters, are in disarray as to remedies. From Bloomberg:
Wall Street leaders, urging coordinated action from world governments to solve the European sovereign-debt crisis, struggled themselves during four days of meetings in Washington to agree on what’s needed to end it.
The chiefs of firms including JPMorgan Chase & Co. (JPM), Goldman Sachs Group Inc. (GS), Deutsche Bank AG (DBK) and Societe Generale (GLE) SA met for three hours at the National Archives on Sept. 23. They differed on which government and private solutions may restore confidence in European debt and banks, and on some elements of regulation
In one sense, this result isn’t surprising. In fact, it’s bizarre to have US CEOs, who aren’t all that expert in a lot of the issues, try to come up with a solution (normally, you have staffers work to define issues and possible solutions, and have the CEO meetings ideally be ceremonial, or if necessary, to try to make headway on contested issue.
Their anxiety and desire to, um, help, is no doubt due to the number of shoes that might drop in the near future. From the New York Times:
“The next three weeks are absolutely critical, and they can still stabilize the markets, but I wouldn’t tell my clients to put money to work until we see it,” said Rebecca Patterson, chief market strategist at J.P. Morgan Asset Management. “As we stand right now, European policy makers have gotten well behind the curve. It’s not about the periphery anymore; it’s about the core, too.”
A fresh indicator of market confidence in European borrowers will come as Italy sells billions of euros in bonds this week, culminating on Thursday. Weak demand at an auction on Sept. 13 brough global worries about the safety of Italian debt, which stands at a whopping $2.3 trillion, making Italy one of the world’s largest borrowers.
What is more, Italy’s debt load equals 120 percent of the country’s gross domestic product. In Europe, only Greece is in worse shape, with debt totaling roughly 150 percent of G.D.P.
In addition, the Greek Parliament must vote this week on a recently proposed property tax increase that is seen as a test of whether the country will stick to past promises to tighten its belt.
Greece is also trying to show its austerity program is enough to qualify for an aid payment due in October.
And if that isn’t nervous making enough, past agreements may come unglued. Again from the Times:
Under a deal worked out in July, European banks agreed to take a 21 percent loss on their holdings of Greek debt as part of a restructuring that would give Greece more time to pay back what it owes, but now it appears political leaders in Germany and elsewhere want the banks to take a bigger hit.
Wolfgang Schäuble, Germany’s finance minister, suggested as much in a tough speech delivered to international bankers at the Institute for International Finance over the weekend. He argued that because of their bad lending decisions, bankers shared the blame for Greece’s predicament and should also share in the cost.
“Without a substantial contribution from financial institutions,” he said, “the legitimacy of our westernized capitalized systems will suffer.”
But Josef Ackermann, chief executive of Deutsche Bank and the chairman of the Institute for International Finance, quickly rejected any effort to renegotiate what had been agreed to in July. “It is not feasible to reopen the agreement,” he said.
No wonder the big banks are freaked out. These rescues, after all, are really to save their hides.
And if that isn’t discouraging enough, Paul Krugman reminds us that even if the Eurozone officialdom manages to cobble together a big enough rescue vehicle and get it passed, this is still just a bigger, better, kick the can down the road strategy that in the end will fail. These maneuvers fail to address the underlying problem of German’s high level of exports within the Eurozone, and reliance on austerity rather than growth strategies (and writedowns) to help reduce debt level in periphery countries:
Think of it this way: private demand in the debtor countries has plunged with the end of the debt-financed boom. Meanwhile, public-sector spending is also being sharply reduced by austerity programs. So where are jobs and growth supposed to come from? The answer has to be exports, mainly to other European countries.
But exports can’t boom if creditor countries are also implementing austerity policies, quite possibly pushing Europe as a whole back into recession.
Also, the debtor nations need to cut prices and costs relative to creditor countries like Germany, which wouldn’t be too hard if Germany had 3 or 4 percent inflation, allowing the debtors to gain ground simply by having low or zero inflation. But the European Central Bank has a deflationary bias — it made a terrible mistake by raising interest rates in 2008 just as the financial crisis was gathering strength, and showed that it has learned nothing by repeating that mistake this year.
As a result, the market now expects very low inflation in Germany — around 1 percent over the next five years — which implies significant deflation in the debtor nations. This will both deepen their slumps and increase the real burden of their debts, more or less ensuring that all rescue efforts will fail.
And I see no sign at all that European policy elites are ready to rethink their hard-money-and-austerity dogma.
This is all looking hopelessly ugly. I keep trying to remind myself this would make for great theater if we all didn’t have a stake in the outcome. But that line of thinking does not provide as much solace as it should.
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There are no good solutions available at this point in time. Merkel clearly stated the real problem yesterday night on stern TV, namely, we all in Europe (of course in the US too but which she did not mention as far as I remember) lived beyond our means over the past many years (like 20 or so). We now have to adjust.
In actuality, she simply states that the credit bubble is over and we now have to deflate it. Any reasonable person will understand that but of course not those banksters and their accomplices in the US treasury and at the FED.
The problem is not that we’ve “lived beyond our means”. That phrase is so trite as to be meaningless. In the US the vast majority can barely afford to feed themselves while a significant minority can’t afford it at all. These people have not lived beyond their means — they have been robbed and cheated out of the fruit of their labor viciously and systematically.
What’s happened is that we have gigantic dislocations and imbalances caused by massive greed and fraud at the top of the economic pyramid as well as international currency transfers of staggering proportions also due to greed and the enslavement of billions. If human beings were rational we would be rebalancing by any means necessary, which means massive redistribution of wealth back to labor, with the resulting rebalance of trade imbalances as the Chinese begin to consume and import, and the US begins to rebuild and export (just to focus on these two nations). But of course, we will not, because those who control the system are greedy, stupid, cruel and most assuredly not rational. Once again the money addicts have destroyed capitalism. The next 10 years will be a disaster much worse than anything we’ve seen in our lifetimes.
So stick your “we’ve lived beyond our means” where it belongs, up your ass. Maybe you’ve lived beyond your means, so go confess to your priest and pay your debts. But in future speak for yourself as you’re clearly not fit to speak for others.
Oh, and that goes for anyone who utters that garbage around me again.
++++ YankeeFrank, well said. However, in fairness to Linus, he was paraphrasing Merkel from a television appearance and not, I believe, stating it as his own opinion.
The problem is not that we’ve “lived beyond our means”. […]In the US the vast majority can barely afford to feed themselves while a significant minority can’t afford it at all. These people have not lived beyond their means — they have been robbed and cheated out of the fruit of their labor viciously and systematically
Robbed and cheated into buying SUVs? Robbed and cheated into buying houses they couldn’t afford at insane prices without bothering to put 25% down? Robbed and cheated into buying cell phones, Ipods, Ipads, and God knows what else? Robbed and cheated into eating out constantly? Robbed and cheated into paying ungodly amounts for useless university degrees? Robbed and cheated into using their wages to buy up stock instead of paying down debt? Robbed and cheated into taking out of state/international vacations every year?
Surely the consumer had some choice in this matter?
