A very quiet day.
Again the world has not ended. Currency controls have not gone up.
Spain has neither received ECB support or declared bankruptcy.
Greece has not been cut off yet.
Japan has not moved aggressively to clean up the ruins of the power plants.
The shock is wearing off in Italy. There is emergency management work there.
Call your agency.
Wednesday, May 30, 2012
Tuesday, May 29, 2012
- - - - 5/28/12
West Point Is Divided on a War Doctrine’s Fate
By ELISABETH BUMILLER
Faculty at the United States Military Academy are debating what a counterinsurgency strategy gained in Iraq and Afghanistan and whether the doctrine has a future.
"Now, as American troops head home from Afghanistan, where the new strategy will be a narrow one of hunting insurgents, the arguments at West Point are playing out in war colleges, academic journals and books, and will be for decades. (The argument has barely begun over whether violence came down in Iraq in 2007 because of the American troop increase or the Anbar Awakening, when Sunni tribes turned against the insurgency.) To Col. Gregory A. Daddis, a West Point history professor, the debate is also about the role of the military as the war winds down. “We’re not really sure right now what the Army is for,” he said.
To officers like Brig. Gen. H.R. McMaster, much of the debate presents a false either-or dilemma. General McMaster, who used counterinsurgency to secure the Iraqi city of Tal Afar in 2005 and returned recently from Kabul as head of a task force fighting corruption, said that without counterinsurgency, “There’s a tendency to use the application of military force as an end in itself.”
To John Nagl, a retired Army lieutenant colonel who fought in Iraq, wrote a book about counterinsurgency and now teaches at the United States Naval Academy, American foreign policy should “ensure that we never have to do this again.”
Does counterinsurgency work? “Yes,” he said. “Is it worth what you paid for it? That’s an entirely different question.”"
All quiet on this western front. The European indexes are down. The American are closed. The orient is up. Spain dreams fondly of Franco.
Bankia is in limbo. I assume the ECB said no.
Monday, May 28, 2012
13:00, 5/28/12
.
It looks to be "Game Over" in Europe today.
I can probably dig out primary sources. I cannot get action this holiday.
http://hat4uk.wordpress.com/2012/05/28/euroblown-greece-stops-dead-as-government-introduces-payments-freeze-and-importers-demand-cash-up-front-24/
"
The Troika’s crazy austerity and repayment schedules demand a Greek economy going at Full Ahead Both. It is now on Silent All Stop.
Thanks to cut-off threats from Berlin-am-Brussels, the Athens government has stopped paying suppliers, foreign importers will not ship until upfront cash has been received and confirmed, and banks have been instructed to lend nothing to either domestic or business borrowers.
The personal loans ban has been framed in the light of a suffen rush for ‘credit’ alongside massive withdrawals. Loans by banks were running at €11bn euros a month. From here on they will be zero.
Meawhile, the insolvency and supply problems for drugs at retail level in Greece has predictably backed upstream. Greek GPs are owed €620m. The provision of primary medical care and medicines to about 9 million people is very close to collapse due to the accumulated debts of the National Organization for the Provision of Health Services (EOPPY), as the government has reneged on its promise to settle all arrears to private suppliers of the old insurance funds (that now make up EOPPY) by the end of March. The money involved – a total of around €1.7 billion – spookily isn’t there any more: it went to pay off the last of the bondholders.
For damned are those who will not pay The Bonholders.
As the Mad Woman of Monetary Funding launches nanny-fury at Greek citizens, even New Democracy’s Antonis Samaras is now saying he wants the Troika bailout schedule suspended. He doesn’t mean it of course: nevertheless, in a fit of inexplicable madness, Greek voters have made ND the new front-runner in opinion polls on the basis of it.
But weigh these up as a measure of the disconnect between the financial sector, Brussels, and Real Earth: ‘Stocks rise as Greek euro exit fears wane’ (FT at 8.20 am). ‘The euro bounced off two-year lows on Monday after Greek conservatives topped opinion polls ahead of another general election’ (Reuters at 7.17am).
And the final (if predictably) irony. This morning, the IMF’s cheeky minx Pristine Lowgrade told Bloomberg she was ‘sensitive’ to the plight facing Greece, and she was misheard by those who didn’t catch her real meaning, viz – that the wealthy must pay their fair share of taxes.
Well Prissy, the wealthy Greeks are buying London properties, the eurozone is sinking fast, and Greece is close to anarchy. It’s a little too late for mendacious, back-handed apologies.
YESTERDAY THE SLOG TRIED TO POINT OUT SOME OF THE MORE CLINICALLY UNHINGED BELIEFS THAT HAVE MADE CRASH 2 INEVITABLE. The post is very closely related to the above, and I recommend it heartily."
http://www.huffingtonpost.com/simon-johnson/euro-collapse_b_1549444.html
Behind the curve.
In every economic crisis there comes a moment of clarity. In Europe soon, millions of people will wake up to realize that the euro-as-we-know-it is gone. Economic chaos awaits them.
To understand why, first strip away your illusions. Europe's crisis to date is a series of supposedly "decisive" turning points that each turned out to be just another step down a steep hill. Greece's upcoming election on June 17 is another such moment. While the so-called "pro-bailout" forces may prevail in terms of parliamentary seats, some form of new currency will soon flood the streets of Athens. It is already nearly impossible to save Greek membership in the euro area: depositors flee banks, taxpayers delay tax payments, and companies postpone paying their suppliers -- either because they can't pay or because they expect soon to be able to pay in cheap drachma.
The troika of the European Commission (EC), European Central Bank (ECB), and International Monetary Fund (IMF) has proved unable to restore the prospect of recovery in Greece, and any new lending program would run into the same difficulties. In apparent frustration, the head of the IMF, Christine Lagarde, remarked last week, "As far as Athens is concerned, I also think about all those people who are trying to escape tax all the time."
Ms. Lagarde's empathy is wearing thin and this is unfortunate -- particularly as the Greek failure mostly demonstrates how wrong a single currency is for Europe. The Greek backlash reflects the enormous pain and difficulty that comes with trying to arrange "internal devaluations" (a euphemism for big wage and spending cuts) in order to restore competitiveness and repay an excessive debt level.
Faced with five years of recession, more than 20 percent unemployment, further cuts to come, and a stream of failed promises from politicians inside and outside the country, a political backlash seems only natural. With IMF leaders, EC officials, and financial journalists floating the idea of a "Greek exit" from the euro, who can now invest in or sign long-term contracts in Greece? Greece's economy can only get worse.
Some European politicians are now telling us that an orderly exit for Greece is feasible under current conditions, and Greece will be the only nation that leaves. They are wrong. Greece's exit is simply another step in a chain of events that leads towards a chaotic dissolution of the euro zone.
During the next stage of the crisis, Europe's electorate will be rudely awakened to the large financial risks which have been foisted upon them in failed attempts to keep the single currency alive. When Greece quits the euro, its government will default on approximately 121 billion euros of debt to official creditors, and about 27 billion euros owed to the IMF.
More importantly and less known to German taxpayers, Greece will also default on 155 billion euros directly owed to the euro system (comprised of the ECB and the 17 national central banks in the euro zone). This includes 110 billion euros provided automatically to Greece through the Target2 payments system -- which handles settlements between central banks for countries using the euro. As depositors and lenders flee Greek banks, someone needs to finance that capital flight, otherwise Greek banks would fail. This role is taken on by other euro area central banks, which have quietly lent large funds, with the balances reported in the Target2 account. The vast bulk of this lending is, in practice, done by the Bundesbank since capital flight mostly goes to Germany, although all members of the euro system share the losses if there are defaults.
The ECB has always vehemently denied that it has taken an excessive amount of risk despite its increasingly relaxed lending policies. But between Target2 and direct bond purchases alone, the euro system claims on troubled periphery countries are now approximately 1.1 trillion euros (this is our estimate based on available official data). This amounts to over 200 percent of the (broadly defined) capital of the euro system. No responsible bank would claim these sums are minor risks to its capital or to taxpayers. These claims also amount to 43 percent of German Gross Domestic Product, which is now around 2.57 trillion euros. With Greece proving that all this financing is deeply risky, the euro system will appear far more fragile and dangerous to taxpayers and investors.
Jacek Rostowski, the Polish Finance Minister, recently warned that the calamity of a Greek default is likely to result in a flight from banks and sovereign debt across the periphery, and that -- to avoid a greater calamity -- all remaining member nations need to be provided with unlimited funding for at least 18 months. Mr. Rostowski expresses concern, however, that the ECB is not prepared to provide such a firewall, and no other entity has the capacity, legitimacy, or will to do so.
We agree: Once it dawns on people that the ECB already has a large amount of credit risk on its books, it seems very unlikely that the ECB would start providing limitless funds to all other governments that face pressure from the bond market. The Greek trajectory of austerity-backlash-default is likely to be repeated elsewhere -- so why would the Germans want the ECB to double- or quadruple-down by suddenly ratcheting up loans to everyone else?
The most likely scenario is that the ECB will reluctantly and haltingly provide funds to other nations -- an on-again, off-again pattern of support -- and that simply won't be enough to stabilize the situation. Having seen the destruction of a Greek exit, and knowing that both the ECB and German taxpayers will not tolerate unlimited additional losses, investors and depositors will respond by fleeing banks in other peripheral countries and holding off on investment and spending.
Capital flight could last for months, leaving banks in the periphery short of liquidity and forcing them to contract credit -- pushing their economies into deeper recessions and their voters towards anger. Even as the ECB refuses to provide large amounts of visible funding, the automatic mechanics of Europe's payment system will mean the capital flight from Spain and Italy to German banks is transformed into larger and larger de facto loans by the Bundesbank to Banca d'Italia and Banco de Espana -- essentially to the Italian and Spanish states. German taxpayers will begin to see through this scheme and become afraid of further losses.
The end of the euro system looks like this. The periphery suffers ever deeper recessions -- failing to meet targets set by the troika -- and their public debt burdens will become more obviously unaffordable. The euro falls significantly against other currencies, but not in a manner that makes Europe more attractive as a place for investment.
Instead, there will be recognition that the ECB has lost control of monetary policy, is being forced to create credits to finance capital flight and prop up troubled sovereigns -- and that those credits may not get repaid in full. The world will no longer think of the euro as a safe currency; rather investors will shun bonds from the whole region, and even Germany may have trouble issuing debt at reasonable interest rates. Finally, German taxpayers will be suffering unacceptable inflation and an apparently uncontrollable looming bill to bail out their euro partners.
The simplest solution will be for Germany itself to leave the euro, forcing other nations to scramble and follow suit. Germany's guilt over past conflicts and a fear of losing the benefits from 60 years of European integration will no doubt postpone the inevitable. But here's the problem with postponing the inevitable -- when the dam finally breaks, the consequences will be that much more devastating since the debts will be larger and the antagonism will be more intense.
A disorderly break-up of the euro area will be far more damaging to global financial markets than the crisis of 2008. In fall 2008 the decision was whether or how governments should provide a back-stop to big banks and the creditors to those banks. Now some European governments face insolvency themselves. The European economy accounts for almost 1/3 of world GDP. Total euro sovereign debt outstanding comprises about $11 trillion, of which at least $4 trillion must be regarded as a near term risk for restructuring.
Europe's rich capital markets and banking system, including the market for 185 trillion dollars in outstanding euro-denominated derivative contracts, will be in turmoil and there will be large scale capital flight out of Europe into the United States and Asia. Who can be confident that our global megabanks are truly ready to withstand the likely losses? It is almost certain that large numbers of pensioners and households will find their savings are wiped out directly or inflation erodes what they saved all their lives. The potential for political turmoil and human hardship is staggering.
For the last three years Europe's politicians have promised to "do whatever it takes" to save the euro. It is now clear that this promise is beyond their capacity to keep -- because it requires steps that are unacceptable to their electorates. No one knows for sure how long they can delay the complete collapse of the euro, perhaps months or even several more years, but we are moving steadily to an ugly end.
