I hope readers forgive me for not posting myself tonight. I not only have a lot of good guest contributions, but Philip Pilkington called my attention to this presentation by Dr. Heiner Flassbeck, a former deputy secretary in the German Ministry of Finance and currently chief economist the UN agency for World Trade and Development in Geneva. Even though I feature videos from time to time, I thought this one was particularly worthy of reader attention.
Don’t be deceived. The talk starts out a bit dry, but Dr. Flassbeck builds up a real head of steam as he gets into his material.
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Fantastic ending.
He notes that Lafontaine was his minister. Lafontaine resigned in 1998/9? from SPD/Green after a short time as finance minsiter, moving on to a leadership position in the Linke partei which currently has 76 out of 620 seats in the Bundestag.
Very strong arguments! Thank you for highlighting this presentation!
Socialist (says the GOP)! This one is not a fake!
Very good talk. The essential fact of the global corporate attack on wages ought at minimum share centre stage with other arguments re the causes of these serial crises since the ’80’s, though it almost never does.
But I think he’s wrong on 1 point. He says Germany can play “beggar thy neighbour” (even if that’s not the explicit intent) in a monetary union, but that the US cannot. I say ask Bernanke or Geithner on behalf of the US what he thinks of the idea of giving up the world reserve currency and everything that goes with it to some entity it does not and can not control and see what he says.
“He says Germany can play “beggar thy neighbour” (even if that’s not the explicit intent) in a monetary union, but that the US cannot.”
“Beggar thy neighbor” means running large sustained trade surpluses, which is what Germany does but the opposite of what the US has done for decades. So I think he’s right.
Yes, Geithner and Bernanke would be aghast at the US choosing to give up its reserve currency status, but I’d be all for it. The supposed “exorbitant privilege” has become a golden noose. We’ve been destroying the real economy in the US by running large trade deficits for so long.
we are already well along the way down the slippery slope of ending the dollar as world reserve currency.
“A survey of more than eighty reserve managers for central banks around the world predicted in June that the U.S. dollar would lose its reserve currency status over the next quarter century. Most of the officials polled by the Swiss bank UBS said that they expected the dollar to be replaced by a basket of currencies. A decades-long fadeout would be consistent with historical precedent: That’s how long it took for the British pound to be replaced by the dollar.”
http://www.the-american-interest.com/article.cfm?piece=1157
Reminds me that Keynes wanted a non-national reserve currency, held up by a fund of national currencies, but that the US representatives where strongly against it during the port-WW2 negotiations.
I wasn’t aware that “beggar thy neighbour” is a technical term. I understand his use, and yours, but I hardly think that’s the only usage, and wasn’t mine in that narrow a sense.
Being The Decider vis a vis the level of the world’s reserve currency conveys immense advantage. It is raw power. There’s very good reason why a growing number of States are rather desperately seeking alternatives.
As to the trade deficit, you can hang that one directly on Big Oil and US multinationals generally, not monetary policy. When the biggest players in your economy cease to believe they have a primary allegiance to their home base in order to pursue maximum short-term gains, this is what you get. No other developed country has allowed its industrial/energy policies to be crafted and executed solely for the benefit of giant corporations to the clear detriment of its people for decades as is the case with the US. The US should not have a huge energy deficit, nor a huge labour and environmental arbitrage based deficit with China/Asia/other low income producers. Those are not monetary in origin. They are greed-based, immensely profitable betrayals.
Yet, Dr. Flassbeck admits that it was an ERROR for Germany to beggar its neighbors. He seems to promise redress.
Speaking of attacks, Moody’s just stuck a gun in Merkel’s ribs:
http://www.reuters.com/article/2011/12/12/us-eurozone-moodys-idUSTRE7BB09120111212
We are talking about one of the sleaziest organizations on the planet attacking a group of Allies of 70 years standing in order to extract mega money NOW and NOT solve problems later.
The real problem is that anyone thinks that the ratings of Moody’s or any of the other ratings services is worth a bucket of warm spit. These are the folks who rated CDO’s and other commercial toilet paper as AAA. Just for good measure they admit that there’s no longer any correspondence between the ratings of commercial and government securities, and that they have no methodology for rating government bonds.