I’d say that “people living beyond their means” is about as close to a truism as you can get in economic analysis (look at debt loads across individuals, municipaliteis, and sovereigns if you don’t beleive me–that debt load represents, almost by definition, “living beyond one’s means”.
Yes, a lot of people got into trouble due to medical bills, but that is only one part of the story (and, incidentally, not enough seem to have experienced this just yet, given the lack of support for meaningful reform in that sector)
I’d say that “people living beyond their means” is about as close to a truism as you can get in economic analysis (look at debt loads across individuals, municipaliteis, and sovereigns if you don’t beleive me–that debt load represents, almost by definition, “living beyond one’s means”. Typing Monkey
So nearly everyone is at fault (except, of course, you with your Commodore 64 and 300 baud modem) OR is the system rigged to drive everyone into debt?
Usury itself is unstable since the interest typically compounds faster than the real economy. Usury plus fractional reserves is even worse since it cheats savers of honest interest rates and inflates prices with counterfeit money – so-called “credit”. And have you never heard of the “business cycle” and the enormous costs it levies on governments via unemployment?
Hey but blame the victims which are what, 99% of the population?
So nearly everyone is at fault (except, of course, you with your Commodore 64 and 300 baud modem)
Ummm..How about I shock you with the idea that I actually saved up to buy my non-Commodore 64 computer instead of borrowing to buy it?
Usury itself is unstable since the interest typically compounds faster than the real economy.
Perhaps that’s why people should be careful about borrowing the money in the first place? And to only borrow it if they feel that they can invest it in something that generates a higher return than the borrowing cost? I mean, isn’t this common sense???
Usury plus fractional reserves is even worse since it cheats savers of honest interest rates and inflates prices with counterfeit money – so-called “credit”.
Not this again. Look, businesses create a product/service and then try to mark it up. When this involves a good, we call it a profit margin. When money is involved, it’s called interest. It’s a different word for the same principle (no pun intended).
And have you never heard of the “business cycle” and the enormous costs it levies on governments via unemployment?
I don’t even understand what you are trying to get at with this point.
Hey but blame the victims which are what, 99% of the population?
I doubt that 99% of the population is likely to default. But hey, if lending money at interest is immoral, surely borroing it at interest is equally immoral? In effect, both sides are agreeing to an immoral contractual obligation. So why are you only blaming one party in the transaction?
And to only borrow it if they feel that they can invest it in something that generates a higher return than the borrowing cost? I mean, isn’t this common sense??? TM
Interest payments (and profit) can only come out of someone else’s principal or add to the national debt since bank lending creates the principal but not the interest for loans. The banks are the creators of the rat race.
But hey, if lending money at interest is immoral, surely borroing it at interest is equally immoral? In effect, both sides are agreeing to an immoral contractual obligation. So why are you only blaming one party in the transaction? TM
Because one side is not lending money; it is creating it. The banks are no different from counterfeiters except they lend their product instead of spending it into circulation.
What’s you point Monkey? You make a loan to someone who cannot repay and it’s the borrower’s fault that you are not repaid. Is it your position that lenders may lend at will and it is the responsibility of the borrower to assure through any means that you are repaid? Do you want to bring back debtors’ prisons or what? When you lend money, you rent it out in the hope of having it repaid. If it is not repaid, it is solely on the lender. End of story! At the end of the day, it is our asymmetrical system — lenders make irresponsible loans and keep profits while others take losses — that will kill us.
“And to only borrow it if they feel that they can invest it in something that generates a higher return than the borrowing cost? I mean, isn’t this common sense???”
Yeah, that’s “common sense” but sometimes even being able to get into a position where you can exercise that kind of common sense is a privilege (or the byproduct of dumb luck).
I’m sorry, but who do you think extended all that credit? The Tooth Fairy? Thank goodness, we had hard-nosed bankers with their MBAs relying on their staffs with their PhDs in economics and finance to set these rubes straight and keep housing and credit bubbles from forming. Oh wait, that didn’t happen.
What did happen is that for the last 35 years you have had the rich and the corps keeping wages flat, taking all of the gains in profits for themselves, selling the rubes on consumerism, extending cheap credit to them, and turning the American public not just into wage slaves but debt slaves as well. And your solution is that Americans should have foregone the credit bubble, accepted a low standard of living, and accepted their status as wage slaves alone. Right …
I would ask if this rant of yours was libertarian twaddle or kleptocratic claptrap but, to be honest, I’m not sure that there is a difference between the two.
The rules of the game force everyone to play, or be left in the dust. It is a Prisoner’s Dilemma…lever up (be “bad”) or lose purchasing power for being “good”. The bankers set the rules to the game, so all you can do is “play” (and the house always wins).
http://en.wikipedia.org/wiki/Prisoner%27s_dilemma
I’m sorry, but who do you think extended all that credit? The Tooth Fairy?
Straw man. Saying that people lived beyond their means does not absolve the imbeciles who lent them money to do so. I think the idiots who loaned this money should take their losses (and have said so numerous times on these boards, btw). That wasn’t the point of my argument, which is that those who borrowed the money clearly couldn’t pay it back and therefore were living beyond their means. Your referencing them as wage slaves more or less confirms my views, rather than detracting from them.
selling the rubes on consumerism, extending cheap credit to them, and turning the American public not just into wage slaves but debt slaves as well.
I find it bizarre that from your perspective the blame only extends to the lender and not the borrower. I can’t fathom under what circumstances only one of the parties could have been irresponsible. Feel free to explain.
And what the hell does it mean to “sell the rubes on consumerism”??? In your view, is the general population so insanely stupid as to not be able to stop themselves from thinking for themselves before borrowing money?
And your solution is that Americans should have foregone the credit bubble, accepted a low standard of living, and accepted their status as wage slaves alone.
Why should people have borrowed so much money? Since when does not having an SUV or buying overpriced houses and university degrees constitute a “low standard of living”????
That wasn’t the point of my argument, which is that those who borrowed the money … TM
What money? The banks don’t lend money, they create so-called “credit” in OTHER people’s goods and services and lend it out for interest that, btw, does not even exist in aggregate. Bankers are thus counterfeiters and frauds since they create impossible contracts in aggregate.
Bankers are thus counterfeiters and frauds since they create impossible contracts in aggregate.
If that’s true, they lose the “credit” that they lent out (which affects their reserves) and eventually go under. In that case, the borrower effectively got something for nothing. So what?
Boy, are we all in for some real fun when the student loan bubble bursts (and students can’t BK their way out of it).
How do you not play? Do you NOT go to college? Do you
go work at McDung’s for minimum wage, to prove you are “good? Hilarious! The players are screwed until/unless the
rule makers are taken to the woodshed.
In that case, the borrower effectively got something for nothing. TM
Not so. The purchasing power for that “credit” is stolen from all money holders especially the poor who are usually not considered credit worth themselves.
The banks put the population into the dilemma of being thieves or victims. Some choice.
Well said. Typing monkey should go climb back in his tree and keep his nuts out of it.
Typing monkey should go climb back in his tree and keep his nuts out of it.
