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Does IMF Stand for Impressive Macroeconomic Flexibility?
So the IMF is holding a meeting on rethinking macroeconomic policy (I was invited but couldn’t make the timing work.) And the Fund’s chief economist has already made it clear that he’s open to some serious revision of the prevailing paradigm.
http://krugman.blogs.nytimes.com/2011/11/19/incredible-europeans/
http://www.guardian.co.uk/business/2011/nov/20/bond-traders-debt-bonfire"Suddenly, we're all transfixed by daily movements in "yields" – in effect, the interest rate governments pay to borrow from financial markets. Reassuring the bond investors has become the overriding aim of politicians from Paris to Athens. When Italian yields surged through 7%, it was the last straw for the once-unassailable Berlusconi, demonstrating the extraordinary power of the buyers and sellers in sovereign debt markets.
Governments that want to borrow from the financial markets hold auctions of bonds – IOUs that carry a fixed interest rate over a certain period, typically 10 years. The actual return on the investment – the "yield" – will depend on how much investors are willing to pay for each batch of bonds, relative to the face value of the bond.
But there's a healthy so-called "secondary market" in bonds, as investors bet on their future value, and adjust their portfolios by buying and selling the debt they hold. It's in this secondary market that the Bank of England's recession-busting quantitative easing takes place: it offers to purchase bonds – to the tune of £275bn once its current buying spree is over – from investors such as pension funds in the hope that the money will flow out into the economy. And it's also in this secondary market that the European Central Bank has been intervening in recent weeks to try to bring down the yields on Spanish and Italian bonds and contain the crisis in the two countries."
http://www.zerohedge.com/news/complete-and-annotated-guide-european-bank-run
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To summarize: everyone is dumping European paper, except for the ECB and Italian banks, which have no choice and instead have to double down and buy more. In the meantime, the market is going increasingly bidless as liquidity evaporates, confidence has disappeared and virtually everyone now expects a repeat of Lehman brothers. Of course, this means that when the bottom finally out from the market, the implosion of the Italian banking system, and thus economy, will be instantaneous. And when Italy goes, so goes its $2 trillion+ in sovereign debt, and at that point we will see just how effectively hedged and offloaded the rest of the world is, as contagion shifts from Italy and slowly but surely engulfs the entire world.
Incidentally, is it really that surprising that Goldman is now doing its best to precipitate a bank run of Europe's major financial institutions by "suddenly" exposing the truth that was there all along? During the great financial crisis of 2008, the one biggest winner from the collapse of Bear and Lehman was none other than the squid. This time around, Goldman has set its sights on Europe and has already made sure that its tentacles will be in firmly in control at all the right places when the collapse comes, as the Independent shows.
And when banks are falling over like houses of cards in the middle of a tornado cluster, and the financial power vacuum is in desperate need to be filled, who will step in once again but... Goldman Sachs.
http://www.nakedcapitalism.com/2011/11/some-modest-proposals-for-reforming-the-u-s-financial-and-tax-system-2.html
An address to the crowd.
"America is being radicalized by coming to realize how radical Wall Street’s power grab is
Michael Hudson: The Occupy Wall Street movement has many similarities with what used to be called the Great Awakening periods in America. Such periods always begin by realizing how serious the problem is. So diagnosis is the most important tactic. Diagnosing the problem mobilizes power for a solution. Otherwise, solutions will seem to come out of thin air and people won’t understand why they are needed, or even the problems that solutions are intended to cure.
The basic problem today is that nearly everyone is in debt. This is the problem in Europe too. There are Occupy Berlin meetings, the Greek and Icelandic protest, Spain’s “Indignant” demonstrations and similar ones throughout the world.
When debts reach today’s proportions, a basic economic principle is at work: Debts that can’t be paid; won’t be. The question is, just how are they not going to be paid? [Cf. Leviticus 25. --lambert] People with student loans are not permitted to declare bankruptcy to get a fresh start. The government or collection agencies dock their salaries and go after whatever property they have. Many people’s revenue over and above basic needs is earmarked to pay the bankers. Typical American wage earners pay about 40 percent of their wages on housing whose price is bid up by easy mortgage credit, and another 10 to 15 percent for credit cards and other debt service. FICA takes over 13 percent, and federal, local and sales taxes another 15 percent or so. All this leaves only about a quarter of many peoples’ paychecks available for spending on goods and services. This is what is causing today’s debt deflation. And Wall Street is supporting it, because it extracts income from the bottom 99% to pay the top 1%.
