Austerity Bites Again

Christine LaGuarde, current head of the IMF is having second thoughts about austerity. Maybe we’re going to fast, she’s said recently. Is that because unemployment in Spain has just hit 27%, with about 60% unemployment among youth? Every time unemployment goes up, balanced budgets, the ostensible reason behind cutting back, become less likely since joblessness means higher costs and less income for government.

The IMF caught a lot of flack way back in the past for lending to governments which were so inept and/or corrupt the money was totally squandered. Thus they decided it was necessary to impose rules on receiving countries, and, at least in theory, that makes sense. Unfortunately, their rules are based more on ideology than practicality or benefit to the people at large. Naomi Wolf wrote a book called the Shock Doctrine which describes how need for international help places countries in a position where they’re required to adhere to a conservative bankers’ worldview of how to fix their economies. For instance, that was behind the insistence that Greece lower its minimum wage in order to qualify for help. The connection between a country’s minimum wage and its ability to service its sovereign debt to the banks, the wealthy and other countries is tenuous at best. It’s just another way to stick it to the people at the very bottom who’s lives are already on the edge.

If /when your country needs international help to prop up a corrupt, sleazoid banking system, you’ll need to impose crushing tax burdens on the poor and heavy job and program cuts on essential public services while you lower taxes on the wealthy and corporations.

The elite don’t really need the money, but they ‘create jobs’ so if we throw enough money at them, they might deign to put some people to work. Except… after all the austerity cuts amidst high unemployment the masses don’t have the money to buy things, or they save because they’re frightened of losing their jobs, so there’s no reason for corporations or banks to create new businesses. Instead they use the cash bestowed upon them to speculate on securities, commodities and property, all of which is detrimental to the needs of the 99%.

The money referred to in the above paragraph is being created out of thin air and given to the biggest banks at near zero interest rates. In America that amounts to $85b per month. In Europe it’s about $50b. That new money has served the 1% well by sending the stock markets to record highs at the same time that wages are going down. Maybe you heard that the US is growing at 2.5% per year. In aggregate that’s true, but when broken down it turns out that the bottom 80% has lost ground so when tallied up we see that more than 100% of the gains have gone to the very top.    

Europe is different than the states in the sense that they have relatively strong social safety nets. In America there are no advocates for the commoners. Aside from a few fringe legislators, nobody in politics cares. Thus in some ways it baffles me how completely obsessed European leaders are with austerity. And how tardy they are with creating jobs programs, which is Europe’s most pressing need. If they can feed their banks with $50b per month with free printed money, it can’t be that much of a stretch to use it to create public service or infrastructure jobs.

There needs to be a Europe-wide jobs program financed by the European Central Bank that would be available to all EU youth and long term unemployed. Applicants could apply to work anywhere in Europe, though the greater needs would be in countries having difficulties, so most of the jobs would be there. These jobs would have a limited duration and wouldn’t pay much but they’d keep people busy doing useful things and keep them from getting too discouraged by unemployment. They’d also get the chance to live in and experience other countries. Since financing would come from the EU as a whole, it would only improve the bottom line of struggling countries. The EU owes it to those countries in the Eurozone experiencing difficulties since it’s membership in the Euro which is causing many of their problems. But other EU countries outside the Eurozone are also going through financial upheavals so to be fair it needs to be for all EU countries. 

The southern European countries have archaic and ossified labor laws that preclude flexibility and efficiency. Some also have bloated bureaucracies. Economic shock will probably force wrenching changes in society, but regardless people need jobs now, so there’s no reason to punish the unemployed for the inadequacies of their governments. Or force them wait until austerity magically begins to work, a dubious proposition at best.

The other thing Europe needs to do is rethink its currency regime. Part of the problem of countries experiencing difficulties is being tied to the Euro. The common currency is very important for Europe, but it has overreached and made several countries’ problems more difficult to tackle.

In regards to Greece and Cyprus I’ve advocated they adopt a dual currency system similar to Cambodia’s where the US Dollar is used alongside the riel, the local currency. Actually, between 80% and 90% of all transactions here are in dollars. They’ve kept the value of the riel within 5% of 4000 to a dollar for as long as I’ve lived here, about 11 years, so it’s very stable. However, if need be in a fiscal emergency they could print more riel, thus having a little flexibility. The Cambodian government periodically talks about stopping use of the dollar as its main currency, but they receive big benefits in stability and convertibility so they’re very reluctant to give up that advantage. As for Greece and Cyprus and any other Eurozone country that gets into trouble, they have no choice, they’re stuck with the Euro.

I’ve changed my thinking about the Eurozone’s problems to the point where I now feel that a two tier system needs to be adopted with the core countries of France, Germany and maybe Netherlands and Belgium using the Euro exclusively and all the other countries, or rather any one that wanted, would have its own currency alongside the Euro. That way the Euro would remain rock solid and available for all the countries of the EU (both inside and outside the Eurozone) to use, while individual countries gain some flexibility by having their own currencies alongside the Euro. Whether or not an EU country is officially part of the Eurozone, there will be large amounts of Euro in circulation.