It’s really interesting that a group of people who believe that they think instead of merely regurgitate biases would express such a view, but nevermind. Why should I go climb back to my tree when I can learn so much valuable personal history and general economics from this board? For example, in just these last eight hours I learned that:
1. People who in the aggregate are up to their eyeballs in debt are actually living within their means (thank you, Yankee Frank!)
2. When I call the bankers imbeciles and say that they should eat their loan losses, it clearly means that I want to bring back debtors’ prisons (Thanks to No Know for that one!)
3. Contrary to my own personal memories, I either borrowed a hell of a lot of money to go to college, or else I currently work at McDonald’s (H/T KnotRP for that gem)
4. I am currently a complete pauper and living below my means because I decided not to leverage to the hilt and buy overpriced houses, SUVs, and Apple products (I got that due to the free education from F. Beard, which is a great thing, since I clearly couldn’t have gone to college, as per Knot RP in #3)
5. Since I avoided debt, I am not a thief, but I am clearly a victim (again, that would be F. Beard)
6. I am a victim who has clearly been wrong to be so pissed off with Bernanke and Greenspan. All this time I was annoyed that those idiots have left me with little safe ways of saving, whereas I should be thrilled to get nothing on my savings, otherwise I’d be susceptible to being charged with usery, a counterfeiting, and fraud. (F. Beard yet again–it must be his commitment to religion that has made him so charitable with his infinite wisdom. Perhaps he’ll get Sainthood soon?)
How would I ever learn so much while all alone with my nuts in my tree?
whereas I should be thrilled to get nothing on my savings, otherwise I’d be susceptible to being charged with usery, TM
Actually, Deuteronomy 23:19-20 allows interest to be collected from foreigners. And it is the bankers and the Fed who cheat savers out of honest interest rates. And some interest is justified if for no other than to compensate savers partially for their stolen purchasing power.
a counterfeiting, and fraud. TM
No it is the banks who counterfeit and commit fraud. At most you are guilty of usury. However, most likely you are getting negative real interest rates.
(F. Beard yet again–it must be his commitment to religion that has made him so charitable with his infinite wisdom. TM
A little thought by Calvin and other justifiers of usury for business sake would have revealed that common stock is an ideal private money form that does not require usury, fractional reserves or PMs. But live and learn.
Great point Hugh. The reaction to the citizens having their purchasing power destroyed while simultaneously by outsourcing; offering them debt was merely to mask the reality of the decisions of Sr. Political insiders to gleefully participate in the mercantilist model and profit by legislating it.
Now lets play a game. Who’s job or what agency is responsible for interest rates affecting the rate of change in debt issuance? Help.. Me.. Memory… Kind of Foggy… Something about a Punchbowl and Independence…
Some people say a man is made outta mud
A poor man’s made outta muscle and blood
Muscle and blood and skin and bones
A mind that’s a-weak and a back that’s strong
You load sixteen tons, what do you get
Another day older and deeper in debt
Saint Peter don’t you call me ’cause I can’t go
I owe my soul to the company store
I was born one mornin’ when the sun didn’t shine
I picked up my shovel and I walked to the mine
I loaded sixteen tons of number nine coal
And the straw boss said “Well, a-bless my soul”
You load sixteen tons, what do you get
Another day older and deeper in debt
Saint Peter don’t you call me ’cause I can’t go
I owe my soul to the company store
I was born one mornin’, it was drizzlin’ rain
Fightin’ and trouble are my middle name
I was raised in the canebrake by an ol’ mama lion
Cain’t no-a high-toned woman make me walk the line
You load sixteen tons, what do you get
Another day older and deeper in debt
Saint Peter don’t you call me ’cause I can’t go
I owe my soul to the company store
If you see me comin’, better step aside
A lotta men didn’t, a lotta men died
One fist of iron, the other of steel
If the right one don’t a-get you
Then the left one will
You load sixteen tons, what do you get
Another day older and deeper in debt
Saint Peter don’t you call me ’cause I can’t go
I owe my soul to the company store
– Tennessee Ernie Ford
I can understand your position very well. The average person has been fucked over during the past many years as the real wages hardly grew if at all. We live in a period where a few grow unbelievably and easy very rich at the cost to be carried by the many. I am the first to agree with a law that those bankers who continuously loot the system should get their wealth confiscated and put in jail.
We have had deregulation of banking allowing an enormous build up of credit worldwide prior to 2007. We reached the point when the servicing of those debt accumulated over many years (private, business and government combined) becomes increasingly impossible and we are not even talking about paying back those debts. As long as we have those debts hanging over our heads, I do not believe that we shall be able to have sustainable economic growth.
Step by step has the banking lobby debt-enslaved everyone and his pet with the latest now being governments starting to become insolvent.
We have to cut this slavery and get rid of the debt in the form of creative destruction that will allow a new economic spring to start. But everyone presently in charge is fighting with all means available to make the hard choices.
I really feel with you if you have a hard time as mine may be just around the corner. One never can be sure today as we live in an age of no more rules except might is right.
I often cited that over the past few years the spirit of the rule of law has been repeately violated in favor of a few at the expense of the many.
So I do think, after you read my overall view that I am not the bad guy you suspected me to be but that I have a rather wide and comprehensive view of the present situation.
Linus,
“Capital must protect itself in every possible manner by combination and legislation. Debts must be collected, bonds and mortgages must be foreclosed as rapidly as possible. When, through a process of law, the common people lose their homes they will become more docile and more easily governed through the influence of the strong arm of government, applied by a central power of wealth under control of leading financiers. The truth is well known among our principal men now engaged in forming an imperialism of capital to govern the world. By dividing voters through the political party system, we can get them to expend their energies in fighting over questions of no importance. Thus by discreet action we can secure for ourselves what has been so well planned and so successfully accomplished.”- USA Banker Magazine 8/25/24
Until somebody sees that the enemy is the status quo (whether drooled loving over by the Left or Right, whether pimped by the MMT hoods or the Austrian school tools) we are all screwed.
Linus:
This line of argument works in normal business cycles. Creative destruction is strictly required at least to a degree. We aren’t in a normal business cycle at all. We have been faced with a political crisis more than an economic crisis. What I mean by that is that power has shifted gradually and after 2008 substantially to the international banking community including IMF, central banks, managers of sovereign funds and so on. That means that the new political goal is the survival of those actors no matter what they do. In this case there was not a recession and then a new start of an economy on a more reasonable basis but the outright theft of money from citizens and nation-states through fraud and misrepresentation. The fact the political elits allow this criminality (and there is no ambiguity here on the criminality–fraud is fraud) this arrangement to stand means that all people who believe that, in democracies, the good of the people should be paramount are duty bound to rebel against unelected oligarchs who have no intention of benefitint society in any way–only to live fat off the land in an emergent neo-feudal international system.
I’m sorry but we should turn to stimulus spending on the one hand and mass trials and confiscation of wealth on the other in order to reconfigure the world economy. Of course, we both know this will never happen so disaster will follow disaster and the rich will grow fatter and more powerful and we will be reduced to serfdom. Probably in the U.S. this process is much more advanced than in Europe but it will come to you as well.