Whenever nations fail in a crisis, the blame game starts. Some in Europe and the IMF's leadership are already covering their tracks, implying that corruption and those "Greeks not paying taxes" caused it all to fail. This is wrong: the euro system is generating miserable unemployment and deep recessions in Ireland, Italy, Greece, Portugal and Spain also. Despite Troika-sponsored adjustment programs, conditions continue to worsen in the periphery. We cannot blame corrupt Greek politicians for all that.
It is time for European and IMF officials, with support from the U.S. and others, to work on how to dismantle the euro area. While no dissolution will be truly orderly, there are means to reduce the chaos. Many technical, legal, and financial market issues could be worked out in advance. We need plans to deal with: the introduction of new currencies, multiple sovereign defaults, recapitalization of banks and insurance groups, and divvying up the assets and liabilities of the euro system. Some nations will soon need foreign reserves to backstop their new currencies. Most importantly, Europe needs to salvage its great achievements, including free trade and labor mobility across the continent, while extricating itself from this colossal error of a single currency.
Unfortunately for all of us, our politicians refuse to go there -- they hate to admit their mistakes and past incompetence, and in any case, the job of coordinating those seventeen discordant nations in the wind down of this currency regime is, perhaps, beyond reach.
Forget about a rescue in the form of the G20, the G8, the G7, a new European Union Treasury, the issue of Eurobonds, a large scale debt mutualization scheme, or any other bedtime story. We are each on our own.
Simon Johnson is the co-author of White House Burning: The Founding Fathers, Our National Debt, and Why It Matters To You, available from April 3rd. This post is cross-posted from The Baseline Scenario. Read more from the Fiscal Affairs series here. Peter Boone is chair of Effective Intervention, a UK-based charity, an associate at the Centre for Economic Performance, London School of Economics, and a principal in Salute Capital Management Limited."
http://hat4uk.wordpress.com/2012/05/28/euroblown-official-bankia-solid-heading-draghis-way/
"May 28, 2012 · 6:34 am
Greeks spent about €126m on residential purchases in London in 2011. But during April this year, demand by Spaniards was up 14%, by Portuguese 153% and by Italians 46%. And enquiries have shot up again since the proclamation of new Greek elections for June 17 – despite the euro’s plummeting value against the pound.
It’s all beginning to make me wonder if we shouldn’t see the English Channel as a sort of 21st century Berlin Wall. Certainly, in terms of people, Theresa Mayandverypossiblywon’t already sees things in that light.
Related: The big lie that makes Crash 2 inevitable."
Nothing in the times today.
The IHT is on to Spain.
http://www.zerohedge.com/
Read critically.
Good Luck.
I will try for some paid work for a few hours.
.
It looks to be "Game Over" in Europe today.
I can probably dig out primary sources. I cannot get action this holiday.
http://hat4uk.wordpress.com/2012/05/28/euroblown-greece-stops-dead-as-government-introduces-payments-freeze-and-importers-demand-cash-up-front-24/
"
EUROBLOWN: Greece stops dead as Government introduces payments freeze, and importers demand cash up front
BEDLAM CREATED BY EU/BERLIN LUNATICS TAKES OVER IN ATHENS
Facing the threat of a delay in the disbursement of bailout instalments from the Troika, Greece’s caretaker government has suspended rebates and payments to suppliers of the public sector. All loans by banks to any business, regardless of viability, have been stopped. In the absence of safe ways to sell, 74% of Greek companies are focused on debt reduction. And foreign companies importing to Greece are demanding money up front.The Troika’s crazy austerity and repayment schedules demand a Greek economy going at Full Ahead Both. It is now on Silent All Stop.
Thanks to cut-off threats from Berlin-am-Brussels, the Athens government has stopped paying suppliers, foreign importers will not ship until upfront cash has been received and confirmed, and banks have been instructed to lend nothing to either domestic or business borrowers.
The personal loans ban has been framed in the light of a suffen rush for ‘credit’ alongside massive withdrawals. Loans by banks were running at €11bn euros a month. From here on they will be zero.
Meawhile, the insolvency and supply problems for drugs at retail level in Greece has predictably backed upstream. Greek GPs are owed €620m. The provision of primary medical care and medicines to about 9 million people is very close to collapse due to the accumulated debts of the National Organization for the Provision of Health Services (EOPPY), as the government has reneged on its promise to settle all arrears to private suppliers of the old insurance funds (that now make up EOPPY) by the end of March. The money involved – a total of around €1.7 billion – spookily isn’t there any more: it went to pay off the last of the bondholders.
For damned are those who will not pay The Bonholders.
As the Mad Woman of Monetary Funding launches nanny-fury at Greek citizens, even New Democracy’s Antonis Samaras is now saying he wants the Troika bailout schedule suspended. He doesn’t mean it of course: nevertheless, in a fit of inexplicable madness, Greek voters have made ND the new front-runner in opinion polls on the basis of it.
But weigh these up as a measure of the disconnect between the financial sector, Brussels, and Real Earth: ‘Stocks rise as Greek euro exit fears wane’ (FT at 8.20 am). ‘The euro bounced off two-year lows on Monday after Greek conservatives topped opinion polls ahead of another general election’ (Reuters at 7.17am).
And the final (if predictably) irony. This morning, the IMF’s cheeky minx Pristine Lowgrade told Bloomberg she was ‘sensitive’ to the plight facing Greece, and she was misheard by those who didn’t catch her real meaning, viz – that the wealthy must pay their fair share of taxes.
Well Prissy, the wealthy Greeks are buying London properties, the eurozone is sinking fast, and Greece is close to anarchy. It’s a little too late for mendacious, back-handed apologies.
YESTERDAY THE SLOG TRIED TO POINT OUT SOME OF THE MORE CLINICALLY UNHINGED BELIEFS THAT HAVE MADE CRASH 2 INEVITABLE. The post is very closely related to the above, and I recommend it heartily."
http://www.huffingtonpost.com/simon-johnson/euro-collapse_b_1549444.html
Behind the curve.
"Posted: 05/27/2012 5:56 pm
React
Follow
In every economic crisis there comes a moment of clarity. In Europe soon, millions of people will wake up to realize that the euro-as-we-know-it is gone. Economic chaos awaits them.
To understand why, first strip away your illusions. Europe's crisis to date is a series of supposedly "decisive" turning points that each turned out to be just another step down a steep hill. Greece's upcoming election on June 17 is another such moment. While the so-called "pro-bailout" forces may prevail in terms of parliamentary seats, some form of new currency will soon flood the streets of Athens. It is already nearly impossible to save Greek membership in the euro area: depositors flee banks, taxpayers delay tax payments, and companies postpone paying their suppliers -- either because they can't pay or because they expect soon to be able to pay in cheap drachma.
The troika of the European Commission (EC), European Central Bank (ECB), and International Monetary Fund (IMF) has proved unable to restore the prospect of recovery in Greece, and any new lending program would run into the same difficulties. In apparent frustration, the head of the IMF, Christine Lagarde, remarked last week, "As far as Athens is concerned, I also think about all those people who are trying to escape tax all the time."
Ms. Lagarde's empathy is wearing thin and this is unfortunate -- particularly as the Greek failure mostly demonstrates how wrong a single currency is for Europe. The Greek backlash reflects the enormous pain and difficulty that comes with trying to arrange "internal devaluations" (a euphemism for big wage and spending cuts) in order to restore competitiveness and repay an excessive debt level.
Faced with five years of recession, more than 20 percent unemployment, further cuts to come, and a stream of failed promises from politicians inside and outside the country, a political backlash seems only natural. With IMF leaders, EC officials, and financial journalists floating the idea of a "Greek exit" from the euro, who can now invest in or sign long-term contracts in Greece? Greece's economy can only get worse.
Some European politicians are now telling us that an orderly exit for Greece is feasible under current conditions, and Greece will be the only nation that leaves. They are wrong. Greece's exit is simply another step in a chain of events that leads towards a chaotic dissolution of the euro zone.
During the next stage of the crisis, Europe's electorate will be rudely awakened to the large financial risks which have been foisted upon them in failed attempts to keep the single currency alive. When Greece quits the euro, its government will default on approximately 121 billion euros of debt to official creditors, and about 27 billion euros owed to the IMF.
More importantly and less known to German taxpayers, Greece will also default on 155 billion euros directly owed to the euro system (comprised of the ECB and the 17 national central banks in the euro zone). This includes 110 billion euros provided automatically to Greece through the Target2 payments system -- which handles settlements between central banks for countries using the euro. As depositors and lenders flee Greek banks, someone needs to finance that capital flight, otherwise Greek banks would fail. This role is taken on by other euro area central banks, which have quietly lent large funds, with the balances reported in the Target2 account. The vast bulk of this lending is, in practice, done by the Bundesbank since capital flight mostly goes to Germany, although all members of the euro system share the losses if there are defaults.
The ECB has always vehemently denied that it has taken an excessive amount of risk despite its increasingly relaxed lending policies. But between Target2 and direct bond purchases alone, the euro system claims on troubled periphery countries are now approximately 1.1 trillion euros (this is our estimate based on available official data). This amounts to over 200 percent of the (broadly defined) capital of the euro system. No responsible bank would claim these sums are minor risks to its capital or to taxpayers. These claims also amount to 43 percent of German Gross Domestic Product, which is now around 2.57 trillion euros. With Greece proving that all this financing is deeply risky, the euro system will appear far more fragile and dangerous to taxpayers and investors.
Jacek Rostowski, the Polish Finance Minister, recently warned that the calamity of a Greek default is likely to result in a flight from banks and sovereign debt across the periphery, and that -- to avoid a greater calamity -- all remaining member nations need to be provided with unlimited funding for at least 18 months. Mr. Rostowski expresses concern, however, that the ECB is not prepared to provide such a firewall, and no other entity has the capacity, legitimacy, or will to do so.
We agree: Once it dawns on people that the ECB already has a large amount of credit risk on its books, it seems very unlikely that the ECB would start providing limitless funds to all other governments that face pressure from the bond market. The Greek trajectory of austerity-backlash-default is likely to be repeated elsewhere -- so why would the Germans want the ECB to double- or quadruple-down by suddenly ratcheting up loans to everyone else?
The most likely scenario is that the ECB will reluctantly and haltingly provide funds to other nations -- an on-again, off-again pattern of support -- and that simply won't be enough to stabilize the situation. Having seen the destruction of a Greek exit, and knowing that both the ECB and German taxpayers will not tolerate unlimited additional losses, investors and depositors will respond by fleeing banks in other peripheral countries and holding off on investment and spending.
Capital flight could last for months, leaving banks in the periphery short of liquidity and forcing them to contract credit -- pushing their economies into deeper recessions and their voters towards anger. Even as the ECB refuses to provide large amounts of visible funding, the automatic mechanics of Europe's payment system will mean the capital flight from Spain and Italy to German banks is transformed into larger and larger de facto loans by the Bundesbank to Banca d'Italia and Banco de Espana -- essentially to the Italian and Spanish states. German taxpayers will begin to see through this scheme and become afraid of further losses.
The end of the euro system looks like this. The periphery suffers ever deeper recessions -- failing to meet targets set by the troika -- and their public debt burdens will become more obviously unaffordable. The euro falls significantly against other currencies, but not in a manner that makes Europe more attractive as a place for investment.
Instead, there will be recognition that the ECB has lost control of monetary policy, is being forced to create credits to finance capital flight and prop up troubled sovereigns -- and that those credits may not get repaid in full. The world will no longer think of the euro as a safe currency; rather investors will shun bonds from the whole region, and even Germany may have trouble issuing debt at reasonable interest rates. Finally, German taxpayers will be suffering unacceptable inflation and an apparently uncontrollable looming bill to bail out their euro partners.
The simplest solution will be for Germany itself to leave the euro, forcing other nations to scramble and follow suit. Germany's guilt over past conflicts and a fear of losing the benefits from 60 years of European integration will no doubt postpone the inevitable. But here's the problem with postponing the inevitable -- when the dam finally breaks, the consequences will be that much more devastating since the debts will be larger and the antagonism will be more intense.