The problem with governments and large institutions is a built-in inertia that resists any kind of change, especially when it looks like a retraction or reversal, but if they don’t come up with innovative changes they’ll only sink deeper into the abyss. Investors took a big hit in the recent Greek rescue plan, but the country is still left with extreme debt levels which they are never likely to be able to service. They’ll just flail along indefinitely from one crisis to the next while the people suffer. The only realistic solution would be a total default and reversion to the Drachma in a dual currency regime. They also need a wholesale restructuring of their society and economy. Default and absence of international help would force those desperately important changes.

Meanwhile is it possible the IMF, etcetera are waking up to the folly of austerity after ‘only’ 5 years of abject failure? Seems hard to believe but you never know.

Euro Voters Reject Austerity

Voters in Greece, France and even in local elections in Germany rejected enforced austerity in recent polls. French voters narrowly elected the Socialist Francois Hollande on a platform demanding renegotiation of austerity measures demanded by the European Union. Taxes are already high in France so he’ll have his work cut out for him raising taxes enough to make a difference. At least if he can put people to work the country won’t dive deeper into debt and deficit.

In Greece the two main pro-austerity parties, who between themselves have governed the country for the last 40 years, together received less than 32% of the vote. The anti’s however, divided between the far left and right, will probably not be able to agree amongst each other to form a government so new elections are likely soon. But that means they won’t be eligible for additional bailout money and will likely default, though since they’ve already forced creditors to take substantial haircuts, to all intents and purposes they’re already in default. It’s no more than a pretense to think otherwise.

If they knuckle under and accept IMF and ECB austerity - the leftist candidate called those international bodies loan sharks - there’ll be 5 to 10 years of economic pain. If they default, they’re basically facing the same 5 to 10 years of wrenching changes and economic dislocations, but at least their pain won’t be for the benefit of the banksters and 1%.

The one percent’s mania for austerity for everybody but themselves is diving economies ever deeper into recession. If people aren’t working they aren’t paying taxes but are requiring government help for survival. Cutting is the wrong thing to do when a country is in recession, however, if a country runs big deficits in good times there’s no leeway for additional spending during downturns. As mentioned previously, the half of Keynesianism that governments have conveniently overlooked is the need to build surpluses during boom times. It’s too easy to prop up economies and make everything look good by spending money you don’t have. It’s too easy to think you can rely on growth or inflation or something to come along in the future to make the debt easy to manage, because as we are seeing it doesn’t always work that way.

 In any case, almost everybody is missing the point. Last year greenhouse gas emissions grew faster than ever before. Just imagine what would’ve happened if many parts of the world were not in recession and there was no effort whatever to curb emissions. Those record emissions might’ve been doubled. So while my heart goes out to those developed world people in America and Europe who are jobless and suffering, I have to say to those same people, Thank you for being poor and not being able to consume.

What’s needed is a new paradigm where slackers are tolerated if not appreciated and those who live simply by choice are honored; where growth is reserved strictly for non-material plane efforts: knowledge, intellect, beauty and spirituality. The tiny Himalayan kingdom of Bhutan is promoting a Gross Happiness Index in place of Gross National Product which includes everything that is bad for us as well as good… every time an auto accident causes personal or property damage, it gets added to GNP. You want to help the economy? Get cancer.

We have to retrench. If somebody really doesn’t want to work (and so much of what’s classified as work today is so demeaning and undesirable, who can blame them) why not give them the minimum for survival and thank them for not consuming. Nixon had the right idea with his guaranteed annual income, which, if I remember correctly was pegged at $4000 per year. With a little casual work on the side, that’d be enough (in today’s dollars) to live a simple but decent life. We also need to take France’s lead and shorten the work week along with encouraging deflation to make life cheaper. It’s already happened in the housing market. It’s now much more possible for an average person with a job to afford a home.

Shortening the work week has the added great advantage of tremendously reducing rush hour traffic. Some people would work shorter hours five days a week, others would work a day less. Either way, all transportation systems would have much lighter burdens. Now most people are forced by the eight hour day to come and go at the same time. Shortening the work week would also give people the time to get involved in society and community, not to mention family, self -improvement and pleasure.

The way to deflate the economy is to tax the rich, really tax them, tax the shit out of them. Nothing good comes from the wealthy having too much money. If they have less money to throw around, prices would be forced down. This is especially true in places like New York which are magnets for vast wealth. If people can no longer afford sky high prices for purchasing or renting housing, then their prices will go down, and all real estate prices will follow, benefiting everybody (but the landed wealthy) in the long run.