Well, I am actually on your page on this subject. With creative destruction I mean the complete crash of the banking sector as we know it at present. It will be harsh on most people but cannot be avoided as doing nothing will make things only worse. Something like better an end in horror than horror without end.
And, I do think, democracy, even if it is very slow, is able to self correct. You can see that slowly people are catching up on what is going on here. I am certain that within the next 5 years, those looters (who think they are the most important people today, namely the bankers) will be chased and caught and put in place, simply because the electorate will choose those people as they had enough of the corruption going on.
If I could not pay for it with cash I did not buy it. Yes, I could have always lived a lot higher standard of living like most people I know but I could see where that would lead. I had lots of people working for me who lived in bigger houses, drove newer cars and etc. Yes, my SO use to get mad at me or think I was crazy, but now she just goes thank cod.
I have lived places where a hot shower was a luxury when I was younger. What makes me happy is a lot less than most Americans.
When I compare our North American lifestyle vs. that of emerging markets, its pretty obvious that we lived beyong our means. Here we are living like kings while paying them peanuts to produce our goods.
In fact, we expected to keep on exploiting merging market forever and now that we owe big time, it’s coming back to bite us in the arse.
The top 1% made sure to pay itself hundreds of millions because they knew it would not last forever, that when the whole thing came crashing down, wages would average out across the planet and they’d need that amount to buy their own island.
Moneta, do me a favor. If you live in a larger city, please drive out to the outer skirts of your city tonight and visit a couple of discount motels.
Better yet, if feel you have money to burn, go ahead and book a room at a couple of these motels over the next couple of nights. Be sure to wander around the motel and motel grounds late into the evening and stay up keep your eyes and ears open into the late hours. Remember, this is part of America too.
Oh, and those knocks on your door, don’t worry about those. It’s either a door-to-door drug dealer taking late-night orders, a hooker, or someone so drunk they can’t find their own room. You’ll find young Mothers with small children there, alcoholics and druggies, criminals, and some people just down and out for being at the wrong place at the wrong time.
And take a trip down to a couple of the soup kitchens for lunch tomorrow. Strike up a conversation with some of the folks in the food line. You might find there are really some decent souls there, and some surprising intelligent one’s as well.
Then to top it off, inquire about visiting the local homeless shelters. There will be shelters for men, as well as shelters for women with small children. Just wander in, ask for the desk and make an inquiry about facility tours.
Next book an evening tour at a local city park in the evening. If you see a large group of people setting in a circle, go ahead and wander over and introduce yourself. Just for grins and giggles tell them you lost your job a 6 months ago and couldn’t pay your rent last month, and you ran out of money to pay the motel you’ve been staying at, and your scared and don’t know what you’re going to do.
Now don’t be surprised, when you see these people have laid out what little resources they have to be shared among the group, and they freely invite you to share with them. And yes they may pass a bottle of wine around the circle and maybe someone will strike up a joint and offer to share it, but don’t feel have to smoke it. And don’t be surprised to hear some of them talk about how they love this country, and some praising God, and some telling the story of being chased by the junk yard dog when they jumped a fence to steal some metal to pawn at the salvage yard.
My point is, yes maybe some of these people weren’t prudent enough, and some of them were swept up in circumstances beyond their control, and some of them have problems that a healthy economy and all of the social support in the world would be wasted on, but there are still plenty of decent souls that are struggling in this country, and we need to worry about them first. It’s their country too, even if they didn’t act prudently before they lost their jobs and their temp labor gave out, and they lost their home and car, and telephone service.
Let’s worry about poverty right here in America where we can do something about it, and let’s trust that the people of China and other countries are resourceful enough to choose the lifestyles that are best for their people. I refuse to believe improving their situation requires us to become a banana republic.
Very powerful commentary Avg. Especially about one doesn’t know until one feels and mingles. Moneto didn’t seem obtuse toward the destitute. Commentary style European, wealthy and well traveled. Believe it or not, some exorbitently wealthy people actually go to Africa or parts of Asia to make sure the money to build the well doesnt go to a Despot or fan club black hole of Uncle Sam’s nation building malinvestments.
It isn’t fair the productive and generous rich get painted as all villains but it is what should be an alarming sign for those continuing certain pillages to exit and seek some repentence while the diminishing but yet peaceful mood persists.
Do they really want to beat the clock and prevent a crisis? Why would they?
I think the German government would be happy to postpone Armaggedon for some months and have some quiet, anticipated elections.
Then they can get their orderly Armaggedon, whereby Southern Europe goes Argentina and France, Germany et al make a fiscal & economic union.
‘The chiefs of firms including JPMorgan Chase & Co. (JPM), Goldman Sachs Group Inc. (GS), Deutsche Bank AG (DBK) and Societe Generale (GLE) SA met for three hours at the National Archives on Sept. 23. They differed on which government and private solutions may restore confidence in European debt and banks, and on some elements of regulation.’
So they presuppose that this is all about rescuing them from failed decisions, such as their loading up on Greek debt (pre-2010) simply to pick up a few dozen basis points of yield.
Individual investors who made the same mistake have lost half their capital. No one is going to bail them out. Italian retirees who held Argentine debt in 2001 (sold to them by banks, in many cases) got 30 cents on the dollar.
Evidently, accountability is for little people, not for TBTF banks.
The repellent scene of the Sep. 23rd bankster meeting is reminiscent of the Nov. 1910 kaffeeklatsch at J.P. Morgan’s Jekyll Island estate, involving attendees representing the Morgan, Rockefeller, Rothschild, Warburg and Kuhn-Loeb banking interests. A hundred and one years on, nothing’s changed.
In functional terms, bailing out these influential but profoundly incompetent financial interests represents a massive malinvestment of capital into unproductive use. Combine this with other grand-scale malinvestments — such as the permanent wars of the Bush/Obama administration — and is it any wonder why there’s little growth, and living standards are inexorably sinking?
As Woody Wilson ruefully wrote:
http://en.wikiquote.org/wiki/Woodrow_Wilson
Never happened, Woody. The banksters OWN those ‘statesmen.’
One aspect actually irks me lately. Today’s bankers (not like those long time ago) are simply employees without downside risk if things go bad.
Where in all of this are all the share holders of these banks? Why are the share holder not going after these guys who loot actually taking like 40 to 50% off the profits and disappear when things turn down. Where the hell are they and why they do not take action.
By the way (I may be wrong thou) I do think that some share holder just got real upset and fired Gruebel (the souvereign fund of singapore).
‘Shareholder democracy’ works about as well as political democracy — meaning that the oligarchs still run the show, while voting provides the illusion of control to the credulous masses.
Meanwhile, Susan Woodward and Robert Hall have some practical suggestions for structuring big banks so that when they screw up, they can be reorganized at the expense of debt owners and shareholders without major disruption of operations:
http://woodwardhall.wordpress.com/
Meanwhile, the French are about to violate every single one of these precepts, as they prepare to bail out a brain-dead P.O.S. like Société Générale.
That lumbering dinosaur with a peanut-sized cranial cavity ought to be clubbed out of its misery, instead of waiting on an asteroid strike to do the job.