These clowns, and anybody who believes in their ratings, should be laughed out of the business.
Or go give a listen to the FCIC Archives for the hearings on derivatives to get a flavor of how little these folks knew what they were doing.
These were the clowns that basically gave Mozilo and the other fraud kings AAA ratings in order to churn liars loans. The ratings are a fiction, intended to make fraud respectable.
reader, precisely so. Their principals should be *run out on a rail*, or better yet, *perp-walked* in public.
They are just a tool for manipulation of “market”, to use “markets” to force favorable policy. That’s it. And I am quite sure that Geithner, at least, would’ve known of this in advance, and could’ve delayed it at minimum had he or anyone else wanted to actually help Europe resolve this.
It’s just glaringly obvious that what is actually best for Europe is not even on the table so far as “markets” are concerned. What “markets” want is a tidal wave of money printing. They are going to get it sooner or later.
You nailed it, Fiver. I don’t remember who penned this insight (might even have been Yves), but the ratings agencies are nothing more than bagmen for the TBTF banks. Aside from fraudulently validating junk securities, their main purpose is to increase debt service costs on municipal/state/sovereign governments to pressure them into privatization – or put more plainly, to force govts to sell off public infrastructure for pennies on the dollar.
I believe that S&P “downgrade” of treasurys was just a transarent ploy to goose the profits of those who can borrow unlimited funds at .25%. Sure treasuries at 2.25 is nice but 3% would be even better. Even when it was pointed out that their numbers were laughably off they stuck by it
Of course treasuries are even lower now. The whole then was an excersize in talking your book by the TBTFs. But because there is literally nothing else to trust in the markets refused to play along
Yes seeing what the S&P “downgrade” has done to US borrowing rates I have to ask “HEY S&P! can I get a downgrade over here?”
Quite right, Fledermaus, and the horrifying implications of this to the U.S. Treasury in the future have been concealed (except for a contributor on ZH recently). The fix may be in for our future ruin: unsustainable interest we will be forced to pay on our Treasuries. Is this intentional, or just an *unintended consequence* of present gifts to system banks?
Also see the great interview with Flassbeck, “Democracy Is Not A Given,” at therealnews.com.
Ugh, only now do they notice?!
How can an individual of modest means purchase a credit default swap against Germany seceding from the EU, or otherwise effect such a bet?
It certainly seems inevitable, looked at from this perspective.
speaking of Germany—great article on Herbert Marcuse at The Chronicle of Higher Education’s site
http://chronicle.com/article/Occupy-This-Is-It-Comeback/130028/
“Marcuse’s “one-dimensional society” amounted to an epithet for advanced capitalist society, which Marcuse, like the Italian Marxist thinker Antonio Gramsci, saw as bamboozling (that is, exercising “hegemony” over) workers of every stripe. It did so through a consumer system that met basic needs and provided a false sense of democratic participation as inequalities in wealth and income grew. In that society, Marcuse detected, in the words of Marcuse scholar Charles Reitz, “alienation in the midst of affluence, repression through gratification, and the overstimulation and paralysis of mind.” Even in so-called individualistic America, according to Marcuse, individuals lost their critical intelligence amid the avalanche of products and diversions, becoming inauthentic conformists.”
the more things change the more they stay the same
nun, precisely so.
Or as the Romans would say it, bread and circus.
When the surplus value of labor is taken in Germany, where does it go? Does cheaper exports mean more money in the pockets of American consumers of BMWs and Porches? Are there more German power tools floating around Dubai construction sites than should be if German workers were paid more? Is it in better social welfare programs, education or private pensions and numerous vacation days? Where is the Warren Buffet of Germany feasting off of the geyser of profits? Since the Germans are paid less, and exports are up, securing their jobs, shouldn’t there be some outlet for the wealth accumulated. It is not in German domestic purchasing power according to the lecturer.