Half a century ago most economists imagined that the problem would be people saving too much as they got richer. Saving meant non-spending. But the problem has turned out to be just the opposite: debt. Overall salaries have not risen in decades, so many people have borrowed just to break even. Instead of an era of free choice, very little of their income is available for discretionary spending. It is earmarked to pay the financial, insurance and real estate sectors, not the “real” production and consumption economy. And now repayment time has arrived. People are squeezed. So when America’s saving rate recently rose from zero to 3 percent of national income, it takes the form of people paying down the debts.
Many people thought that the way to get rich faster was to borrow money to buy homes and stocks they expected to rise in price. But this has left the economy financially strapped. People are feeling depressed. The tendency is to blame themselves. I think that the Occupy Wall Street movement, at least here in New York, is like what has occurred in Greece and also in the Arab Spring. People are coming together, and at first they may simply watch what’s going on. Onlookers may come by to see what it’s all about. But then they think, “Wait a minute! Other people are having the same problem I’m having. Maybe it is not really my fault.”
So they begin to see that all these other people who have a similar problem in not being able to pay their debts, they realize that they have been financially crippled by the banks. It is not that they have done something wrong or are sore losers, as Herman Cain says. Something radically wrong with the system.
Fifty years ago an old socialist told me that revolutions happen when people just get tired of being afraid. In today’s case the revolution may grow nearer when people get over being depressed and stop blaming themselves. They come to think that we are all in this together – and if this is the case, there must be something wrong with the way the economy is organized.
Gradually, observers of Occupy Wall Street begin to feel stronger. There is positive peer pressure to reinforce their self-confidence. What they intuitively feel is that the Reagan-Clinton-Bush-Obama presidencies have squeezed their lives. The economy has become untracked.
What’s basically wrong is that the financial system is running the government. For years, Republicans and Democrats both have said that a strong government, careful regulation and progressive taxation is the road to serfdom. The politicians and neoliberal economists who write their patter talk say, “Let’s take planning out of the hands of government and put it in the ‘free market.’” But every market is planned by someone or other. If governments step aside, then planning passes into the hands of the bankers, because of their key role in allocating credit.
The problem is that they have not created credit to finance industrial investment and employment. They have lent for speculation on asset price inflation using debt leveraging to bid up housing prices, stock and bond prices, and foreign exchange rates. They have convinced borrowers that they can get rich on rising housing prices. But this merely makes new homebuyers go deeper into debt to buy a home. And when banks say that rising stock and bond prices are good for the economy, this price rise lowers the dividend or interest yield. This means that pension funds and individuals have to save much more for retirement. Instead of improving their life, it makes them work harder and borrow more just to stay in place.
The banking system’s alternative to “the road to serfdom” thus turns out to be a road to debt peonage. This financial engineering turns out to be worse than government planning. The banks have taken over the Federal Reserve and Treasury and put their lobbyists in charge – men such as Tim Geithner and the others with ties to Rubinomics dating from the Clinton administration, and especially to Goldman Sachs and other giant Wall Street firms.
So the first thing to realize is something that is characteristic of all great reform movements. Voters are not yet supporting a radical position to restructure the whole system. But at least they are coming to see that small marginal reforms won’t work, or are simply trick promises, like President Obama’s promise that banks would renegotiate mortgages for homes in negative equity as part of the quid pro quo for the bailouts they received from Treasury Secretary Geithner. There’s been no quid pro quo, merely talk.
People see that law enforcement is missing when it comes to the banks and Wall Street. So simply restoring the criminal justice system would be progress. It used to be that if you ran a fraud, if you cheated people, if you lied on your income tax and falsified statistics, then you would be sent to jail. But the Obama administration has appointed Eric Holder to represent Wall Street. He has not thrown any bankers in jail, recognizing that they are the major campaign contributors of the party, after all.