“…that will move the Eurozone further towards fiscal integration, another badly needed outcome…”
Because this is a highly undesired outcome to most Europeans, any can-kicking, banker-enriching, off-sheet-balancing “solution” is likely to bring them closer to the kind of internal conflict the EMU was supposed to help them avoid. Leave it to the economists to assume the solution before working the problem.
Namazu: “Because this is a highly undesired outcome to most Europeans,”
Indeed!!
Am I the only one who considers the paragraphs from Munchau above highly undemocratic?
Munchau: “the European authorities are still struggling with the implementation of the ratification of the rather minor changes to the EFSF agreed by the European Council on July 21, or the perverse debate about Finland’s request for collateral. ”
To call the huge (in size) and fundamental (change of scope) changes ‘only minor’ is truly shocking. National parliaments have agreed to Maastricht treaty and ECB founding rules.
Parliaments in a democracy have to be able to study proposals — most definitely hen the proposals are against the previously agreed treaties — consider the pro’s and con’s, try to think through the consequences, consult the people the democratically represent, etc.
To be against that is to be against democracy.
The democratic outcome of the democratic election in Finland in April resulted in the demand by the Finish people of collateral for new loans. (It was the Greek government who proposed to the Fins to take money as collateral.)
It is stunning to read that many people (unfortunately Munchau is not alone) do not want to adhere to democratic principles when the majority of people has another opinion than their own. Just call those people ‘populists’ and let them life as if under dictatorship.
I emphatically agree.
Those that continue to insist on a fiscal union are going against the democratic wishes of the majority of the EuroZone.
It’s akin to Congressman Ryan and his entitlement cuts. He would argue that the American people just don’t realize what they need, the same way those who insist on fiscal union would describe the Germans.
Eupean fiscal union= end of democracy
The Europeans don’t mind a riot. Be careful how far they push this.
Asmussen may be a SPD guy, but foremost he’s a member of the Banker Party.
Linus, could it be that we have lived below our means over the past 20 years and now must adjust the means of production?
well, when a credit bubble implodes, I suspect everyone will suffer. I would propose that we in the western countries do not really know anymore on how little one can live if we would be forced to.
Anyway, I do not understand the general attitude towards the opinion that we lived beyond our means. Who exactly increased those housing loans when times were better and one could extract free cash from one’s real estate. It certainly was not a ghost but some real people. This is what is meant living beyond one’s means. One should never increase a loan on a home but reduce it continuously after purchase.
Quaint notion. But seriously, when the alternatives are to take money against a property when that money is at a lower interest rate, deductible against taxable income and the security is second behind a non-recourse first mortgage, or rather have your children take that same amount at a higher rate student loan that is not even dischargeable in bankruptcy, you’d be a dang fool not to lever up your house. Okay, so the proper solution would have been for everyone to save, but if you didn’t save and your kid is 17 already, you are looking for options. Sure, a lot of the cash-outs were for boats and such, but many made honest livings building boats.
I have met Asmussen. He is highly intelligent and pragmatic. Whether the context in which he finds himself gives him freedom to show his good qualities is something I am less clear about.
Huh,huh,…uhh,huh,huh,..uuhhh, you said ASSMUSSEN! Huh, yeah, you said ASS mussen. Uh let’s watch something else Beavis, CNBC sucks!
“…that will move the Eurozone further towards fiscal integration, another badly needed outcome…”
The people don’t want further integration. It’s the euro that has caused much of the current problems and you say further integration is a badly needed outcome? Cue Nigel Farage…
Here’s your answer Yves…
http://www.federalreserve.gov/newsevents/conferences/irfmp12.htm
Try to get yourself an invitaton Yves. I would appreciate you representing me.
I agree with Paul Krugman. The euro was a mistake to start with and the best way is to disband now in a somewhat orderly fashion (oh, it’s going to be ugly for sure), rather than being forced to do it at some later date with catastrophic outcomes. Kicking the can down the road has never been a good solution when the problem is real. That is what European politicians have been doing for too long. No ECB can accommodate the needs of Portugal as well as those of Germany or Netherlands. Face reality! After all, at least in Northern Europe, we lived quite well before the euro. The common market was in place and most exports of Germany were already to Europe, but in case of dire need, Italy could devalue in order to boost competitiveness and exports.
Amen to that.
I don’t get the whole finance-ist desire for full Euro integration. Full integration means the “sovereigns” mentioned by Merkel vis a vis speculators speculating against are no longer sovereign. Full Eurozone financial integration means governments are no longer able to do for their peoples what needs to be done and what those people want THEIR government to do. It means some distant foreign bankster in Brussels or some such dictating/reigning in “sovereign” governments. It means no ability to go into debt as REQUIRED to fight economic downturns, instead forcing austerity on countries/people just when that is the worst possible policy. Basically, it is handing the reigns of actual government over to financial criminals (and ALL people in high finance are criminals).
Sovereign government MUST have SOVEREIGN control over their own monetary policies, economic policies, etc. All integration means is that the lowest common demoninator as far as universal healthcare, labor law and pay, becomes forced on everyone while banksters get to rake in uncontrolled benefits for themselves.
Screw integration.
Sovereigns have power over their territory, not over some other sovereigns territory. But the capitalist is a non territorial, transnational system that moves over, around, within, and among the territories. The answer to the global non territorial based power of capital, is a larger sovereign entity that will restrict, command and control the movement of capital within consenting territories. Also, after due deliberation, which is what nations do, as opposed to lighting quick capital, an integration of laws with global reach, transnational in scope, is all that a sovereign can do to protect themselves from the business enterprises that are currently beyond their jurisdiction.
The UN was supposed to provide this, in conjunction with global entities such as the World Bank and IMF, but the power of the market has been put beyond the reach of state jurisdiction by the free trade doctrine and deregulation of private capital. It is an either or proposition. Either the individual states aggregate and globally scale their jurisdiction commensurate with transnational capital or they remain in silos, protecting their turf, while outflanked by capital run amok. It is the political equivalent of self defeating trade barriers, while you legally control your nation, you financially grant the free trade rights that make your sovereignty a moot point.
Sovereignty is not an all or nothing proposition in this case. A global financial regulatory entity, limited not in scope of reach, but limited in power as to its mission, and how much control it has over individual signatories, is an instrument that has the only chance of dealing with transnational flows of capital.
The convenient whine that this can be turned against the individual states and prevent them from helping their population can always happen, no matter the structural barriers enacted from the beginning to create a workable global regulatory body. After enough political struggle, any entity can be turned from a tool of development and shield of democracy into a tool of oppression. But it is not the inherent result from the architecture of a global body, that is given limited sovereign powers of each of its members.
Due to the nature of the financial crisis, and its capacity to destabilize the larger social order out which our economic activity arises from, the politicians are taking a hard look at the matter and how it affects their nations. Germany, has a long intellectual tradition of sociological analysis as a primary tool of political economy management, not one dimension economic pronouncements. Hayek had to leave Austria, to come to America to be popularized by Readers Digest, because he was a non entity in Europe.