A disorderly break-up of the euro area will be far more damaging to global financial markets than the crisis of 2008. In fall 2008 the decision was whether or how governments should provide a back-stop to big banks and the creditors to those banks. Now some European governments face insolvency themselves. The European economy accounts for almost 1/3 of world GDP. Total euro sovereign debt outstanding comprises about $11 trillion, of which at least $4 trillion must be regarded as a near term risk for restructuring.
Europe's rich capital markets and banking system, including the market for 185 trillion dollars in outstanding euro-denominated derivative contracts, will be in turmoil and there will be large scale capital flight out of Europe into the United States and Asia. Who can be confident that our global megabanks are truly ready to withstand the likely losses? It is almost certain that large numbers of pensioners and households will find their savings are wiped out directly or inflation erodes what they saved all their lives. The potential for political turmoil and human hardship is staggering.
For the last three years Europe's politicians have promised to "do whatever it takes" to save the euro. It is now clear that this promise is beyond their capacity to keep -- because it requires steps that are unacceptable to their electorates. No one knows for sure how long they can delay the complete collapse of the euro, perhaps months or even several more years, but we are moving steadily to an ugly end.
Whenever nations fail in a crisis, the blame game starts. Some in Europe and the IMF's leadership are already covering their tracks, implying that corruption and those "Greeks not paying taxes" caused it all to fail. This is wrong: the euro system is generating miserable unemployment and deep recessions in Ireland, Italy, Greece, Portugal and Spain also. Despite Troika-sponsored adjustment programs, conditions continue to worsen in the periphery. We cannot blame corrupt Greek politicians for all that.
It is time for European and IMF officials, with support from the U.S. and others, to work on how to dismantle the euro area. While no dissolution will be truly orderly, there are means to reduce the chaos. Many technical, legal, and financial market issues could be worked out in advance. We need plans to deal with: the introduction of new currencies, multiple sovereign defaults, recapitalization of banks and insurance groups, and divvying up the assets and liabilities of the euro system. Some nations will soon need foreign reserves to backstop their new currencies. Most importantly, Europe needs to salvage its great achievements, including free trade and labor mobility across the continent, while extricating itself from this colossal error of a single currency.
Unfortunately for all of us, our politicians refuse to go there -- they hate to admit their mistakes and past incompetence, and in any case, the job of coordinating those seventeen discordant nations in the wind down of this currency regime is, perhaps, beyond reach.
Forget about a rescue in the form of the G20, the G8, the G7, a new European Union Treasury, the issue of Eurobonds, a large scale debt mutualization scheme, or any other bedtime story. We are each on our own.
Simon Johnson is the co-author of White House Burning: The Founding Fathers, Our National Debt, and Why It Matters To You, available from April 3rd. This post is cross-posted from The Baseline Scenario. Read more from the Fiscal Affairs series here. Peter Boone is chair of Effective Intervention, a UK-based charity, an associate at the Centre for Economic Performance, London School of Economics, and a principal in Salute Capital Management Limited."
http://hat4uk.wordpress.com/2012/05/28/euroblown-official-bankia-solid-heading-draghis-way/
"May 28, 2012 · 6:34 am
EUROBLOWN: Official: Bankia solid….heading Draghi’s way
Forget Grexit: this is euroexit
In an amazingly cunning stunt, the Spanish Government plans to pay for Bankia’s nationalisation with its own debt…and then get Mario Draghi’s European Central Bank (ECB) to exchange this junk for cash. And throughout ClubMed, poorer citizens are dumping the banks in favour of cash, while the 3% are dumping the euro in favour of London property.
As a chap who’s fond of bailing out sovereign states with worthless paper, Mario Draghi may well find himself trumped this week by Mariano Rajoy of Spain, who (prodded by the crafty Bankia president, Jose Ignacio Goirigolzarri) has cooked up an entirely legal cash-for-sh*t exchange whereby Madrid injects €19bn of unrepayable Iberian debt into Bankia, who then send it up to Frankfurt in exchange for real spendable euros printed by Mario’s dwarves provided under the eurozone liquidity scheme.
“This could catch on in a big way,” giggled The Slog’s baleful Fifth Columnist in Brussels, “Imagine giving someone like Venizelos this idea….he’d empty the ECB in a week”.
Joking apart, my normal contact in Madrid is already in the office this morning, and acutely aware of how this new contagion could spread very rapidly.
“I know for a fact that the Government here is considering a similar plan for some larger Cajas if this one goes through,” he confirmed, “So Draghi cannot afford to set a precedent. Rajoy is basically using the eurozone’s own rules to force the ECB into direct help for banking insitutions…but without the need for Sovereign bailouts. For now at least.”
The theory is that this will be less spooky for the bond markets buying (or rather not buying) Spanish debt. It also gives the Madrid government a way of reducing its outgoings massively without needing the markets.
The problem of course is that this is a national-centric short-term ruse that can only lead to a medium term ‘run’ on the ECB’s liquidity resources. And it leaves Draghi with two equally unpalateable alternative courses of action: to renege on his own promises and say no to the exchange; or to start printing a great deal of money.
Meanwhile, in another bizarre twist wealthy ClubMed citizens are busy exchanging cash for London property, writes Kathimerini.
Data issued by UK estate agents operating in Greece show how Greek demand for properties in London rose 39% in April — before the May 6 elections — compared to the average for the previous six months. Most house-hunters showed interest in everything worth more than £1.5M.Greeks spent about €126m on residential purchases in London in 2011. But during April this year, demand by Spaniards was up 14%, by Portuguese 153% and by Italians 46%. And enquiries have shot up again since the proclamation of new Greek elections for June 17 – despite the euro’s plummeting value against the pound.
It’s all beginning to make me wonder if we shouldn’t see the English Channel as a sort of 21st century Berlin Wall. Certainly, in terms of people, Theresa Mayandverypossiblywon’t already sees things in that light.
Related: The big lie that makes Crash 2 inevitable."
Nothing in the times today.
The IHT is on to Spain.
http://www.zerohedge.com/
Read critically.
Good Luck.
I will try for some paid work for a few hours.
.
.
An object lesson.
We remember.
http://www.nakedcapitalism.com/2012/05/war-document-general-william-tecumseh-sherman-to-the-mayor-and-councilmen-of-atlanta.html
By lambert strether
For Memorial Day Weekend, I thought I’d curate a few documents on war. Here’s the first:
NOTE I’m no Civil War scholar, and information on the web seems scanty and sometimes tendentious; but see here on the general destruction of Sherman’s march to the sea, and here for some background for the letter.
UPDATE Here’s a more complete set of the correspondence.
http://www.nakedcapitalism.com/2012/05/links-52712.html
http://www.nytimes.com/2012/05/28/opinion/krugman-fiscal-phonies.html?ref=opinion
New Jersey politics drifting toward national politics.
Good points.
An object lesson.
We remember.
http://www.nakedcapitalism.com/2012/05/war-document-general-william-tecumseh-sherman-to-the-mayor-and-councilmen-of-atlanta.html
Sunday, May 27, 2012
War document: General William Tecumseh Sherman to the Mayor and Councilmen of Atlanta
By lambert stretherFor Memorial Day Weekend, I thought I’d curate a few documents on war. Here’s the first:
HEADQUARTERS MILITARY DIVISION of the MISSISSIPPI in the FIELDReaders, thoughts?
Atlanta, Georgia,
September 12, 1864
James M. Calhoun, Mayor,
E.E. Rawson and S.C. Wells, representing City Council of Atlanta.
Gentleman:
I have your letter of the 11th, in the nature of a petition to revoke my orders removing all the inhabitants from Atlanta. I have read it carefully, and give full credit to your statements of distress that will be occasioned, and yet shall not revoke my orders, because they were not designed to meet the humanities of the cause, but to prepare for the future struggles in which millions of good people outside of Atlanta have a deep interest. We must have peace, not only at Atlanta, but in all America. To secure this, we must stop the war that now desolates our once happy and favored country. To stop war, we must defeat the rebel armies which are arrayed against the laws and Constitution that all must respect and obey. To defeat those armies, we must prepare the way to reach them in their recesses, provided with the arms and instruments which enable us to accomplish our purpose. Now, I know the vindictive nature of our enemy, that we may have many years of military operations from this quarter; and, therefore, deem it wise and prudent to prepare in time. The use of Atlanta for warlike purposes in inconsistent with its character as a home for families. There will be no manufacturers, commerce, or agriculture here, for the maintenance of families, and sooner or later want will compel the inhabitants to go. Why not go now, when all the arrangements are completed for the transfer, instead of waiting till the plunging shot of contending armies will renew the scenes of the past month? Of course, I do not apprehend any such things at this moment, but you do not suppose this army will be here until the war is over. I cannot discuss this subject with you fairly, because I cannot impart to you what we propose to do, but I assert that our military plans make it necessary for the inhabitants to go away, and I can only renew my offer of services to make their exodus in any direction as easy and comfortable as possible.
You cannot qualify war in harsher terms than I will. War is cruelty, and you cannot refine it; and those who brought war into our country deserve all the curses and maledictions a people can pour out. I know I had no hand in making this war, and I know I will make more sacrifices to-day than any of you to secure peace. But you cannot have peace and a division of our country. If the UnitedStates submits to a division now, it will not stop, but will go on until we reap the fate of Mexico, which is eternal war. The United States does and must assert its authority, wherever it once had power; for, if it relaxes one bit to pressure, it is gone, and I believe that such is the national feeling. This feeling assumes various shapes, but always comes back to that of Union. Once admit the Union, once more acknowledge the authority of the national Government, and, instead of devoting your houses and streets and roads to the dread uses of war, I and this army become at once your protectors and supporters, shielding you from danger, let it come from what quarter it may. I know that a few individuals cannot resist a torrent of error and passion, such as swept the South into rebellion, but you can point out, so that we may know those who desire a government, and those who insist on war and its desolation.
You might as well appeal against the thunder-storm as against these terrible hardships of war. They are inevitable, and the only way the people of Atlanta can hope once more to live in peace and quiet at home, is to stop the war, which can only be done by admitting that it began in error and is perpetuated in pride.
We don’t want your Negroes, or your horses, or your lands, or any thing you have, but we do want and will have a just obedience to the laws of the United States. That we will have, and if it involved the destruction of your improvements, we cannot help it.
You have heretofore read public sentiment in your newspapers, that live by falsehood and excitement; and the quicker you seek for truth in other quarters, the better. I repeat then that, bu the original compact of government, the United States had certain rights in Georgia, which have never been relinquished and never will be; that the South began the war by seizing forts, arsenals, mints, custom-houses, etc., etc., long before Mr. Lincoln was installed, and before the South had one jot or title of provocation. I myself have seen in Missouri, Kentucky, Tennessee, and Mississippi, hundreds and thousands of women and children fleeing from your armies and desperadoes, hungry and with bleeding feet. In Memphis, Vicksburg, and Mississippi, we fed thousands and thousands of the families of rebel soldiers left on our hands, and whom we could not see starve. Now that war comes to you, you feel very different. You deprecate its horrors, but did not feel them when you sent car-loads of soldiers and ammunition, and moulded shells and shot, to carry war into Kentucky and Tennessee, to desolate the homes of hundreds and thousands of good people who only asked to live in peace at their old homes, and under the Government of their inheritance. But these comparisons are idle. I want peace, and believe it can only be reached through union and war, and I will ever conduct war with a view to perfect an early success.
But, my dear sirs, when peace does come, you may call on me for any thing. Then will I share with you the last cracker, and watch with you to shield your homes and families against danger from every quarter.
Now you must go, and take with you the old and feeble, feed and nurse them, and build for them, in more quiet places, proper habitations to shield them against the weather until the mad passions of men cool down, and allow the Union and peace once more to settle over your old homes in Atlanta. Yours in haste,
W.T. Sherman, Major-General commanding
NOTE I’m no Civil War scholar, and information on the web seems scanty and sometimes tendentious; but see here on the general destruction of Sherman’s march to the sea, and here for some background for the letter.
UPDATE Here’s a more complete set of the correspondence.
No surprises here. Other connections to the same material.
http://www.nakedcapitalism.com/2012/05/links-52712.html
Sunday, May 27, 2012
Links 5/27/12
Stray dog completes 1700km China race BBC
Let’s Talk Turkey About Greece Ian Welsh. CouldRussia
use a warm water port? Da?