What is interesting to note, is the political sequence of events for European currency. The Euro is not some sort of business alliance or merger and acquisition scheme, since all of the so called sovereign nations with their sovereign currencies, pegged their exchange value to the D-Mark, at first de facto then, de jure, rebranded as the Euro.
There was informed political consent to couple the various European national currencies together via the D-Mark, then a continuing more perfect union. But structural flaws remain and come out forcefully during the stress of the current financial crisis. As I tried to point out in previous my previous comments, do not expect to necessarily see France or Germany or Greece leave, expect to see the UK left out in the cold. London integration lies with the US as the AIG credit default business headquartered in The City, the financial district of London indicates. The UK wants what is its self interest and the rest of the EU allowed for it, EU member, the common market goodies, but no Euro participation, friends with benefits. But during this crisis, politicians jettison friends for permanent interests. Consider this bit of finance history between Germany and the UK:
“The pivotal event in the battle between screens and floors
The defining event in the transition from floors to screens took place in Europe and involved a battle between a floor-based Goliath and a tiny screen-based upstart. The London International Financial Futures Exchange (LIFFE) was the largest derivatives exchange in Europe ever since its creation in 1982, which was consistent with London’s position as the world’s most prominent financial center. In 1988, LIFFE listed futures on Europe’s leading sovereign debt instrument, the German government bond, or Bund. Traditionally, exchanges listed derivatives chiefly on their own country’s assets (stock indexes, government debt and agricultural commodities). But Germany had not yet started a derivatives exchange to list the German products. This was due to German law that viewed futures as gambling and futures contracts as non-enforceable. So LIFFE decided to list Bund futures, a smart move as trading in the product grew rapidly and by the early 1990s the Bund had become LIFFE’s most actively traded product.
About the same time that LIFFE was launching Bund futures, a group of German banks began discussing the creation of a German derivatives exchange along with the change required in German law. They hired Jorg Franke, the head of the Berlin Stock Exchange, to set one up. Just like the wool traders in New Zealand, the banks sponsoring the exchange were spread around the country, in this case in Berlin, Hamburg, Stuttgart, Munich and Hanover, and each wanted the exchange to be in its city. As in New Zealand, they solved the problem by locating the exchange in cyberspace. And to speed up time to market, instead of building a new electronic matching engine from scratch, they bought one from their neighboring Swiss Options and Financial Futures Exchange (SOFFEX). In its first year (1990), the Deutsche Terminbörse (DTB) listed three products – futures on the German stock index (DAX), the German equivalent of Eurodollars (FIBOR), and LIFFE’s crown jewel, the German Bund.”
http://www.world-exchanges.org/focus/2011-07/m-2-1.php
Germany, as much as it denigrates the lazy Club Med set, trusts the English about as far as they can throw them. The financial transaction tax, which would siphon off profits from the commanding heights of capitalism from with THE CITY, was a deal breaker for the British PM. He left and went home, and Europe, being Merkelized, are trying to move in concert. That is the thing about politics and the politics of powerful centralized nation states, it is the strength drawn from the act of political integration, which in our experience is structured with a single point, a central power, which has to reside somewhere in some form, to govern over the parts forming them into a meaningful whole, in this case the The European Union. From the British Empire/Commonwealth of Nations, to the Japanese Co-prosperity SPhere, to the USA, the political lesson is not lost any national leader. They must hang together, failure is not an option.
I’m guessing the answer to your first question is that the surplus money was loaned out to entities that cannot pay it back – not unlike Japan and China vis a vis the US.
As to “the strength drawn from the act of political integration” I think we’re already well past the point where larger units confer any demonstrable positive benefit whereas the negative impacts on freedom, democracy, diversity, social experimentation, ecological adaptability, etc., are all amplified. The greatest threat we face today is the fact that we’ve created what amounts to 1 Big System on which the great bulk of humanity now depends – which is why everything else is being tossed under the bus in the name of “saving” it. The very opposite of strength.