What is easiest for most people to accept is the idea of restoring the way the economy used to be more in balance – back when people earned income by being productive rather than getting rich by transferring other peoples’ savings and public giveaways into their own pockets. But what I sensed in New York was anger not only at this economic problem, but the fact that the political system is broken. There is no one to vote for as an alternative to pro-bank candidates. So what began as anger has become a gathering awareness that Mr. Obama was simply fooling voters instead of leading the change he promised. That’s what politicians do, of course. But people hoped that he might be different. That was the gullibility he played on. He has turned into the nightmare they thought they were voting against.
Moving to the right of the Republicans, he started his administration by appointing the Simpson-Bowles Commission staffed by opponents of Social Security. He recently followed that up by appointing the Congressional Super-committee of Twelve to come out with an even more anti-Social Security, anti-Medicaid and anti-minority position that the Republicans could get away with. If they would have tried to pass such a right-wing policy, the Democratic Congress would have refused to pass it. But they don’t know how to deal with a Democratic president who appoints Wall Street lobbyists to his cabinet and acts like Margaret Thatcher saying that There Is No Alternative (TINA) to making Social Security recipients, labor and minorities pay for Wall Street’s bad gambles and bank losses. He has helped Wall Street capture the government – on behalf of the 1%.
The man whom Mr. Obama asked to be his mentor when he joined the Senate was Joe Lieberman. He evidently gave Obama expert advice about how to raise funds from the financial class by delivering his liberal constituency to his Wall Street campaign contributors. So the problem is not that President Obama is well meaning but inept – an idealist who just can’t fight the vested interests and insiders. He’s thrown in his lot with them. In fact, he really seems to believe the right-wing, pro-Wall Street ideology – that the economy can’t function without a financial system that guarantees “savers” (the top 1%) against loss, even when the bottom 99% have to pay more and more.
And on a personal level, Mr. Obama knows that his fund raising comes mainly from Wall Street, and the only way to get this money is to sell out his constituency. You’ve got to give him enough credit to recognize this obvious fact.
The upshot is that we now have a political nightmare. Yet Mr. Obama still seems to be the best that the Democrats can offer! This is why I think the protestors are saying they are not going to let the Democrats jump in front of the parade to try and mobilize support for their party. Like the Irish say: “Fool me once, shame on you. Fool me twice, shame on me.” They realize that the financial system is broken and that neither party is trying to do much about it. So the political system has to be changed as well as the economic system.
Suppose you were going to design a society from scratch. Would you create what we have now? Or would you start, for instance, by reforming the most egregious distortions of campaign finance? As matters stand, Goldman Sachs has been able to buy the right to name who is going to be Treasury Secretary. They selected Geithner, who gave them $29 billion from A.I.G. just before he was appointed. It’s like that all down the line – in both parties. Every Democratic congressional committee chairman has to pay to the Party a $150,000 to buy the chairmanship. This means that the campaign donors get to determine who gets committee chairmanships. This is oligarchy, not democracy. So the system is geared to favor whoever can grab the most money. Wall Street does it by financial siphoning and asset stripping. Politicians do it by getting money from the beneficiaries – the 1%.
Once people realize that they’re being screwed, that’s a pre-revolutionary situation. It’s a situation where they can get a lot of sympathy and support, precisely by not doing what The New York Times and the other papers say they should do: come up with some neat solutions. They don’t have to propose a solution because right now there isn’t one – without changing the system with many, many changes. So many that it’s like a new Constitution. Politics as well as the economy need to be restructured. What’s developing now is how to think about the economic and political problems that are bothering people. It is not radical to realize that the economy isn’t working. That is the first stage to realizing that a real alternative is needed. We’ve been under a radical right-wing attack – and need to respond in kind. The next half-year probably will be spent trying to spell out what the best structure would be.