A Very-Useful Chart To Prepare You For The Next Greece Election Chart from Credit Suisse Business Insider
Harsh Language from Lagarde: “IMF Has No Intention of Softening Terms”; From Head of Deutsche Bank: “Greece is a Failed Corrupt State”; Purposely Inflammatory Statements to Force Greece Exit Mish
Germany Walks Away From Greece Testosterone Pit. Reading the Lagarde tea leaves.
Beware hidden costs as banks eye ‘Grexit’ Gillian Tett. Party like it’s 2007…
Europe’s biggest fear: A run they cannot stop Schumpeter, Economist (RS)
Hard cash for tough times FT
Drug money saved banks in global crisis, claims UN advisor Guardian. Oldie but goodie!
Gentlemen prefer bonds
COSCO Seeks Gov’t Funds after Huge Losses, Sources Say Caixin. China’s biggest state-owned shipping firm.
J.P. Morgan replaces prime brokerage chief: reportReuters
Bank Regulators Under Scrutiny in JPMorgan Loss Times
JPMorgan: Jamie Dimon and the horse he fell off Jack and Suzy Welch. Yeah, but what about the horse he rode in on?
Former Lloyds head of fraud and security Jessica Harper charged over £2.5m fraud Telegraph (RS)
Lunch with the FT: Paul Krugman. Give the Booker Prize to the Maastricht Treaty!
Reddit’s Alexis Ohanian And Activists Aim To Build A “Bat-Signal For The Internet” Forbes
Economics Is Not Math The Institute for New Economic Thinking
Humbler horizons Free exchange, Economist. The new normal…
PG&E Violated Pipeline Safety Rules, Investigators Say WSJ
Killings, cancer, corruption and Azerbaijan: Eurovision in the Islamic Republic of BP Greg Palast
From Baku, With Love (And Intolerance) Slate
You can identify poor neighborhoods from space Grist
Next to U.S. firing range in Afghanistan, a village of victims WaPo
Cable theft delays Proastiakos [commuter rail] services Ekathimerini
Vatican in chaos after pope’s butler arrested for leaks, bank president ousted for negligence WaPo
The Imperial Mind Glenn Greenwald. Fake vaccines for Pakistani childen [all so Obama can whack OBL in an election year --lambert]
Egyptians ask why a Mubarak holdover like Shafik did so well McClatchy
Protest in the streets despite downpour and tornado warning, 1 arrest Montreal OpenFile
What are Lawn Removal Parties?
Night Thoughts in Hagsgate Archdruid Report
Antidote du jour (hat tip reader Lidia):
Let’s Talk Turkey About Greece Ian Welsh. Could
A Very-Useful Chart To Prepare You For The Next Greece Election Chart from Credit Suisse Business Insider
Harsh Language from Lagarde: “IMF Has No Intention of Softening Terms”; From Head of Deutsche Bank: “Greece is a Failed Corrupt State”; Purposely Inflammatory Statements to Force Greece Exit Mish
Germany Walks Away From Greece Testosterone Pit. Reading the Lagarde tea leaves.
Beware hidden costs as banks eye ‘Grexit’ Gillian Tett. Party like it’s 2007…
Europe’s biggest fear: A run they cannot stop Schumpeter, Economist (RS)
Hard cash for tough times FT
Drug money saved banks in global crisis, claims UN advisor Guardian. Oldie but goodie!
Gentlemen prefer bonds
COSCO Seeks Gov’t Funds after Huge Losses, Sources Say Caixin. China’s biggest state-owned shipping firm.
J.P. Morgan replaces prime brokerage chief: report
Bank Regulators Under Scrutiny in JPMorgan Loss Times
JPMorgan: Jamie Dimon and the horse he fell off Jack and Suzy Welch. Yeah, but what about the horse he rode in on?
Former Lloyds head of fraud and security Jessica Harper charged over £2.5m fraud Telegraph (RS)
Lunch with the FT: Paul Krugman. Give the Booker Prize to the Maastricht Treaty!
Reddit’s Alexis Ohanian And Activists Aim To Build A “Bat-Signal For The Internet” Forbes
Economics Is Not Math The Institute for New Economic Thinking
Humbler horizons Free exchange, Economist. The new normal…
PG&E Violated Pipeline Safety Rules, Investigators Say WSJ
Killings, cancer, corruption and Azerbaijan: Eurovision in the Islamic Republic of BP Greg Palast
From Baku, With Love (And Intolerance) Slate
You can identify poor neighborhoods from space Grist
Next to U.S. firing range in Afghanistan, a village of victims WaPo
Cable theft delays Proastiakos [commuter rail] services Ekathimerini
Vatican in chaos after pope’s butler arrested for leaks, bank president ousted for negligence WaPo
The Imperial Mind Glenn Greenwald. Fake vaccines for Pakistani childen [all so Obama can whack OBL in an election year --lambert]
Egyptians ask why a Mubarak holdover like Shafik did so well McClatchy
Protest in the streets despite downpour and tornado warning, 1 arrest Montreal OpenFile
What are Lawn Removal Parties?
Night Thoughts in Hagsgate Archdruid Report
Antidote du jour (hat tip reader Lidia):
http://www.nytimes.com/2012/05/28/opinion/krugman-fiscal-phonies.html?ref=opinion
New Jersey politics drifting toward national politics.
Good points.
@21:16, 5/27/12
.
The Monday morning news has not started yet.
http://www.zerohedge.com/news/newedge-leaves-greek-stock-market-will-only-execute-sell-orders @17:37
"Either the game of chicken in Europe has just hit and surpassed ludicrous speed, or French banks SocGen and Credit Agricole, both of which have some of the worst CT1/TA ratios in the known universe, and which are the JV participants of Newedge, have decided to formally pull the plug on Greece. As the FT reported moments ago, Newedge "has told clients that it will process only sell orders, and stop extending margin loans for existing positions in Greek securities, according to a memo obtained by the Financial Times."
And now, as per the Newedge hint, we have a concerted effort to crash the stock market too.
In other words, in addition to a bank run (because as has been widely reported already, Greek banks have seen billions in cash withdrawn in the past 3 weeks), in addition to trade paralysis, we are about to see a full blown stock market collapse of what little is left in the Athens Stock Exchange as everyone rushes to sell any securities at firesale prices. Sadly, this is nothing but the final punishment for a Greek population which held its first quasi-referendum on being a Eurobanker tolling operation (where European "bailout" funds go simply to fund European bank capital shortfalls, and the ECB of course) and said no.
Simply said - what we are witnessing is the concerted effort of Greece's former "allies" do everything in their power to destroy the small nation just so it has a taste of what would happen if it indeed follows the democratic process. And those organizations, such as the IMF, whose job it is to mitigate such a process, are doing the opposite, and merely pouring fuel on the fire, as LaGarde's interview in the Guardian indicated.
Basically, the entire developed world has now gone all in that Greece can be scared out of doing what its population has indicated ever since the first parliamentary election, has every intention of doing.
The only question is whether, as we asked even before the election, the "Greek population has already lost everything and is now free to do anything." Because if it has, and following 2 years of wealth transfer from the Greeks to the banks the answer is almost certainly a resounding yes, the outcome for all those attempting to herd the Greeks, will be far more disastrous than any of their fearmongering attempts of a Greek social collapse ever could be."
The site is predominantly gold buggery.
They are very interested in finance though economically ignorant.
http://www.telegraph.co.uk/finance/financialcrisis/
Christine Lagarde has been forced to express her sympathy for the Greek people after receiving 10,000 messages on Facebook, many of them obscene.
Angry Greeks waged Facebook war against International Monetary Fund head Christine Lagarde today, after she accused their countrymen of dodging taxes.
The president of Spanish lender Bankia says the €23.5bn in state aid it will receive in the country's biggest-ever bank bailout will be treated as an investment to make profit for the government and not as a loan.
The chief executive of Lloyd's of London has admitted that the world's leading insurance market is prepared for a collapse in the single currency and has reduced its exposure "as much as possible" to the crisis-hit continent.
Spain is spiralling into the vortex of debt-deflation. This has nothing to do with Greece. It is not the result of fiscal extravagance over the past decade, or other such Wagnerian myths.
26 May 2012
http://www.guardian.co.uk/business/debt-crisis
Der Spiegel has not updated
http://www.spiegel.de/international/topic/euro_crisis/
http://krugman.blogs.nytimes.com/2012/05/27/austerity-defenses/
The Financial Times believes that Greece will stay on the Euro for a few more weeks. They are less sure that the Euro will last.
http://ftalphaville.ft.com/blog/
Newedge is abandoning the Greek stock market. The broker has told clients that it will process only sell orders, and stop extending margin loans for existing positions in Greek securities, according to a memo obtained by the FT. Securities subject to the new restrictions include foreign-listed shares and American depositary receipts for Greek companies.
A draft EU report on Italy is critical of the country’s efforts to combat tax evasion and shrink the black economy. Some of the more hard-hitting portions of the draft, seen by the FT, had already been toned down. The report is due out on Wednesday with reports into the other 13 eurozone countries not in bail-out programmes.
Greece’s public finances could collapse as early as next month, leaving salaries and pensions unpaid unless a stable government emerges from the June 17 election, according to Lucas Papademos, the FT reports.
Opinion polls showing New Democracy was ahead of Syriza by as much as 5.7 percentage points helped the euro rise for the first time in five days, says Bloomberg. Six opinion polls published on Saturday all put New Democracy in the lead.
Sumitomo Mitsui Trust is being investigated for alleged insider trading in a widening crackdown by the Japanese regulators, the FT reports. The bank, one of Japan’s biggest, said it was cooperating with the Securities and Exchange Surveillance Commission investigation and apologised to clients and stakeholders.
Switzerland is considering capital controls to fight a sharp rise in the Swiss franc in the event of a eurozone collapse, says the WSJ. SNB chairman Thomas Jordan told the Sonntagszeitung newspaper that preparations needed to be made for a collapse even though he didn’t expect this to happen.
The BoJ expressed frustration with expectations that it will ‘automatically’ continue monetary stimulus until its 1% inflation target is reached, Reuters reports. Some board members pointed out that economic growth, price stability objectives and risk must be balanced.
Diamond mine appetite fades: KKR has backed away from the sale of a BHP Billiton diamond mine just as peer Rio Tinto starts work on a potential sale of its diamond division, the FT reports.
JPMorgan Chase has named Teresa Heitsenrether as the new head of its global prime brokerage business, replacing Lou Lebedin, says Reuters, citing a source familiar with the situation. JPMorgan was looking for new opportunities for Lebedin within the organisation, the reports said. And the WSJ says JPMorgan will shake up its risk committee with directors Timothy Flynn and James Bell likely candidates to join, although it was not clear whether existing committee members would leave. The report cited people familiar with the matter.
Chinese industrial companies’ profits fell 2.2% in April from a year earlier, according to official data, Bloomberg reports. In March, profits grew 4.5%.
Japanese chipmaker Renesas plans to cut up to 14,000 jobs, or about 30% of its workforce, and sell its major plant to Taiwan Semiconductor, the WSJ reports, citing people familiar with the matter.
Xstrata will unveil a bonus worth tens of millions of pounds to keep on CEO Mick Davis ahead of the Glencore merger, the FT reports, citing people familiar with the terms.
COMMENT AND CURIOS:
- Wolfgang Munchau’s prescription for saving the eurozone. (Financial Times)
- News ‘tried to blackmail select committee member’ – (The Independent)
- We no longer know what things are worth, says Tony Jackson. (Financial Times)
- Facebook IPO debacle puts Morgan Stanley’s Michael Grimes, co-head of global technology banking, on the spot – (Wall Street Journal)
- How to satiate your Target 2 imbalances obsession. (Financial Times)
- Olive oil poses another problem for Italy, Greece and Spain. (Financial Times)
Sooner is better. As soon as you can is best.
.