Fiver, take a look at this chart. It shows the percent of GDP allocated to social spending is higher in Germany than the US. 28% in Germany 17% in the US and the poverty rate is lower in Germany. The wages maybe lower, but the profits are not converted in private capital accumulation, but it appears, lower poverty and public spending. Every dollar extra in our wallet, usually passes through to the gas station, the supermarket and rent and car payments. If we get more money in wages, it is spent, as there is almost no savings going on any more, if anything, those that did put money away are spending it now to maintain.
http://graphs.gapminder.org/communityproxy/ChartDataServlet?key=plL7_TnAeMdBLyRVf1rehGg#$majorMode=chart$is;shi=t;ly=2003;lb=f;il=t;fs=11;al=30;stl=t;st=t;nsl=t;se=t$wst;tts=C$ts;sp=6;ti=2004$zpv;v=0$inc_x;mmid=XCOORDS;iid=plL7_TnAeMdBAvXX8r5__Vw;by=ind$inc_y;mmid=YCOORDS;iid=plL7_TnAeMdAktDNHMaxdJQ;by=ind$inc_s;uniValue=20;iid=plL7_TnAeMdCTpDLPYo-_VA;by=universal$inc_c;uniValue=255;gid=CATID1;iid=plL7_TnAeMdC8GEnotAixIg;by=grp$map_x;scale=lin;dataMin=1.814;dataMax=36$map_y;scale=lin;dataMin=2.77;dataMax=22$cd;bd=0$inds=i82_t002004,,,,;i239_t002004,,,,
Fascinating, and timely, video.
What strikes me most deeply is how eerily Flassbeck’s comments synch with what venture capitalist Nick Hanauer has said (on Ratigan’s show): if you kill wages, you kill the customer base on which [consumer] capitalism can flourish.
If you don’t have consumers, you don’t have much economic activity.
If you don’t have well paid employees, you don’t have consumers.
Henry Ford knew it, and he was one hell of a capitalist.
Here’s a link to the Hanauer video: http://www.msnbc.msn.com/id/3096434/
Capital without customers doesn’t mean squat.
But *customers* only count in a *real economy*. The 1% and the 1-.01% found something much better: creating *capital* from derivatives’ spreads using *customer deposits* from pension and mutual funds to *cover your bets*. This works in tandem with other forms of *stealth embezzlement* by such as MF Global, especially at the end game, when Corzine’s Master exacted its *margin call* in *gold* (delivered in *customer’s segregated* loot).
This is why the MF Global settlement was swift and bogus.
Just how difficult would it be to do this: Instead of squeezing the poorest among us to wring “inflation” out of the financial system, we should look at the trickle down theory: Make those with the most money and those controlling the money supply to first create a soft landing for hardship. Make sure that if wages “go down” that expenses go down in advance and even more for those who suffer. So what would that entail? Can anyone say price controls? But not ad hoc price controls. We need advance price controls that are sufficiently pre-emptive to already be in place before anyone was axed and harmed. This won’t work unless we shackle the uber-traders who will make a short killing on it all.
But the crux of Dr. Flassbeck’s argument is ignored: the joint commitment to *precisely* 2% inflation as the target–honored ONLY by France. The *nut* is the joint commitment to the 2% target, the *just* player complies, the *unjust* (Germany below the target, Greece et al. above the target)do not comply. Dr. Flassbeck seems to suggest that a REDRESS of this non-compliance is in order in order to *right* the balance of power in the EU-Euro Nexus of those who have the WILL to comply to the joint commitment to INTEND *the good of the whole* cooperative community.
This is not likely to happen in USA!USA!, where there is no community except that of the 1%. To compound the DIFFERENCE between the now self-defeating MonopolyFinance FIX in the USA and the trade-community of “the Others” we need only realize the implications of the SCO on the future of the European Continent in conjunction with community of China, Russia, India, and smaller *resource-filled* countries such as Iraq, Iran, Pakistan, Afghanistan. SEE:
“Asian Alliance Supplants Empire” dated 7 June 2011 on http://www.consortiumnews.com. LINK:
http:consortiumnews.com/w011/06/07asian-alliance-supplants-us-empire
This piece should be studied in entirety.