The deliberations of the politicians are not as swift as Mr Market may be used to with dedicated fiber optic cables carrying one algorithm direct to the NYSE. But nation states have a perpetual event horizon, not a quarterly outlook. Politics, is a much more serious endeavor than making money, which we can print or digitally distribute, we can’t build a nation quite as easily as we can make a buck. So, the politicians, while not moving as quick as they should to avert disaster, are at least carrying out their organizational mission, which by virtue of their office, is not to run like a business, not act like a family sitting around the kitchen table, but to ensure the nation state carries on in the face of whatever organized opposition they are presented with. In this case, war being politics by other means, translates into politics being carried out by economics in the form of a new mechanisms for the transmission of money.
“The convenient whine that this can be turned against the individual states and prevent them from helping their populations can always happen, no matter the structural barriers enated from the beginning to create a workable global regulatory body.”
The inconvenient truth is that the feckless who believe in a global regulatory body see so much benefit in more layers of bureaucratic dickheads to manage 7 billion plus people that they would gladly overlook the enslavement of anyone to perpetuate their worldview.
How about 7 billion dickheads, all libertarians, atomistic rugged individuals, doing their own groovy thing, it would be cosmic, instead of having a real bummer of a hierarchical hegemony of running dog lackey paid agents of the elitist overlords and their jejune and inauthentic consciousness. It’s like all so totally fascist, gag me with the piano wire.
Awsome political analysis Paul and even better retort. Globalization has been happening for 30,000 years. The pattern is unmistakeable. But I have concluded that those of well intent in implementation were led off a cliff.
Having said that, I believe we are still two centuries from globalization and it coincides with the arrival of clinical immortality. At that point, “Nothing to kill or die for” (que John Lennon).
I don’t get the whole finance-ist desire for full Euro integration.
It is easier for a small elite to control one set of regulators and politicians based in a centralized location than it is for them to control 27 sets of regulators and politicians spread, in 27 countries, across Europe.
In so many words, it is easier for a small elite to take control of the state or transnational agency for a consolidated group of states. But then, we do not live in the head that contains those so many words. So, from where we are now, I suppose you prefer the global capitalist system that is the blueprint for Al-Queda, a stateless, roaming flow of unregulated political power in the form of unregulated capital showing up where ever it pleases, and leaving when ever pleasing. And if it pleases to build one set of nations, the East Asian Capitalist Archipelago and keep another set in a chaotic state of famine, pestilence, disease and war, Africa and the Middle East, hey, at least evil doers will not have a crack at an agency that if taken over by them will give them even more power.
Gee, I wonder why they don’t propose these consumer protection agencies from the get go, since they completely control all of the politicians all of the time, and it’s totally useless to point out the obvious need for a transnational power representing states to face the transnational power that represents capital. Or is too many people and too much complexity just to much to think about beyond, ohhh, do you know how much that costs, if the mean took over that, we would all be under their thumb.
Let’s not do anything that has to do with power, because if we have power, some one will take it away from us and use it against us. Better to just say no, no, no, no, no, no to everyone who does not just denounce kleptocratic bureaucracies, fascist corporatists and bankster $%#@holes!!
No, I would prefer a world with more the potential for varying levels of barriers to trade and capital, at the discretion of a large number of strong, nuclear-armed states.
Less efficient? Sure, it’s less efficient, at least in aggregate.
Ask a lot of people in North America right now how much they’re liking the current sort of global aggregate efficiency.
Efficiency has made strides in recent decades. Fine, great, wonderful, whatever. Now it’s time for Efficiency to wait, while Justice catches up.
The problem does not appear when one lives beyond his means. It appears when the bill comes. And how the bill is paid. Personally I didn’t live beyond my means at all. Last year I made $110,000, I have no debt, and I still drive an old Toyota 98 (sedan). However, I am punished because the neighbor had to buy the SUV.
It’s the “Redistribution of Liabilities” that hurts the economy. If my conservative investments are tanking and I can’t hire a much needed secretary (instead I do her work on the weekends), then it means that the irresponsible are been bailed out at my expense, and at the expense of the unemployed secretary.
This was almost always happening in Europe, but never in the U.S. Never until recently.
But if the U.S. becomes Europe, then you should also expect European things: 12% unemployment, “apartment” life, almost zero research, almost zero armed forces, low degree of innovation and a culture revolved around the all powerful bureaucracy and its members. Forget the Civil rights, it’ll just be the Civil Code and the resolutions of the Federal Government, one suit fits all. I lived 30 years in Europe. And there won’t be another America to send the serious cases of patients that the local “public health” system can’t treat.
The U.S. used to be the most fair country. Now it is an Unfair Country.
It bails out the irresponsible at the expense of the hard working. It used to be great. Now it has start to suck (not as bad as Europe yet, but getting there).
Just out of curiosity: have you ever been to ‘Europe’ (a startlingly diverse subcontinent)? Because your ‘description’ seems rather off.
And similarly for your first statement: you aren’t being punished because “your neighbor bought an SUV”, you are being punished because your politicians are beholden to a bunch of people who want to profit as much as they can for as long as they can — either through rent/interest extraction, through pension fund raiding, through stock market shenanigans, through using public funds to save banker bonuses and military expenditures, through outsourcing of government functions (at highly increased “cost”) to companies like Blackwater/Halliburton and CH2M Hill, etc. Your neighbors “profligacy” is little more than the thing that is meant to distract you from the rather more important issues.
The argument for the euro always was that its ridiculous that within 100 miles there should be Belgian Francs, French Francs, Dutch Guilders, German Marks. Why? Makes no more sense, in fact less, than NYC having its own currency, NJ, Pensylvania, why not Staten Island?
Heck, given the trade between China and Japan, maybe the Japanese should cede monetary sovereignty to China. And why is Canada using its own dollar? Would it not make more sense to use the US dollar?
It’s a slippery slope.
«reliance on austerity rather than growth strategies (and writedowns) to help reduce debt level in periphery countries:»
If there is a logic to this, it is that some government are aiming for a deliberate reduction in living standards of most residents (in particular those residents who have no or less property and vote less frequently) in order to suppress imports, especially imports of resources like oil.
Perhaps the aim is indeed demand suppression, to prevent a global commodities bubble and growth being limited by resource constraints and generating cost-push inflation. Wages may be being deliberately deflated to make room for resource cost inflation.
My impression is that is the logic of the Tory government in the UK that has to deal with the UK being now a net oil importer rather than a net oil exporter. It may be the logic behind the bahviour of other governments that see the rise of Chinese and Indian consumption as huge pressure on resource prices.
As to the severity of the resource constraint issue, these (already quoted) are probably the most important new of the decade if not the century:
http://theenergycollective.com/ansorg/63481/saudi-arabia-s-nuclear-energy-ambitions
«The Kingdom of Saudi Arabia (KSA) plans to build 16 nuclear reactors over the next 20 years spending an estimated $7 billion on each plant.
The $112 billion investment, which includes capacity to become a regional exporter of electricity, will provide one-fifth of the Kingdom’s electricity for industrial and residential use and, critically, for desalinization of sea water.»