The Monday morning news has not started yet.
http://www.zerohedge.com/news/newedge-leaves-greek-stock-market-will-only-execute-sell-orders @17:37
"Either the game of chicken in Europe has just hit and surpassed ludicrous speed, or French banks SocGen and Credit Agricole, both of which have some of the worst CT1/TA ratios in the known universe, and which are the JV participants of Newedge, have decided to formally pull the plug on Greece. As the FT reported moments ago, Newedge "has told clients that it will process only sell orders, and stop extending margin loans for existing positions in Greek securities, according to a memo obtained by the Financial Times."
Add this to news over the weekend that Euler Hermes is "reviewing Greek export coverage." To wit - "In light of the recent developments, Euler Hermes will most probably have to switch to a more prudent approach, also in the interest of its customers,” spokeswoman Bettina Sattler said in an e-mailed response to questions. “The outcome of the new elections in June remains highly uncertain. Consequently, the situation is further deteriorating. The risk of Greece exiting the Eurozone has been revived." Translation: Greek foreign trade is about to be halted dead in its tracks.A list of securities subject to the new restrictions include foreign-listed shares and American depositary receipts for Greek companies including Alpha Bank, Coca-Cola Hellenic Bottling and Paragon Shipping, a New York-listed shipowner that is headquartered in Greece.
“It is part of our ordinary risk practices to minimise our potential exposures proactively when we are concerned about potential issues,” the broker said.
Newedge – a joint venture of French banks Société Générale and Crédit Agricole – has Europe’s seventh largest hedge fund prime brokerage business, with more than $31bn in client assets, according to industry publication EuroHedge.
Its move is the latest evidence that the financial sector is preparing for a eurozone break-up, even as European officials debate the terms of the Greek bailout. A person familiar with the matter said Newedge wanted to avoid unpredictable risks in the event that Athens returned to the drachma as the national currency.
And now, as per the Newedge hint, we have a concerted effort to crash the stock market too.
In other words, in addition to a bank run (because as has been widely reported already, Greek banks have seen billions in cash withdrawn in the past 3 weeks), in addition to trade paralysis, we are about to see a full blown stock market collapse of what little is left in the Athens Stock Exchange as everyone rushes to sell any securities at firesale prices. Sadly, this is nothing but the final punishment for a Greek population which held its first quasi-referendum on being a Eurobanker tolling operation (where European "bailout" funds go simply to fund European bank capital shortfalls, and the ECB of course) and said no.
Simply said - what we are witnessing is the concerted effort of Greece's former "allies" do everything in their power to destroy the small nation just so it has a taste of what would happen if it indeed follows the democratic process. And those organizations, such as the IMF, whose job it is to mitigate such a process, are doing the opposite, and merely pouring fuel on the fire, as LaGarde's interview in the Guardian indicated.
Basically, the entire developed world has now gone all in that Greece can be scared out of doing what its population has indicated ever since the first parliamentary election, has every intention of doing.
The only question is whether, as we asked even before the election, the "Greek population has already lost everything and is now free to do anything." Because if it has, and following 2 years of wealth transfer from the Greeks to the banks the answer is almost certainly a resounding yes, the outcome for all those attempting to herd the Greeks, will be far more disastrous than any of their fearmongering attempts of a Greek social collapse ever could be."
The site is predominantly gold buggery.
They are very interested in finance though economically ignorant.
http://www.telegraph.co.uk/finance/financialcrisis/
Irate Greeks vilify IMF chief on Facebook after she brands them tax dodgers
27 May 2012
| 251 Comments Greek Facebook war on Lagarde
27 May 2012
| 223 Comments Bankia bailout an investment not a loan, says lender
27 May 2012
| 9 Comments Lloyd's preparing for euro collapse
27 May 2012
| 205 Comments Europe's Maquina Infernal has crippled Spain
27 May 2012
| 552 Comments Recession takes the heat out of Greek sex industry
'Customers just don't feel like having sex - or can't afford to buy our stuff.'27 May 2012
| 22 Comments Clegg on eurozone's weak foundations
Nick Clegg has warned that the foundations of the eurozone are "weaker than anyone could have predicted" because countries did not stick to its rules and introduce reforms.27 May 2012
| 8 Comments Brussels 'could take control of European banks'
Struggling European banks could be seized and controlled by Brussels as part of secret plans being drawn up, it has emerged.27 May 2012
| 32 Comments Greece will run out of money by end of June, warns former PM
Former Greek prime minister Lucas Papademos has reportedly warned that Greece may run out of money by the end of June if international bailout funds are cut off following next month's election.27 May 2012
| 190 Comments Ukraine facing debt blow from Euro 2012
Country may never recover billions of dollars it has spent, warn analysts.27 May 2012
| 20 Comments Clegg: eurozone foundations 'weaker than anyone predicted'
Nick Clegg has warned that the foundations of the eurozone are "weaker than anyone could have predicted", as he urged Greece to stay in the euro and stick with its austerity programme.27 May 2012
| 485 Comments The disarming charm of Christine Lagarde
Where did Christine Lagarde, head of the IMF, learn to reduce grown men – and countries – to mush, asks William Langley.27 May 2012
| 71 Comments Clear, decisive leadership is needed to get Britain growing
Telegraph View: The feeble reaction to Beecroft suggests a lack of political vision.27 May 2012
| 80 Comments http://www.guardian.co.uk/business/debt-crisis
- 27 May 2012: Peter Preston: Across the continent, where older people have a role in raising young relatives, they are also better cared for themselves 24 comments
- 27 May 2012: Editorial: The morality tale Ms Lagarde sets out is not a new one: feckless southern Europeans ran riot for the euro's first decade and now have to be bailed out from their mess 91 comments
- 27 May 2012: Letters: As director of the IMF, Christine Lagarde is in receipt of a tax-free annual salary of $468,000 (£298,000, plus perks)
- 27 May 2012: Madrid considers passing €19bn cost on in form of government debt – though markets and Germany likely to object
- 27 May 2012: Shopkeepers in border town of Clones use loophole to bring back Irish notes – and boost the local economy 49 comments
-
27 May 2012: Business leader: If the eurozone were to shrink, Germany's once-captive markets would become too poor to import: and the rapid appreciation of a stronger euro would make its exports much pricier 105 comments
- 26 May 2012: Resentment over EU austerity measures and images of violent protests have led to 50,000 holidays being cancelled in 10 days
- 26 May 2012: Theresa May says 'work is ongoing' to restrict migration to the UK in the event of a financial collapse in the eurozone
-
25 May 2012: Mary Kenny: Austerity quite appeals to Irish Catholics: it's the obvious loss of sovereignty that troubles us 174 comments
- 25 May 2012: Take responsibility and stop trying to avoid taxes, International Monetary Fund chief tells Athens 3223 comments
- 25 May 2012: Her charm is legendary, but Christine Lagarde, head of the IMF, is far from a pushover. She talks to Decca Aitkenhead about sexism, swimming and saving the European economy 128 comments
-
25 May 2012: Rescue of part-nationalised Bankia linked to 'shotgun' cajas merger laden with toxic real estate
Der Spiegel has not updated
http://www.spiegel.de/international/topic/euro_crisis/
The Euro Crisis
- Paul Krugman on Euro Rescue Efforts: 'Right Now, We Need Expansion'REUTERS
- Free Money: German Central Bank Issues Zero-Rate Bonds
- Visit to Germany: Tsipras Says Berlin Must Back Down on Austerity
- Crisis of Confidence: Fears of Bank Runs Mount in Southern Europe
- Fleeing the Wealth Tax: Wealthy French Take Their Assets to London
http://krugman.blogs.nytimes.com/2012/05/27/austerity-defenses/
Austerity Defenses
From what I’m hearing, the current defense of Cameron’s austerity policies against people like Martin Wolf, Jonathan Portes, and me runs like this:
1. Austerity works! Look at our low, low rates!
2. Austerity? What austerity?
3. Anyway, America does it too.
So, on the first point: as Portes says, those low rates reflect pessimism about British economic prospects, not optimism about its creditworthiness.
On the second, a couple of things to bear in mind. First, spending as a share of GDP tends to rise in an economic slump even without a change in policy, both because GDP is smaller and because safety-net programs kick in. As a result, UK spending as a percentage of GDP shot up between 2007 and 2009.
What about since then? I’m suspicious of the IMF numbers on potential output, which seem too pessimistic to me. But for what it’s worth, they say that the output gap — the degree to which Britain has been operating below potential — hasn’t changed much since 2009. Given that, here’s what the IMF World Economic Outlook database says about spending:
Also, VAT went up. So the IMF’s measure of “structural balance” shows substantial fiscal tightening:
Yes, Virginia, Cameron/Osborne are sharply tightening fiscal policy in the face of a depressed economy.
Finally, about America — yes! We’re doing a lot of austerity! Not as much as Britain, I think (although the numbers are hard to parse), but when you count in state and local government we’re doing a lot of contraction. But that doesn’t reflect deliberate policy, certainly not on Obama’s part; it reflects deadlock in Washington and the fiscal woes of state and local governments.
The point is that Britain is choosing to emulate both the United States and the troubled nations of Europe when it doesn’t have to — all in the name of an economic theory that was foolish two years ago, and completely discredited now."
1. Austerity works! Look at our low, low rates!
2. Austerity? What austerity?
3. Anyway, America does it too.
So, on the first point: as Portes says, those low rates reflect pessimism about British economic prospects, not optimism about its creditworthiness.
On the second, a couple of things to bear in mind. First, spending as a share of GDP tends to rise in an economic slump even without a change in policy, both because GDP is smaller and because safety-net programs kick in. As a result, UK spending as a percentage of GDP shot up between 2007 and 2009.
What about since then? I’m suspicious of the IMF numbers on potential output, which seem too pessimistic to me. But for what it’s worth, they say that the output gap — the degree to which Britain has been operating below potential — hasn’t changed much since 2009. Given that, here’s what the IMF World Economic Outlook database says about spending:
Finally, about America — yes! We’re doing a lot of austerity! Not as much as Britain, I think (although the numbers are hard to parse), but when you count in state and local government we’re doing a lot of contraction. But that doesn’t reflect deliberate policy, certainly not on Obama’s part; it reflects deadlock in Washington and the fiscal woes of state and local governments.
The point is that Britain is choosing to emulate both the United States and the troubled nations of Europe when it doesn’t have to — all in the name of an economic theory that was foolish two years ago, and completely discredited now."
Possibly the best way to re-elect the Democrats is to panic the Republicans with a systemic collapse initiated in Europe.
Rather like removing bed bugs with a house fire.
Effective but disproportionate.
The Financial Times believes that Greece will stay on the Euro for a few more weeks. They are less sure that the Euro will last.
http://ftalphaville.ft.com/blog/
The 6am Cut London
Spain is considering directly injecting its own government debt into BFA-Bankia to help fund the stricken lender’s €19bn nationalisation, in an attempt to sidestep high bond market rates, reports the FT. The plan involves Madrid issuing Spanish government guaranteed debt to Bankia in return for equity, with the bank then able to deposit the bonds with ECB as collateral for cash.Newedge is abandoning the Greek stock market. The broker has told clients that it will process only sell orders, and stop extending margin loans for existing positions in Greek securities, according to a memo obtained by the FT. Securities subject to the new restrictions include foreign-listed shares and American depositary receipts for Greek companies.
A draft EU report on Italy is critical of the country’s efforts to combat tax evasion and shrink the black economy. Some of the more hard-hitting portions of the draft, seen by the FT, had already been toned down. The report is due out on Wednesday with reports into the other 13 eurozone countries not in bail-out programmes.
Greece’s public finances could collapse as early as next month, leaving salaries and pensions unpaid unless a stable government emerges from the June 17 election, according to Lucas Papademos, the FT reports.
Opinion polls showing New Democracy was ahead of Syriza by as much as 5.7 percentage points helped the euro rise for the first time in five days, says Bloomberg. Six opinion polls published on Saturday all put New Democracy in the lead.
Sumitomo Mitsui Trust is being investigated for alleged insider trading in a widening crackdown by the Japanese regulators, the FT reports. The bank, one of Japan’s biggest, said it was cooperating with the Securities and Exchange Surveillance Commission investigation and apologised to clients and stakeholders.