It seems that USA!USA! will miss the boat captained and staffed by more mature, wiser, players, who agree that “in a world of diminishing resources, cooperation is the key to survival.”
Heaven knows our leaders are not wise; and co-operation is not even in our cards. Are the “geniuses” not still preparing to invade …? Oh, well, we know the drill.
It is not so much a battle between labor and capital as it is between labor and theft.
Hugh, he didn’t dare to say it.
Actually, Hugh, I think he uses *capital* to signify the 1%, the thieves. He does refer to the *99%* as if parenthetically, perhaps to avoid calling attention to the labor/capital *divide* seen as a ratio.
Hugh, moreover, how can anyone now deny that the putsch for *retail brokerage* and *mutual funds*, and 401K *pension funds* (replacing *defined benefit* funds by DESIGN)–with the collusion of *Institutional and IPO Banking Managers* for fees/transaction, and “Wall Street Week” as lead shill–was the SET-UP for the stealth-embezzlement scam, aided and abetted by First-Second-Third Branch Agents in Office.
The revocation of Glass-Steagall is the TELL of the conspiracy for the enrichment of the 1% at the expense of We the People, followed by the *regulation structure* to profit them yet more: a kind of Enabling Act* permitting Institutional and Customer Deposits (non FDIC, as “Money Market Funds”) to be embezzled through “laws” made by predator firms–the *law* of *re-hypothecation* by fiat, a term INVENTED to CONCEAL that the firm INTENDED to *commingle client funds with the firm’s own*–which certainly no customer would have permitted; removal of regulation forbidding the investment of Institutional and Retail Customer Deposits into *derivates* (this was patently illegal, a felony, in 1980 when I was in the business). Accounting fraud and mortgage fraud were the MEANS of enrichment of the 1% via collusion of insiders, as with the Savings and Loan Scandal and ENRON.
William K. Black 2012: TRUTH AND JUSTICE for ALL
I may be naive, but I always liked Wall Street Week with Louis Rukeyser.
Mr. Rukeyser would not approve of the barricades and the police checkpoints and the surveillance and batons. There’s nothing witty or funny or even civil about them. And whatever he was or was not, he was an gentleman with a sense of humor.
I felt bad when they booted him off his own show for being old. I mean he wasn’t old. He was eternal. And they were old, in their debauched stupidity and their haste for something that really was nothing at all. Their wordless lies. Their coma. He was alive and it was like looking at death from life, or it must have been to him, like it will be for all of us. LOL.
It is now, when you walk around down there by Wall & Broad, by the checkpoints and gates and cameras and guardhouses, the packs of uniformed police and white shirted police and undercover police and god knows what, afraid of what? – and then down the back alley behind Broadway, where the vision clears and you can almost see the fat guys in suspenders with their drinks at lunch when they used to drink at lunch and sleep at their office desks — the way you should work with something as stupid as money, the way you shouldn’t care — before it broke utterly into something nervous and hysterical like a plunging death current under the slick surface of a river, and not even in the sun, but under a blank grey sky.
That doesn’t get it. I admit. But Mr. Rukeyser would have, probably, with a smile and just a few sentences. And you’d know what he was talking about.
So we see how Germany has gone from being the “sick man of Europe” to the lowest EU employment rate-forcing wages down.
The jobs lost in the periphery have all gone to Germany. I was thinking about the labor-capital conflict myself the other day-in the U.S. we have the same problem as labor has been successfully put down-with totally wage stagnation. Yet low wages also means low effective demand.
http://diaryofarepublicanhater.blogspot.com/2011/12/american-capital-too-strong-for-its-own.html
I remember Henry George pointing out that labour and capital aren’t actually at odds – in fact they each attract an equal distribution of profits and work together to get things done. It is the rentiers that take an ever growing cut, and pit labour and capital against eachother as a diversion.
In this age when labourers are capital (pensions etc.), and rentiers pretend they are too, things get intentionally blurry; yet it is cleary the rentiers that squeeze all the rest of us for all we are worth and leave us barely enough to continue.