««reliance on austerity rather than growth strategies (and writedowns) to help reduce debt level in periphery countries:»
If there is a logic to this, it is that some government are aiming for a deliberate reduction in living standards of most residents (in particular those residents who have no or less property and vote less frequently) in order to suppress imports, especially imports of resources like oil.»
Otherwise there is the usual “bitter medicine is good for you” idiocy which has a long history, as J. K. Galbraith wrote in his fabulous “The Great Crash 1929”, which could be republished almost verbatim today with dates and a few names changed:
«Asked how the government could best advance recovery, the sound and responsible adviser urged that the budget be balanced. Bot parties agreed on this. For Republicans the balanced budget was, as ever, high doctrine. But the Democratic platform of 1932, with an explicitness which politicians rarely advise, also called for a “federal budget annually balanced on the basis of accurate executive estimates within revenues …”.
A commitment to a balanced budget is always comprehensive. It then meant that there could be no increase in government outlays to expand purchasing power and relieve distress. It means that there could be no further tax reduction. But taken literally it meant much more. From 1930 the budget was far out of balance, and balance, therefore, meant an increase in taxes, a reduction in spending, or both. The Democratic platform in 1932 called for an “immediate and drastic reduction in governmental expenditures” to accomplish at least a twenty-five percent decrease in the cost of government.
The balanced budget was not a subject of thought. Nor was it, as often asserted, a precise matter of faith. Rather it was a formula. For centuries avoidance of borrowing had protected people from slovenly or reckless public housekeeping. Slovenly or reckless keepers of the public purse had often composed complicated arguments to show why balance of income and outlay was not a mark of virtue. Experience had shown that however convenient this belief might seem in the short run, discomfort or disaster followed in the long run. Those simple precepts of a simple world did not hold amid the growing complexities of the early thirties. Mass unemployment in particular had altered the rules. Events had played a very bad trick on people, but almost no one tried to think out the problem anew.
The balanced budget was not the only strait jacket on policy. There was also the bogy of “going off” the gold standard and, most surprisingly, of risking inflation. Until 1932 the United States added formidably to is gold reserves, and instead of inflation the country was experiencing the most violent deflation in the nation’s history. Yet every sober advisor saw danger here, including the danger of runaway price increases. Americans, though in years now well in the past, had shown a penchant for tinkering with the money supply and enjoying the brief but heady joys of a boom in prices. In 1931 or 1932, the danger or even the feasibility of such a boom was nil. The advisers and counsellors were not, however, analysing the danger or even the possibility. They were serving only as the custodians of bad memories.
The fear of inflation reinforced the demand for the balanced budget. It also limited efforts to make interest rates low, credit plentiful and borrowing as easy as possible under the circumstances. Devaluation of the dollar was, of course, flatly ruled out. This directly violated the gold standard rules. At best, in such depression times, monetary policy is a feeble reed on which to lean. The current economic cliches did not allow even the use of that frail weapon. And again, these attitudes were above party. Though himself singularly open minded, Roosevelt was careful not to offend or disturb his followers. In his speech in Brooklyn towards the close of the 1931 campaign, he said:
“The democratic platform specifically declares `We advocate a sound currency to be preserved at all hazards.’ That is plain English. In discussing this platform on 30 July, I said ‘Sound money is an international necessity, not a domestic consideration for one nation alone.’ Far up in the Northwest, at Butte, I repeated the pledge … In Seattle I reaffirmed my attitude …”
The following February, Mr Hoover set forth his view, as often before, in a famous letter to the President-elect:
“It would steady the country greatly if there could be prompt assurance that there will be no tampering or inflation of the currency; that the budget will be unquestionably balanced even if further taxation is necessary; that the government credit will be maintained by refusal to exhaust in the issue of securities.”
The rejection of both fiscal (tax and expenditure) and monetary policy amounted precisely to a rejection of all affirmative government economic policy. The economic advisors of the day had both the unanimity and the authority to force the leaders of both parties to disavow all the available steps to check deflation and depression. In its own way this was a marked achievement — a triumph of dogma over thought. The consequences were profound.»
«“Maybe Greece leaves, the next country leaves and then the next country after that,” she said. “They would speculate against all the countries.” A small group of euro countries would be left at the end, deprived of the euro’s advantage as the currency appreciates, she said.»
That’s one of the best quotes (about vendor financing). Now if European voters were not largely pig-headed insiders they would understand that and the implications, and Greek voters would get rid of the kleptocracy in Greece, and German voters would tell the German government to bail out the no longer kleptocratic Greece.
Yes and here we could add some data for clarification. From 1970 up to the year 2000 the accumulated current account surplus of Germany was about 100 bn Euros (or the DM equivalent). From 2001 until end of 2010 it was 1.05 trillion Euros! You would not read that in german headlines but it is central for understanding what the european debt crisis is all about. As Michael Pettis has said: Foreigners finance current account deficits, not fiscal deficits. So the whole focus on sovereign debt very much misses the point in the debate and I believe this is only because nobody wants to tell the german working people the truth that they have been giving away their labour in return for stagnant wages. The profits of that trade sit as bond holdings in the portfolios of the wealthy and they now want the people to pay again in order to keep them whole.
«nobody wants to tell the german working people the truth that they have been giving away their labour in return for stagnant wages. The profits of that trade sit as bond holdings in the portfolios of the wealthy and they now want the people to pay again in order to keep them whole.»
Ahhh it is refreshing to see the words of a big optimist.
Because I think that the situation is much worse than that.
The profits of that trade sit as bond and share holdings in the portfolios of pension and insurance funds for middle aged middle class boomer German (and French) workers (who can be the most ferocious pig-headed entitled people).
If Greece and others default the losses would hit in large part German and French pension and insurance funds, in two ways:
* the sovereign bonds found their way disproportionately into pension and insurance funds and the losses would severely shrink the actuarial value of those funds;
* the shares of large financial companies that are in those pension and insurance funds would get wiped out because German (and French) financial companies are massively leveraged and even small losses would be greater than their capital+reserves and bankrupt them.
German (and French) pension and insurance funds have a lot of sovereign bonds and German (and French) financial companies are fantastically leveraged with lots of sovereign bond assets because of the same reason: regulatory arbitrage, as German (and French) regulators allowed them to load up on high yield sovereign bonds rating them as “safe”.
German workers might tolerate stagnant wages if this is related to safe employment and especially safe pensions; after all Bismarck invented them and are now part of the German tradition. Middle aged middle class German workers voted for the vicious Hartz cuts and mini-jobs for young workers and immigrants because they were promised those cuts would guarantee the safety of their jobs and pensions.
No German politician can risk impairing that.
The profits of that trade sit as bond and share holdings in the portfolios of pension and insurance funds for middle aged middle class boomer German (and French) workers.
Bingo.
But these portfolios are basically IOUs whose existence are due to people living beyond their means. The bill is now due, and those IOUs are going to get wiped out, along with people’s pensions. There’s no ideology to this, and ideology won’t save anybody from this.
And sure, there will be unrest. But that can’t change the basic fundamentals that Europe is broke.