There is no way to clean up the mess that the Democratic Party has become since politics moved into Wall Street’s pockets. The Republicans also have become a party of lobbyists. So it looks like there is no solution within the existent system. This is a revolutionary, radical situation. The longer that the OWS groups can spend on diagnosing the problem and explaining how far wrong the system has gone, the longer the demonstrators can gain support by showing that they share the feelings everybody has these days – a feeling of being victimized. This is what is creating a raw material that has to potential to flower into political activism, perhaps by spring or summer next year.
The most important message is that all this impoverishment and indebtedness is unnecessary. There is no inherent economic reason for things to be this way. It is not really the way that “markets” need to work. There are many kinds of markets, with many different sets of rules. So the important task is to explain to people how many possibilities there are to make things better. And of course, this is what frightens politicians, Wall Street lobbyists and the other members of the pro-oligarchic army of financial raiders."
The Democrats are the better deal.They are far from the best possible deal.We can try to elect Democrats.
http://hat4uk.wordpress.com/
"The Incredible thickness of the Establishment Being.
…it stands to reason.
The Slog witnesses a classic performance from the DenialmentI was watching one of the endless stream of BBC politics programmes this morning – The Daily Westminster Politics on Sunday Show Now Today or something similar – and saw Niggle Farrago being ‘interviewed’ (aka attacked) by Jon Sopel, and two members of the Denialment. I’ve decided this is going to be my new name for those who think any discernment, and then public pronouncement, of a threat to Britain must be deranged racism and stamped upon. Or – stamping on people not being possible on a public television programme – simply saying that the other side is ‘emotional’.
I have, as you know, very little time for Farage, but I am bound to observe he was impressive in the face of this morning’s onslaught. The plan of the Troika facing him was to get the UKIP leader to admit that his fears for the City were all rot, and that he is Deutschophobic. This was quickly rebuffed by Niggle, who not only showed through expert knowledge that the City would actually be boosted by being outside the EU (he worked in the Square Mile for twenty years), but also reminded his interrogators that he’s married to a German.
Entirely unruffled, the beardy inquisitor than made a quite astonishing statement – which he obviously thought was clever, but in fact showed him up for the clod-hopping, ignorant illiberal twit he was. This gentleman said that we “must distinguish” between “a rational argument about good business management by Germany, and an emotional argument about German nationality”. Thus, anyone (Farage) suggesting that the German culture had form when it came to rigidity was being emotional, whereas he (the donnish genius) was merely applying his more developed intellect to praise what he saw as the fine qualities of the Prussian econo-fiscal mindset.
There are so many bottom lines to this argument, it becomes obvious why I think beardy to be an arse. First of all, his assessment of good German economic management is ill-informed: hard work, good design and thrifty government have enabled Germany to export very successfully with a cheap euro to other nations to which it had lent the money to buy them. The economic ‘management’ being followed by Das MerkeSchauble at the moment is precisely that which has brought ClubMed economies to their knees.
Second, pointing out a rigidity of attitude and preference for giving orders (and naive obedience to them) is hardly an invented, emotional observation about Teutonic culture. Endless academic books (most of them by Germans) have pointed out the Germanic obsession with joining in, and falling for naive ‘solutions’ ranging from the Schlieffen Plan through to all Jews being Communists - and now, the European Union. In the war-starting stakes over the last 160 years on the European continent, the score is Germany 3, France 1, Great Britain 0.
But as Farage pointed out, stopping any country dominating the Continent was supposed to be the original idea of the EEC. As for ‘German dominated’, what else would you call a 27-State Group of nations whose leadership is routinely referred to in the world’s media as ‘EU boss Angela Merkel and her Number Two, Nicolas Sarkozy’? The EU has failed to stop this, studiously avoided every democratic attempt to stop it, and remains largely unloved as an institution: 49% of its citizens now express ‘grave doubts’ in quantitative research as to whether it is a good idea. Even France now openly disagrees with Germany’s fiscal approach: this it does, naturally, so it can get its hands on the ECB’s money. I happen to think the Germans are right about that: but how rational is it for a whole country still to be fixated with fears of inflation 88 years after 1923? Isn’t that a bit odd too…as in obsessive compulsive disorder? Isn’t that how we wound up with two ECB rate rises at exactly the wrong moment last Spring?