Switzerland is considering capital controls to fight a sharp rise in the Swiss franc in the event of a eurozone collapse, says the WSJ. SNB chairman Thomas Jordan told the Sonntagszeitung newspaper that preparations needed to be made for a collapse even though he didn’t expect this to happen.
The BoJ expressed frustration with expectations that it will ‘automatically’ continue monetary stimulus until its 1% inflation target is reached, Reuters reports. Some board members pointed out that economic growth, price stability objectives and risk must be balanced.
Diamond mine appetite fades: KKR has backed away from the sale of a BHP Billiton diamond mine just as peer Rio Tinto starts work on a potential sale of its diamond division, the FT reports.
JPMorgan Chase has named Teresa Heitsenrether as the new head of its global prime brokerage business, replacing Lou Lebedin, says Reuters, citing a source familiar with the situation. JPMorgan was looking for new opportunities for Lebedin within the organisation, the reports said. And the WSJ says JPMorgan will shake up its risk committee with directors Timothy Flynn and James Bell likely candidates to join, although it was not clear whether existing committee members would leave. The report cited people familiar with the matter.
Chinese industrial companies’ profits fell 2.2% in April from a year earlier, according to official data, Bloomberg reports. In March, profits grew 4.5%.
Japanese chipmaker Renesas plans to cut up to 14,000 jobs, or about 30% of its workforce, and sell its major plant to Taiwan Semiconductor, the WSJ reports, citing people familiar with the matter.
Xstrata will unveil a bonus worth tens of millions of pounds to keep on CEO Mick Davis ahead of the Glencore merger, the FT reports, citing people familiar with the terms.
COMMENT AND CURIOS:
- Wolfgang Munchau’s prescription for saving the eurozone. (Financial Times)
- News ‘tried to blackmail select committee member’ – (The Independent)
- We no longer know what things are worth, says Tony Jackson. (Financial Times)
- Facebook IPO debacle puts Morgan Stanley’s Michael Grimes, co-head of global technology banking, on the spot – (Wall Street Journal)
- How to satiate your Target 2 imbalances obsession. (Financial Times)
- Olive oil poses another problem for Italy, Greece and Spain. (Financial Times)
Sooner is better. As soon as you can is best.
.
Saturday, May 26, 2012
- - - 5/26/12
.
http://krugman.blogs.nytimes.com/2012/05/26/cameron-and-the-confidence-fairy/
As the Brits get prepared for my satanic intervention, I’m hearing the line that Cameron can’t be to blame for the double dip because there hasn’t been any actual austerity yet.
First of all, that’s not true. As Jonathan Portes says, public investment has already plunged.
But the main point, which I’ve already made, is that even if much of the austerity has yet to happen, the austerity story has already failed:
http://www.telegraph.co.uk/finance/economics/8647879/Britain-cant-afford-to-fall-for-the-charms-of-the-false-economics-Messiah-Paul-Krugman.html
They have salesmen accountants and lawyers to be complicated for them.
"May 26, 2012, 11:57 am
http://www.ft.com/intl/cms/s/2/022acf50-a4d1-11e1-9a94-00144feabdc0.html#axzz1vzXFh4mz
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©James FergusonI enter the Landmarc restaurant, at the Time Warner Center, on Columbus Circle, New York, where I have agreed to meet for lunch with Paul Krugman, the 2008 Nobel laureate in economics, Princeton professor of economics and international affairs, and liberal columnist of the New York Times. I know nothing about this bistro-style restaurant, which my guest has chosen for its convenience to a television interview he has just completed. The restaurant is impersonal and – it’s a late lunch, at two o’clock – beginning to empty.
Krugman, 59, most hated and most admired columnist in the US, rumpled and professorial, is sitting at a small table in the middle of the restaurant, working on his laptop. It is Thursday and he is writing his column. What, I ask, is it on? “It’s going to be Europe,” he replies. “Partly because it is coming to a head, partly because I am a little overstretched and that’s what I’m ready for. So I’m going to do that one.” I understand the feeling of being overstretched: Krugman is writing two columns a week, posting regularly on his blog, writing popular books and teaching.
So, I ask, will the argument of the column be that “it’s all over” for the eurozone?
“No. I don’t think they can save Greece but they can still save the rest if they’re willing to offer open-ended financing and macroeconomic expansion.” But this would mean persuading the Germans to change their philosophy of economic life. “Well, the prospect of hanging concentrates the mind; the prospect of a collapse of the euro might concentrate their minds.”
I change the subject to ask how he has coped with the shift from being predominently an academic economist to being the leading spokesman for the liberal cause. How did this happen? “Well, it was funny,” he responds. “I was doing a column for Slate and then a bit for Fortune, towards the end, and then the [New York] Times came along with this offer. It was 1999. We thought I’d be writing about the follies of dotcoms and stuff like that and then it turns out that it’s a much more awesome and ominous responsibility. It was nothing I ever planned.
“Really, the rough period was the first [George W] Bush term when it seemed like the whole world was mad, save me, or vice-versa, and it’s gotten easier.
“I have to say, though, that the economic crisis has played into the things that I was worrying about 15 years ago. It’s been almost alarmingly easy to figure out what to say. But it’s a very strange thing: it’s not at all what I was imagining I was going to be doing with my life.”
We have already gone straight into the issues. The conversation turns to the Japanese crisis of the 1990s. In retrospect, I suggest, the Japanese seem to have managed the aftermath of their crisis quite well.
He agrees. “What we thought was that Japan was a cautionary tale. It has turned into Japan as almost a role model. They never had as big a slump as we have had. They managed to have growing per capita income through most of what we call their ‘lost decade’. My running joke is that the group of us who were worried about Japan a dozen years ago ought to go to Tokyo and apologise to the emperor. We’ve done worse than they ever did. When people ask: might we become Japan? I say: I wish we could become Japan.”
At this point we order: salade niçoise for Krugman; foie gras terrine for me; and a bottle of sparkling water. This is definitely not going to be up to the gourmet standards of some lunches with the FT.
I return to our discussion. I ask whether he is not being unfair to Ben Bernanke, chairman of the Federal Reserve and a former colleague at Princeton. After all, Bernanke has avoided deflation in the US. Krugman responds swiftly: “We don’t care about deflation because having a small minus, instead of a small plus, makes a huge difference to the world. We worry about deflation because we think it is a reason why one has a persistently depressed economy. While we may not have deflation, we have a persistently depressed economy. So what difference does it make?”
But surely, I argue, the Fed did deliver negative real interest rates by cutting rates quickly and avoiding deflation. This prods Krugman into rare praise: “I have actually very few complaints about monetary policy here through some point in 2009. I thought that Ben [Bernanke] responded aggressively and forcefully, which was the right thing to do. He stepped in with the original QE [quantitative easing] and stabilised the economy.
“The question is, what did he do as we started to look more and more like Japan? At that point the logic says you have to find a way to get some traction. Fiscal policy might be great. But if you’re not getting it you should be doing something on the Fed side and I think that logic becomes stronger and stronger as the years go by. And it’s sad to see that the Fed has largely washed its hands of responsibility for getting us out of the slump.
“I hope that some day Ben Bernanke and Janet Yellen [vice-chair of the Fed] will think that I’ve done them a favour. There’s all this sniping from the hard money guys and somebody needs to say, ‘Actually, no, if we actually think about this realistically, you’re doing too little and not too much.’”
So what, I wonder, would he do if he were put in charge? He says he would add maybe another $2tn to the Fed’s balance sheet, by purchasing a wider range of assets, including more private sector liabilities. “But mostly”, he continues, “you work on the expectations side. I think mostly what you really need to do is to signal that you’re going to keep your foot on the gas pedal.”
It does not even matter, he believes, if people are not sure the Fed will carry through. They just have to believe it might happen. “So if Ben Bernanke made a statement, or the board made a statement, saying that we are reconsidering our views about the inflation target, even if we don’t have a credible commitment that they’re going to deliver 3.7 per cent annual inflation over five years, that’s still a help.”
In his new book, End this Depression Now!, Krugman dismisses contemporary macroeconomic theory. He is also critical of the idea that policy credibility matters. On this he says: “Credibility sounds great, but the evidence that anti-inflationary credibility is actually an important thing in the real world is basically nil.”
We return, inevitably, to the topic of the day. Would he conclude that the European currency union was a mistake? “Yes, I think we’ve been asking, whose fault is this crisis? And I think it was basically fated, from the day the Maastricht Treaty was signed. Now, I think it might be rescuable with a higher inflation target, which is a poor second best to having a fiscal union. But no, the setup is fundamentally not workable.
“What’s interesting is that the euro itself created the asymmetric shocks that are now destroying it [via the capital flows it engendered]. Not only have they created something incapable of dealing with shocks but the creation engendered the shocks that are destroying it.”
By this stage, I have long since finished my terrine. I always eat quickly. But Krugman is eating his salad very slowly, as he talks. He has to wave away waiters several times. The restaurant is now quite empty. When the meal is finally cleared, I order a double espresso, while he orders a regular filter coffee.
We discuss briefly the future of macroeconomics: his hopes rest on younger economists doing empirical work. “There are young people doing some really excellent research. Most of it, there are a few exceptions, but what’s really driving the cutting edge is empirical work.” Krugman points out that the prestigious Bates Clark medal, awarded to economists under 40 (he won it in 1991), “has been going overwhelmingly to people doing very empirical stuff. And I think that’s the salvation of economics in the long run, if there is a long run, because things are going so badly.”
We turn to his view of US politics. How does he explain what is going on?
He responds that “a couple of things do seem to operate here. One is money. There are think-tanks which don’t actually do a whole lot of thinking but which are lavishly financed ... You can have a lot of fun if you go back and look at what they were saying, and it’s hilarious, about Iceland as a role model, or the wonders of the Irish system.
“And then there is something about the appeal of this hard-money, gold-standard thing and it’s always had an appeal, but it seems even stronger now. I would have thought that the fact that people like me have been so much closer to [being] right on inflation and interest rates would move a substantial number of people into thinking that maybe their preconceptions were not right.” But no.
I ask whether he is disheartened by the failure of people on his side of the political argument to stand up for what they believe in. After all, I note, you must be disappointed by the willingness to accept the need to slash entitlement spending – rather than to raise taxes – when the federal tax ratio is exceptionally low and there have been extraordinary shifts in the distribution of income. Does Krugman think that’s all about money?
“These things are always complicated but some of it is about money. Look, with even a few mild words of reproof, Obama has lost a huge funding source from Wall Street. And you have got to give the right credit: they play a long game. They’ve spent 40 and more years working on ‘government is bad’ or ‘taxes are bad.’”
But, he continues, “there is an organised progressive infrastructure now in the way that there was not. It’s tiny and ill-funded, compared with the other side, but it’s actually also smarter than the other side. I certainly feel personally that, although I’m not getting the policies I wanted, I am getting listened to in a way that was not true even two years ago.”
So how does Krugman cope with the hatred he attracts? “2002 to 2004 were by far the worst, and that was mostly not about economics, that was about the fact that I was pretty much alone in saying we’d been lied into [going to] war. But you do need to develop a thick skin. I’ve partly developed the attitude that if I don’t get a whole lot of hysterical pushback then I probably have wasted the space in the column.
“I’ve been in this a long time and it was really shocking in the beginning. But eventually you get acclimated. I think it scares a lot of people off. I think a lot of journalists, the first time they publish something even mildly critical of rightwing orthodoxy, they hit this firestorm and they never come back. They run scared ever after. But I’m long past that point.”
I ask him about his punchy and provocative style. How conscious is it? “I had already done some of it in Slate so I had learned some of it, but this [writing for the NYT] is even tighter. There is a craftsmanship of making it work so that somebody, whose ordinary instinct is to think oh, economics, boring, will actually read through your piece.”
What fascinates me, I say, is how he manages the output, particularly the quantity of blogging he is doing. Obviously Krugman is quicker than most people but how does he get time for anything else?
“I am still teaching. I probably work 70 hours a week but not 100 hours a week. But I am damned fast. I write faster than just about anybody in journalism, it turns out, which is interesting.”