Greek voters would get rid of the kleptocracy in Greece, and German voters would tell the German government to bail out the no longer kleptocratic Greece.
You lost me here–why would the Germans bail out the Greeks? Let the currency union breakup and let the speculators try to make money if they like. In the end, the Germans get a stronger curency and more control over it, and the Greeks get to decide whether they really want to run deficits, and if so, if they are willing to pay the market-going price for running deficits
We have seen this all before. In 2007 and 2008, US authorities had many opportunities to either head off disaster, mitigate or reverse its consequences. Instead at each and every fork in the decision tree, they chose to bail out the banksters and leave the underlying problems unaddressed even though this made any subsequent solution both harder and more costly.
The European elites are doing the same. My criticism of most standard perspectives is that they are at a loss to explain why policymakers continue to make bad decisions even when they must know what they have done and what they are planning to do is insufficient. These crises have been going on, after all, for 3-4 years depending on whether you count the beginning from the housing bust in 2007 or the meltdown in 2008. So why do they keep going for the same failed options? The advantage of viewing events from the kleptocratic perspective is that the inconsistencies and noise disappear. Our elites are not incompetent. They are merely criminal. They consistently don’t fix anything because they consistently don’t mean to fix anything.
Example in point, the current plan is just another bailout for the eurobanks. It doesn’t fix the problems of the euro, German mercantilism, debt in the periphery, growth, or looting. It doesn’t even really fix the banks. They retain their bad managements and their moral hazard. You see once you make the trivial assumption that the elites (American, Europen, Chinese, etc.) are not acting in good faith their actions and programs become both comprehensible and predictable. That is the mark of any good theory.
Thanks Hugh. That is the proper assumtion.
Stock trader gives brutal truth to BBC. Sachs rules the world, traders love crashes, expect worse in 12mo
http://www.youtube.com/watch?v=aC19fEqR5bA
Thanks for the link!
It is refreshing especially unlike any one at CNBC, this guy gave his opinion head on without any BS! Just like him I was waiting for this ‘minsky’ moment to go in action for the 2.5 years!
As he said, hoping and wishing are not tools for financial planning!
First Financial weapons of mass destruction got a face: CDO-squared, CDS, leveraged off-balance sheet SIV’s.
Now financial terrorism got a face.
Watched it twice, and no …. this wasn’t SNL or the Onion video.
He is presented as an ‘independent trader’ (also googling his name).
Are any insiders able to tell whether he is a so-called lone wolf, or are there many more financial terrorists like him?
Yves, a question for you.
Are you in favor of a fiscal union for the EU, and if so, how do you reconcile that with the overwhelming opposition to that in the northern European countries.
Should the northern European bureaucrats ignore their constituencies? Should the German pols ignore their constitution?
And if one believes that, where do we draw the line? Should GOP politicians also have the right to cut entitlements in the US, despite overwhelming opposition, because, as they say, “it’s the only way to save them”?
The difference between the US and Europe are majorly different.
They want fiscal de-unification in the US to make it weaker and open to gutting the rest of democracy, using the states as economic units. That was how the “colonies” were developed in the first place. Political units, they were not by the revolutionary war, they became. When you talk about “strict constitutionalism” and “states rights” it is really about weakening states via weakening the Federal Government. So getting rid of social insurance programs and infrastructure is that way. States become weaker and less political, more economic. Of course there are “controversies” inside the cabal itself of how to do this.
Europe on the otherhand, isn’t unified enough. They are like warring semi-fractional political units that must be pacified into being economic units. Similiarly, to the pre-constitution America. I would read up on “why” the constitution “really” was formed. It has been dicussed several times on this forum.
The problem however, unlike the American colonies which came from the same birth canal, the European ones didn’t. That fact alone makes a say, even a mid-20th century US federal system impossible. It is why the breakup of the EU should be considered.
They have been for ages, and they have little to no interest in making the institutions more (let alone actually) democratic any time soon — too much is at stake (such as the 2% inflation/interest rate policy). So I don’t really understand your point. Currently, far too much power resides with the councils of ministers, and with the unelected councils, and far too little resides with the EP. Moreover, the EP’s agenda is dominated by entirely different issues from those that are at play in the member states, further ensuring that there is a huge disconnect (and therewith misrepresentation) going on.
Someone please correct me if I am misunderstanding this, but even if Europe did come together well enough to put together and implement a bail-out, doesn’t that just get them to where the US already is. Which is not exactly the same thing as an actual solution.
Seems like they concentrating on the wrong target – they need to figure out how to BK all the banks which are insolvent and restructure so that the banks quit creating all these problems.
Everybody likes to argue about people who take loans and cannot replay them – the real problem is banks keep making these loans and expect taxpayers to pick up the tab – so getting rid of those banks is the answer.
The gutless politicians should either raise taxes to cover their deficits or reduce spending to eliminate them or a little of both.
Why? Neither will do much good anymore–we are way, way, way beyond that point.
IMO, “gutless politicians” should keep borrowing money from people who are stupid enough to lend to them and use that money to invest in something that will provide a long term advantage that continues to persist long after the inevitable defaults hit.
Of course, that’s not too much longer.
Just can’t see how being stampeded by “markets” engaged in financial war into ceding an enormous concentration of power to centralized technocratic institutions that democratically answer to nobody is going to be good for ANY of the peoples of Europe, though clearly a good gig if you’re a global predator.
I don’t think Europeans want to say good bye to all those immensely valuable social contracts – what it means to HAVE one. Good bye Kyoto. Good bye any hopes for a better deal for immigrants. Good bye to islands, airports, monuments, bridges, whatever can be hocked. Good bye to German morale and perhaps excellence. Good by forever to fun for Meds. Good bye independent voices on global affairs (UN). Good bye…
History records who ends up with all the marbles in an unequal war – Europe will end up with none if they do not radically change course away from a system based on globalized predatory debt peonage towards the freedom and sustainability of a re-localization of economies. The EU/Euro was all about the unstated assumption that bigger is better. Well, it isn’t. Not when it’s the very scale of operations that most threatens.
Failure is our best hope. ‘Western, capitalised markets’ have been a disaster for working people, the economy and the environment. The term is now simply a loose euphemism for an already discredited system of privatized gains and socialised losses.
It’s now time to nationalise the banks, destroy the credit monopolies and their coroporate cartels, and return banking to the public sector as a utility service.
Capitlism has failed: Culturally, materially, socially and ecologically. It’s time for a reassertion of republican principles in the economic sphere.
Growth happens when a nation has something special to offer such as Technology (US), Quality (Germany), Cost effectiveness (China).
Some irresponsible politicians however use government fund to grow the economy, taking the easy way out. Bankers are happy enough to join the party to fund the growth and citizens are indulge in the growth that they never deserved.
These politicians are elected by the majority of the citizens so I believe it is fair that the whole nation face the music. Bankers are too greedy to fund the growth so they are equally responsible.
Down grade the standard of living, live close to poverty like most Indian, Chinese and work hard and situation will recover over time. This is the normal way out for a person in bankruptcy. This is the normal way out for a nation in bankruptcy. Any other methods is just refinancing which will defer the problem but make it worse.