Finally – and perhaps most important of all (as this site posted yesterday) – the MerkeSchauble juggernaut thunders along oblivious to the Tsunami gaining ground behind, and the opposition of other nations ahead. Britain, the US and France are for once at one on the business of switching the emphasis now from housekeeping to finding a job. Berlin is heading for a calamitous fall….and the only answer it appeared to have last week was the employment by senior CDU robocrats of offensive remarks aimed at the British.
These last once again became, in Sopel’s Sunday Studio, a most remarkable show by the Denialment of double-standards. “German dominated Europe” from Farage was offensive, emotional drivel; but “Europe is speaking German now/You British are just being selfish as usual/you will all have to join our euro in the end” was of course entirely rational commentary, and to be applauded when set against we nasty, racist, horrible British. What absolute tosh.
I fear for the liberties of this country, for the same reasons I have since Thatcher came to power and began orchestrating Party Conferences. Mediocre, unquestioning State education has created an inability to discern empirical facts or accept tested science; huge double-standards followed by insults suffuse every debate that challenges Received Truth; the smearing of any voice set against the uniformity of the adoring rally is routine procedure; the pious auto-association of the ‘progressive’ Establishment outlook with the good, kindly and rational Truth gets worse with every passing year; and the setting up of everything in the EU, the Third World or the Arab/Muslim Middle East as beyond reproach has now become one gigantic – and hollow-sounding – Hall of distorted mirrors.
Opposing this is what I mean by Radical Realism. To ignore the delusional path of the Big Brothers above us now will be the ruination of every last freedom we take for granted. If only somebody with a bit more cred was leading the charge above and beyond Nigel Haw-Haw."
http://www.bbc.co.uk/news/world-europe-15806230
"EU settles for 2% budget increase
Farming absorbs the biggest chunk of the EU budget
The European Union has been forced to accept a 2% rise in its budget next year - much less than the increase it wanted of around 5%.Several EU governments, including the UK, had argued the demands by the European Parliament and Commission were "unrealistic" in a time of austerity.
EU negotiators settled for 2% after 15 hours of talks ending in the early hours of Saturday morning.
The British government said the result was an "excellent" deal for the UK.
"We have stopped the European Commission and European Parliament's inflation-busting proposals and have delivered on the government's promise to freeze the EU budget in real terms," said Britain's Financial Secretary to the Treasury, Mark Hoban.
The Commission had asked for 4.9% while the parliament wanted 5.2%
"Throughout this process, we have argued that, with member states facing tough decisions on spending at home, we could not afford these unrealistic demands," he added.
He said the focus would now move on to negotiations on the EU's long-term budget, for the period 2014-2020, with the UK expecting similar restraint in the face of a Commission request for 5% more.
Black hole However there are concerns that, while the 2012 budget has been limited, the EU's spending commitments have not been cut accordingly.
The 2% increase for 2012 will take the budget up to 129bn euros (£110bn).
But member state governments gave in to the European Parliament's demands to allow EU spending commitments to rise to 147bn euros.
EU Budget Commissioner Janusz Lewandowski said this could lead to a hole in the accounts.
"There is now a serious risk that the European Commission will run out of funds in the course of next year, and will therefore not be able to honour all its financial obligations towards beneficiaries of EU funds," he said.
Rich and poor Last year more than 80bn euros of the budget was allocated to farming subsidies and regional development spending.
With newer, poorer members of the EU receiving the most development spending, the argument over budget increases is often between them and the older, richer nations.
Last year Britain, France and Germany proposed that the EU budget be frozen until 2020, with any increases linked to inflation."
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A divorced dad
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Losing Our Way
“Bob Herbert's last NYT Columni - poignant parting - Losing Our Way - http://nyti.ms/gLHmIm”
Here in the economic forest we are throughly confused as to where our camp is in relation to ourselves. The trail runs by our camp but we don't know what direction to search.It is indian summer and late but it is not dark and we are not cold and hungry yet. We are not that far from food, shelter and warmth.The general instruction is rest and think. Observe the surroundings. How are they different from where we must be next?Which direction will make them closer to those desired?Take the indicated action.
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Sunday, November 20, 2011
???? 11/19/11
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