Krugman is famous for resisting structural explanations for the high levels of unemployment. But what does he think of the view that our economies are dangerously addicted to financial and asset price “bubbles”? He replies by asking whether I have ever seen the satirical publication The Onion. “Quite early on they had the perfect headline, which was, ‘Recession Ravaged Nation Demands New Bubble to Invest In.’”
So how’s his new book doing? “It’s good. It’s funny. We’re on the bestseller list in the US. But it’s selling like hotcakes in Europe. We’re in fourth printing in Spain and they’re about to put ads on the sides of Madrid buses, apparently.”
This brings us back to the eurozone crisis. I remark that the Germans are now in a position of having to choose between permanently bailing out those they regard as deadbeats or breaking it up, causing an immense economic and political mess. I feel quite sorry for them.
He responds: “I remember there was a humorous column in the Independent which would have been in about 1992 or thereabouts, about the decision to give the Booker Prize to the Maastricht Treaty – a postmodern novel in strict treaty form. And throughout the novel one senses, in the background, powerful forces with unknown motives. Who are these forces, what do they want? We never learn.
“It was a wonderful satire.”
Coffees are finished. We walk out from an empty restaurant, Krugman to return to Princeton and his column, I to return to the New York offices of the Financial Times. The crises go on. He is the pundit conservatives detest and liberals cheer. In the US anybody can become anything. A Nobel Prize-winning economic theorist can even become the country’s most controversial columnist.
Martin Wolf is the FT’s chief economics commentator"
Mr. Krugman reads faster too.
R.I.P
Greek government use of the Euro.
Euro receives extreme unction.
http://www.telegraph.co.uk/finance/financialcrisis/
Spain's stricken Bankia expects to sell off its vast portfolio in industrial holdings that include a stake in the parent company of British Airways and Iberia.
The chief executive of Lloyd's of London has admitted that the world's leading insurance market is prepared for a collapse in the single currency and has reduced its exposure "as much as possible" to the crisis-hit continent.
This euro crisis is now getting extremely serious. Events are happening quickly, closing-in on policy-makers and threatening to engulf us.
Germany will not "pour money into a bottomless pit" and patience with Greece is growing thin ahead of a new election next month, according to a member of Angela Merkel's cabinet.
Greece will go bankrupt and exit the euro if it pulls out of its loan agreement with international lenders, according to the New Democracy party leader.
.
http://krugman.blogs.nytimes.com/2012/05/26/cameron-and-the-confidence-fairy/
Cameron and the Confidence Fairy
First of all, that’s not true. As Jonathan Portes says, public investment has already plunged.
But the main point, which I’ve already made, is that even if much of the austerity has yet to happen, the austerity story has already failed:
Now, the defense I hear from Cameron apologists is that the austerity mostly hasn’t even hit yet. But that’s really not much of a defense. Remember, the austerity was supposed to work by inspiring confidence; where’s the confidence? Basically, the expansionary aspect should already have kicked in; it’s all contraction from here.Policy disaster in the making."
http://www.telegraph.co.uk/finance/economics/8647879/Britain-cant-afford-to-fall-for-the-charms-of-the-false-economics-Messiah-Paul-Krugman.html
Britain can’t afford to fall for the charms of the false economics Messiah Paul Krugman
Superstar economist Paul Krugman wants us to change course, but his solutions are simplistic.
Radical views: Paul Krugman says Britain is making a massive blunder in economic policy Photo: Rex Features
"What does the future hold as Europe slides, ever more hopelessly, towards the abyss? As David Cameron has pointed out, there have been 18 EU summits since he became Prime Minister little more than two years ago, and none of them has produced anything remotely resembling a solution.
The stand-off got a whole lot worse this week. France and Germany are now in open conflict over the way forward, if indeed there is one. For the UK, already bleeding badly from the after-effects of the financial crisis, the situation could scarcely look more threatening.
The fiscal consolidation chosen by the Coalition was always likely to have a negative impact on output, at least in the short term. To make it work, the Government needed the following wind of decent growth elsewhere in the world economy. Instead, it’s facing a hurricane. We look set to be broken by the storm.
But fear not – salvation is at hand. Next week, there comes to these shores a Messiah, a prophet of great wisdom and understanding whose teachings promise to vanquish despair and “end this depression”. He is Prof Paul Krugman, a superstar polemicist who has been described by The Economist as “the most celebrated economist of his generation”. Actually, “celebrated” is not exactly the right word, for Krugman divides opinion like no other. To his followers, he’s a saint; to his detractors, he’s a false prophet with satanic intent.
I’ve been a little misleading here. He’s not really coming to Britain to save us, but rather to promote his latest book, End This Depression Now! Krugman is an economist with attitude, and he thinks Britain is in the midst of a “massive blunder” in economic policy. The UK is the very worst example of austerity economics, he believes, for unlike the poor beleaguered nations of the eurozone periphery, we’ve not had this misery forced on us by the ghastly euro, but have opted for it as an unnecessary penance for the sins of the boom. If only we could be persuaded to forsake “Osbornomics” and tread the path originally set out by our dearly beloved former leader, Gordon Brown – that of spending our way back to growth – then all would be well again.
Put like that, of course, it sounds ridiculous, but the fact that Krugman is a Nobel prize-winning economist gives Labour’s calls for a U-turn on the economy an intellectual credibility they would otherwise struggle to attain.
All the great economists – from Adam Smith to John Maynard Keynes – were as much moral philosophers as dispassionate analysts of events, and Krugman is no exception, preaching his message with all the passion of the religious zealot. He feels our pain and begs us to let him help. “The road out of depression and back to full employment is still wide open,” he insists. “We don’t have to suffer like this.”
Krugman may appear loud and radical, but he follows a fairly standard Keynesian text. By his own admission, the social cost of the present downturn doesn’t come anywhere close to the Great Depression of the interwar years, or not yet. None the less, there are parallels, and we already meet Keynes’s classic definition of a depression as a “chronic condition of subnormal activity for a considerable period without any marked tendency either towards recovery or towards complete collapse”.
In such circumstances, monetary policy can help, but only up to a point. In a depression, even those with the balance sheet strength to spend and invest won’t do so, whatever the encouragement offered through ultra-low interest rates. It follows that governments should step into the breach and do the job instead, as a kind of spender of last resort. They can worry about the accumulated debt later, once output has picked up again.
To Krugman, it’s understandable that policymakers screwed up so monumentally in the Great Depression; they didn’t understand what was going on and there was no template for the circumstances they found themselves in. To his mind, there is no excuse this time around; it’s textbook stuff, which is being wilfully ignored.
But haven’t we already tried borrowing to stimulate? And what did it deliver other than fiscal ruin, which in the eurozone periphery is so serious that markets have stopped lending altogether? Krugman has an answer for these questions, too. It’s not the policy that was wrong, merely that the stimulus wasn’t big and sustained enough. As for the eurozone, again, it wasn’t the policy, but the euro. Countries with their own currencies and central banks won’t run into this kind of problem. In extremis, they can always print the money.
Easy peasy, then. What’s not to like? Well, I’m sorry, but I just don’t buy it. It may or may not be possible for a vast, largely internalised economy such as the US, with its reserve currency status, to run double-digit deficits into the indefinite future without adverse consequences, but for the UK it is a much more questionable policy.
True, Britain has lived with much higher debts relative to GDP in the past, but this has nearly always coincided with major wars. With demilitarisation, much of this borrowing to spend falls away and domestic consumption comes roaring back. No such get-out-of-jail-free card exists this time around. Further, the demographic is completely different from that of the post-war baby boom generation, where growth and therefore debt erosion were more or less guaranteed. Today, the unfunded liabilities of an ageing population stretch menacingly into the long-term future.
As it is, government spending in the UK is already approaching 50 per cent of GDP. Just how high does Prof Krugman propose it should go? It’s all very well to say “jobs first” and worry about the deficit later, but once government spending becomes entrenched, it’s very difficult to get rid of it. Even Reagan and Thatcher struggled to make significant inroads.
In any case, the picture Krugman presents of wrong-headed British austerity is a caricature of the reality, though one admittedly encouraged by the Coalition’s rhetoric. Yesterday’s revised GDP figures, showing that the country is even deeper in recession than we thought, would appear to support the mocking tone in which Krugman condemns the idea of “expansionary austerity”. But where is this austerity? In fact, one of the few positive contributors to output in the last quarter was government spending, which grew by 1.6 per cent. Krugman seems to have forgotten the automatic stabilisers, which because of our welfare state are considerably bigger than in the US. In America, much current UK spending would count as a discretionary fiscal stimulus of the sort End This Depression Now! advocates.
As Raghuram Rajan, a former IMF chief economist, has argued, today’s troubles are not simply the result of inadequate demand, but of major changes in the world economy brought about by globalisation. The old monopoly of knowledge and expertise once enjoyed by advanced economies has been swept away. For decades, we compensated for the jobs and income lost to technology and cheaper foreign competition with unaffordable government spending and easy credit. Much of the growth enjoyed in these pre-crisis years was simply unsustainable.
Paul Krugman’s message is seductive, but it’s also unrealistic. If only the solutions to our plight were as simple as he thinks."
Put like that, of course, it sounds ridiculous, but the fact that Krugman is a Nobel prize-winning economist gives Labour’s calls for a U-turn on the economy an intellectual credibility they would otherwise struggle to attain.
All the great economists – from Adam Smith to John Maynard Keynes – were as much moral philosophers as dispassionate analysts of events, and Krugman is no exception, preaching his message with all the passion of the religious zealot. He feels our pain and begs us to let him help. “The road out of depression and back to full employment is still wide open,” he insists. “We don’t have to suffer like this.”
Krugman may appear loud and radical, but he follows a fairly standard Keynesian text. By his own admission, the social cost of the present downturn doesn’t come anywhere close to the Great Depression of the interwar years, or not yet. None the less, there are parallels, and we already meet Keynes’s classic definition of a depression as a “chronic condition of subnormal activity for a considerable period without any marked tendency either towards recovery or towards complete collapse”.
In such circumstances, monetary policy can help, but only up to a point. In a depression, even those with the balance sheet strength to spend and invest won’t do so, whatever the encouragement offered through ultra-low interest rates. It follows that governments should step into the breach and do the job instead, as a kind of spender of last resort. They can worry about the accumulated debt later, once output has picked up again.
To Krugman, it’s understandable that policymakers screwed up so monumentally in the Great Depression; they didn’t understand what was going on and there was no template for the circumstances they found themselves in. To his mind, there is no excuse this time around; it’s textbook stuff, which is being wilfully ignored.
But haven’t we already tried borrowing to stimulate? And what did it deliver other than fiscal ruin, which in the eurozone periphery is so serious that markets have stopped lending altogether? Krugman has an answer for these questions, too. It’s not the policy that was wrong, merely that the stimulus wasn’t big and sustained enough. As for the eurozone, again, it wasn’t the policy, but the euro. Countries with their own currencies and central banks won’t run into this kind of problem. In extremis, they can always print the money.
Easy peasy, then. What’s not to like? Well, I’m sorry, but I just don’t buy it. It may or may not be possible for a vast, largely internalised economy such as the US, with its reserve currency status, to run double-digit deficits into the indefinite future without adverse consequences, but for the UK it is a much more questionable policy.
True, Britain has lived with much higher debts relative to GDP in the past, but this has nearly always coincided with major wars. With demilitarisation, much of this borrowing to spend falls away and domestic consumption comes roaring back. No such get-out-of-jail-free card exists this time around. Further, the demographic is completely different from that of the post-war baby boom generation, where growth and therefore debt erosion were more or less guaranteed. Today, the unfunded liabilities of an ageing population stretch menacingly into the long-term future.
As it is, government spending in the UK is already approaching 50 per cent of GDP. Just how high does Prof Krugman propose it should go? It’s all very well to say “jobs first” and worry about the deficit later, but once government spending becomes entrenched, it’s very difficult to get rid of it. Even Reagan and Thatcher struggled to make significant inroads.