“I remember Henry George pointing out that labour and capital aren’t actually at odds – in fact they each attract an equal distribution of profits and work together to get things done.”
I have to disagree. In every capitalist firm I’ve worked at, which has been quite a few, the bosses are trying to get the most work for the least money and the laborers are trying to perform the least work for the most pay. Of course, the bosses always have the upper hand in this struggle, since they get first dibs on the firm’s revenue. Which, btw, is why labor and capital do _not_ get an “equal distribution of the profits,” which is why we have flat real wages in this country inspite of increasing labor productivity. Pure capitalists, i.e. those whose income derives strictly from ownership rights, are rentiers _by definition_.
“In this age when labourers are capital (pensions etc.)”
Having a pension fund or an ESOP does not a capitalist make, that’s just the propaganda to convince the workers that their interests are coincident with those of the Wall Street crooks. How much voting power does a worker’s pension fund investment or ESOP grant them? Right, none. The funds as a whole have a vote at the shareholders meetings, but when’s the last time a pension fund’s proxy vote forced worker-friendly changes to a corporation? Right, never. Pensions, etc. are just another way the crooks get to make money by using ours. It’s sad, really.
diptherio, Wall Street Week and the putsch for retail brokerage made Baby Boomers believe that their interests coincided with the interests of the 1%. The Fund money, Money Market deposits, the 401Ks of the Boomers were the PREY of the 1%. The *home equity* as ATM scam was added to this. This was loot-to-the-max for the 1%, their *brokers* and *bankers*.
Correct, *capital* is code for the global 1%, if not the global .01%, the eternal *rentier*. The rentier eats all available capital, and derivatives with 99% pension and mutual fund deposits of the 99% have been a money tree for the 1%-.01% at the expense of *the rest.* This is the real “Clash of Civilizations.” HFT makes skimming by the .01% much more profitable, quicker, than old-fashioned *coin shaving*. Theft by any name is the name of the game.
Jack London: “THE IRON HEEL.”
Thorstein Veblen on how the Versailles Treaty, crafted cleverly by the Anglo-Euro .01%, was the means for their PEER *Junker* rentier class of Germany to profit at the expense of the people of Germany. Then, this class profited again through Hitler’s Third Reich (Holy Roman Reich III). Now, they have profited more handsomely and quickly yet, via technology used to profit the Holy Roman Reich IV: the .01% emperors and their agents, together comprising the 1%. This time, the global 99% have had their wealth transferred to the globa1%. “The Iron Heel” grinds again.
Veblen’s work, mentioned above, is covered in the book by Guido Giacomo Preparata, “CONJURING HITLER.”
Henry George is from the nineteenth century, and like most nineteenth century political economists, he describes landlords and capitalists as separate competing groups. But they haven’t been separate for years now: the capitalists won, and are now the landlords (or the landlords saw the writing on the wall and became capitalists).
It’s all one group now, the asset-owning rent-collecting landlords and the collateral-leveraging labor-employing capitalists have become the asset-owning, collateral-leveraging, rent-collecting labor employers. Just call them the 1% and have done with it. The important distinction today is between those those who employ labor and collect rent, and those who must work and pay rent. It’s simpler today than the 19thC, because two of the legs of the tripod have merged into one.
The Yanis V. Blog site covers all the lectures from this gathering – most were heavy weights in my opinion with a very good worldly Italian economist and a eccentric French economist with a speech impediment who was the joker in the pack – it was quite funny to see him monopolise the dialogue.
Lordy that is as close as economics gets to the end sequence of the usual suspects, sheesh.
it was Germany all along
What I don’t understand is, what is the relationship between the other northern European surplus countries and Germany, as far as I know some of these had relatively high wages. Are they not competing with German industrial products?
Most eloquent speech about the causes of the crisis in the eurozone – a classic balance of payment crisis caused by german wage moderation and saving glut. Thanks for posting!
God how I hate the word sovereign debt crisis. This term has framed this crisis as something caused by too high g’ment spending in the south. This term perpetuates this myth day in, day out. Gut wrenching.