In any case, the picture Krugman presents of wrong-headed British austerity is a caricature of the reality, though one admittedly encouraged by the Coalition’s rhetoric. Yesterday’s revised GDP figures, showing that the country is even deeper in recession than we thought, would appear to support the mocking tone in which Krugman condemns the idea of “expansionary austerity”. But where is this austerity? In fact, one of the few positive contributors to output in the last quarter was government spending, which grew by 1.6 per cent. Krugman seems to have forgotten the automatic stabilisers, which because of our welfare state are considerably bigger than in the US. In America, much current UK spending would count as a discretionary fiscal stimulus of the sort End This Depression Now! advocates.
As Raghuram Rajan, a former IMF chief economist, has argued, today’s troubles are not simply the result of inadequate demand, but of major changes in the world economy brought about by globalisation. The old monopoly of knowledge and expertise once enjoyed by advanced economies has been swept away. For decades, we compensated for the jobs and income lost to technology and cheaper foreign competition with unaffordable government spending and easy credit. Much of the growth enjoyed in these pre-crisis years was simply unsustainable.
Paul Krugman’s message is seductive, but it’s also unrealistic. If only the solutions to our plight were as simple as he thinks."
The objections look to be political.
Bankers of any school are very simple people. They have salesmen accountants and lawyers to be complicated for them.
"May 26, 2012, 11:57 am
I’m A Cheap Date
And other things you learn from my lunch with Martin Wolf.
Also, about that drawing — um, wrong eye color."
Also, about that drawing — um, wrong eye color."
http://www.ft.com/intl/cms/s/2/022acf50-a4d1-11e1-9a94-00144feabdc0.html#axzz1vzXFh4mz
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Lunch with the FT: Paul Krugman
"The Nobel Prize-winning professor of economics talks to Martin Wolf about what Japan got right, what the Federal Reserve got wrong and how the eurozone can be saved
©James FergusonKrugman, 59, most hated and most admired columnist in the US, rumpled and professorial, is sitting at a small table in the middle of the restaurant, working on his laptop. It is Thursday and he is writing his column. What, I ask, is it on? “It’s going to be Europe,” he replies. “Partly because it is coming to a head, partly because I am a little overstretched and that’s what I’m ready for. So I’m going to do that one.” I understand the feeling of being overstretched: Krugman is writing two columns a week, posting regularly on his blog, writing popular books and teaching.
More
On this story
- Lunch with the FT Cornel West
- Lunch with the FT Eden Collinsworth
- Lunch with the FT Anish Kapoor
- Lunch with the FT Let’s do lunch!
- Lunch with the FT Werner Erhard
Lunch with the FT
- Lunch with the FT Han Han
- Lunch with the FT Alexandra Shulman
- Lunch with the FT Larry David
- Lunch with the FT Peter Carey
“No. I don’t think they can save Greece but they can still save the rest if they’re willing to offer open-ended financing and macroeconomic expansion.” But this would mean persuading the Germans to change their philosophy of economic life. “Well, the prospect of hanging concentrates the mind; the prospect of a collapse of the euro might concentrate their minds.”
I change the subject to ask how he has coped with the shift from being predominently an academic economist to being the leading spokesman for the liberal cause. How did this happen? “Well, it was funny,” he responds. “I was doing a column for Slate and then a bit for Fortune, towards the end, and then the [New York] Times came along with this offer. It was 1999. We thought I’d be writing about the follies of dotcoms and stuff like that and then it turns out that it’s a much more awesome and ominous responsibility. It was nothing I ever planned.
“Really, the rough period was the first [George W] Bush term when it seemed like the whole world was mad, save me, or vice-versa, and it’s gotten easier.
“I have to say, though, that the economic crisis has played into the things that I was worrying about 15 years ago. It’s been almost alarmingly easy to figure out what to say. But it’s a very strange thing: it’s not at all what I was imagining I was going to be doing with my life.”
We have already gone straight into the issues. The conversation turns to the Japanese crisis of the 1990s. In retrospect, I suggest, the Japanese seem to have managed the aftermath of their crisis quite well.
He agrees. “What we thought was that Japan was a cautionary tale. It has turned into Japan as almost a role model. They never had as big a slump as we have had. They managed to have growing per capita income through most of what we call their ‘lost decade’. My running joke is that the group of us who were worried about Japan a dozen years ago ought to go to Tokyo and apologise to the emperor. We’ve done worse than they ever did. When people ask: might we become Japan? I say: I wish we could become Japan.”
At this point we order: salade niçoise for Krugman; foie gras terrine for me; and a bottle of sparkling water. This is definitely not going to be up to the gourmet standards of some lunches with the FT.
I return to our discussion. I ask whether he is not being unfair to Ben Bernanke, chairman of the Federal Reserve and a former colleague at Princeton. After all, Bernanke has avoided deflation in the US. Krugman responds swiftly: “We don’t care about deflation because having a small minus, instead of a small plus, makes a huge difference to the world. We worry about deflation because we think it is a reason why one has a persistently depressed economy. While we may not have deflation, we have a persistently depressed economy. So what difference does it make?”
But surely, I argue, the Fed did deliver negative real interest rates by cutting rates quickly and avoiding deflation. This prods Krugman into rare praise: “I have actually very few complaints about monetary policy here through some point in 2009. I thought that Ben [Bernanke] responded aggressively and forcefully, which was the right thing to do. He stepped in with the original QE [quantitative easing] and stabilised the economy.
“The question is, what did he do as we started to look more and more like Japan? At that point the logic says you have to find a way to get some traction. Fiscal policy might be great. But if you’re not getting it you should be doing something on the Fed side and I think that logic becomes stronger and stronger as the years go by. And it’s sad to see that the Fed has largely washed its hands of responsibility for getting us out of the slump.
“I hope that some day Ben Bernanke and Janet Yellen [vice-chair of the Fed] will think that I’ve done them a favour. There’s all this sniping from the hard money guys and somebody needs to say, ‘Actually, no, if we actually think about this realistically, you’re doing too little and not too much.’”
So what, I wonder, would he do if he were put in charge? He says he would add maybe another $2tn to the Fed’s balance sheet, by purchasing a wider range of assets, including more private sector liabilities. “But mostly”, he continues, “you work on the expectations side. I think mostly what you really need to do is to signal that you’re going to keep your foot on the gas pedal.”
It does not even matter, he believes, if people are not sure the Fed will carry through. They just have to believe it might happen. “So if Ben Bernanke made a statement, or the board made a statement, saying that we are reconsidering our views about the inflation target, even if we don’t have a credible commitment that they’re going to deliver 3.7 per cent annual inflation over five years, that’s still a help.”
In his new book, End this Depression Now!, Krugman dismisses contemporary macroeconomic theory. He is also critical of the idea that policy credibility matters. On this he says: “Credibility sounds great, but the evidence that anti-inflationary credibility is actually an important thing in the real world is basically nil.”
We return, inevitably, to the topic of the day. Would he conclude that the European currency union was a mistake? “Yes, I think we’ve been asking, whose fault is this crisis? And I think it was basically fated, from the day the Maastricht Treaty was signed. Now, I think it might be rescuable with a higher inflation target, which is a poor second best to having a fiscal union. But no, the setup is fundamentally not workable.
“What’s interesting is that the euro itself created the asymmetric shocks that are now destroying it [via the capital flows it engendered]. Not only have they created something incapable of dealing with shocks but the creation engendered the shocks that are destroying it.”
By this stage, I have long since finished my terrine. I always eat quickly. But Krugman is eating his salad very slowly, as he talks. He has to wave away waiters several times. The restaurant is now quite empty. When the meal is finally cleared, I order a double espresso, while he orders a regular filter coffee.
We discuss briefly the future of macroeconomics: his hopes rest on younger economists doing empirical work. “There are young people doing some really excellent research. Most of it, there are a few exceptions, but what’s really driving the cutting edge is empirical work.” Krugman points out that the prestigious Bates Clark medal, awarded to economists under 40 (he won it in 1991), “has been going overwhelmingly to people doing very empirical stuff. And I think that’s the salvation of economics in the long run, if there is a long run, because things are going so badly.”
We turn to his view of US politics. How does he explain what is going on?
He responds that “a couple of things do seem to operate here. One is money. There are think-tanks which don’t actually do a whole lot of thinking but which are lavishly financed ... You can have a lot of fun if you go back and look at what they were saying, and it’s hilarious, about Iceland as a role model, or the wonders of the Irish system.
“And then there is something about the appeal of this hard-money, gold-standard thing and it’s always had an appeal, but it seems even stronger now. I would have thought that the fact that people like me have been so much closer to [being] right on inflation and interest rates would move a substantial number of people into thinking that maybe their preconceptions were not right.” But no.
I ask whether he is disheartened by the failure of people on his side of the political argument to stand up for what they believe in. After all, I note, you must be disappointed by the willingness to accept the need to slash entitlement spending – rather than to raise taxes – when the federal tax ratio is exceptionally low and there have been extraordinary shifts in the distribution of income. Does Krugman think that’s all about money?
“These things are always complicated but some of it is about money. Look, with even a few mild words of reproof, Obama has lost a huge funding source from Wall Street. And you have got to give the right credit: they play a long game. They’ve spent 40 and more years working on ‘government is bad’ or ‘taxes are bad.’”
But, he continues, “there is an organised progressive infrastructure now in the way that there was not. It’s tiny and ill-funded, compared with the other side, but it’s actually also smarter than the other side. I certainly feel personally that, although I’m not getting the policies I wanted, I am getting listened to in a way that was not true even two years ago.”
So how does Krugman cope with the hatred he attracts? “2002 to 2004 were by far the worst, and that was mostly not about economics, that was about the fact that I was pretty much alone in saying we’d been lied into [going to] war. But you do need to develop a thick skin. I’ve partly developed the attitude that if I don’t get a whole lot of hysterical pushback then I probably have wasted the space in the column.
“I’ve been in this a long time and it was really shocking in the beginning. But eventually you get acclimated. I think it scares a lot of people off. I think a lot of journalists, the first time they publish something even mildly critical of rightwing orthodoxy, they hit this firestorm and they never come back. They run scared ever after. But I’m long past that point.”
I ask him about his punchy and provocative style. How conscious is it? “I had already done some of it in Slate so I had learned some of it, but this [writing for the NYT] is even tighter. There is a craftsmanship of making it work so that somebody, whose ordinary instinct is to think oh, economics, boring, will actually read through your piece.”
What fascinates me, I say, is how he manages the output, particularly the quantity of blogging he is doing. Obviously Krugman is quicker than most people but how does he get time for anything else?
“I am still teaching. I probably work 70 hours a week but not 100 hours a week. But I am damned fast. I write faster than just about anybody in journalism, it turns out, which is interesting.”
Krugman is famous for resisting structural explanations for the high levels of unemployment. But what does he think of the view that our economies are dangerously addicted to financial and asset price “bubbles”? He replies by asking whether I have ever seen the satirical publication The Onion. “Quite early on they had the perfect headline, which was, ‘Recession Ravaged Nation Demands New Bubble to Invest In.’”
So how’s his new book doing? “It’s good. It’s funny. We’re on the bestseller list in the US. But it’s selling like hotcakes in Europe. We’re in fourth printing in Spain and they’re about to put ads on the sides of Madrid buses, apparently.”
This brings us back to the eurozone crisis. I remark that the Germans are now in a position of having to choose between permanently bailing out those they regard as deadbeats or breaking it up, causing an immense economic and political mess. I feel quite sorry for them.
He responds: “I remember there was a humorous column in the Independent which would have been in about 1992 or thereabouts, about the decision to give the Booker Prize to the Maastricht Treaty – a postmodern novel in strict treaty form. And throughout the novel one senses, in the background, powerful forces with unknown motives. Who are these forces, what do they want? We never learn.
“It was a wonderful satire.”
Coffees are finished. We walk out from an empty restaurant, Krugman to return to Princeton and his column, I to return to the New York offices of the Financial Times. The crises go on. He is the pundit conservatives detest and liberals cheer. In the US anybody can become anything. A Nobel Prize-winning economic theorist can even become the country’s most controversial columnist.
Martin Wolf is the FT’s chief economics commentator"
Mr. Krugman reads faster too.
R.I.P
Greek government use of the Euro.
Euro receives extreme unction.
http://www.telegraph.co.uk/finance/financialcrisis/
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