The current system is top heavy. BBC interviewed a bankster asshole a while back who kept repeating how important the financial community was to the UK and predicting doom and disaster if a small stock transaction tax were imposed. He conveniently ignored the hundreds of billions of dollars the banksters cost the people in bailouts. A majority of people in a UK survey working for the banks said they were there strictly for the money and that they didn’t think they deserved to earn as much as they did. With so many people in finance earning upwards of half million a year, they’ve turned once middle class London neighborhoods into enclaves where only the upper classes can afford to live and by extension have raised the cost of housing for everybody in the city.

The other major change that needs to happen to save the world is to tax advertising, exempting only small businesses. I’m convinced that marketing is the root of all evil, not money. Money, after all, can do good things, while the sole purpose of marketing is to convince people to buy things they might not need or are possibly bad for them. Even if what they are encouraged to purchase through adverts isn’t necessarily bad, the act of consuming is going to consume our planet and people need to be encouraged to hold back, to not indulge, to buy only what they really need. The present path is not sustainable, let alone healthy.

Admittedly I’m way out of synch with prevailing philosophy (it’s not the first time). The idea of applauding slackers and promoting deflation and reduction in place of growth is about as likely in the present political climate as encouraging pedophilia and welcoming pollution-caused cancers, nonetheless that’s where the world needs to go. That it can’t possibly go that way is a sad commentary on the state of our only planet and its inevitable downward slide into catastrophe.  

ECB Showers Banksters with Money

The European Central Bank recently announced that it was going to provide European banks with an additional €500 billion - $700 billion - in loans at a rate of 1%, which is below the rate of inflation. This came on top of another tranche of the same amount given to them only last December. By loaning money at less than inflation the ECB is literally paying the banks to take their money. Money which, by the way, was conjured up out of thin air. Technically, it’s referred to as quantitative easing; basically printing money so there’s lots of it sloshing around the system.

It is said one benefit of throwing money at the banks is that they’ve been willing to lend to sovereign governments like Italy and Spain at lower interest rates than previously, accepting 5% instead of an unsustainable 7% as before. So borrow at 1%, turn around and lend at 5% and make a tidy profit. Meanwhile, those countries get to borrow at a close to unsustainable 5% instead of a totally unsustainable 7%.

But now you’re thinking that this is all very strange. Why not loan the money directly to Greece, Italy, Spain at 1%, avoid the bankster middlemen and make the additional sovereign debt not only sustainable but light as a feather. No, no, it can’t work that way. While the banks are silver-spoon-fed the people have to sacrifice and suffer, that’s the only way to teach them a lesson and get them on the road to fiscal rectitude.

As a result, one of the austerity measures required by the multinational-institution troika - the ECB, IMF and European Commission - for Greece to get its latest bailout at about 3 or 4% interest (Greece fought to have its debt reconfigured down to that level) is that the minimum wage be lowered from about $1000 to less than $800 per month for people over 25 and down to less than $600 for under 25’s.

Now Greece isn’t rich like Germany or Sweden, but it’s not a developing country. Six hundred dollars a month is doable in Cambodia, though nothing like high-living, where one can rent a city apartment or single family house and yard in a small town for less than $150 per month and everything produced locally is very cheap, but the same amount in Greece or even $800 per month is a life of hardship and privation.

Besides, you’re wondering again, how does lowering people’s wages lead to reducing the country’s debt? What’s the connection? Supposedly, if people work for subsistence wages, businesses will eventually come and employ them and the economy will start rolling again. The flaw in that thinking is that people who earn such low wages don’t pay much in taxes and are so poor they still need safety net assistance. They also don’t have the money to be consumers. And like in America, businesses don’t pay much in taxes in any circumstances because that’s what the corporate conservatism that’s taken hold of the developed world in the last thirty years demands. So even if businesses do come because of the low wages, they’re still not contributing much to the tax base.

Instead of relegating large numbers of Greeks to lives of poverty in order to please and serve the banksters, why not use some of that $1.4 trillion dollars to put the people to work at living wages doing things designed to bring the country forward to the future, like building trains and infrastructure and installing windmills and solar electric systems? That way they’d be paying taxes and be able to consume and get the economy moving. It’s free money after all, nobody paid for it, all it costs the ECB is the paper to print it on and the labor to keep the presses rolling. Why is it so easy to feed corrupt and/or incompetent banksters with cheap money, so hard to find the cash to put the masses to work?

At some point printing money will cause inflation so it’s not a step I would take lightly, nonetheless as long as the presses are running freely, why not do something of value with the money besides propping up banks destined to fail anyway, or at minimum that don’t deserve to live?

Yes, but the banksters will answer, if we go broke there’ll be catastrophe. Well, the banksters themselves would suffer for sure, but the people at large are getting nothing from these constant bank bailouts. Far better to close the banks down and take some of that vast amount of free money to cover losses by retail depositors. Then with a few additional spare hundreds of billions new banks can be funded that are designed to serve the people rather than indulge in casino banking and commodity speculation. Historically about 30% of crude oil futures contracts were purchased by speculators rather than end users, today that number is about 65%. Once again, the problem is there’s too much money in the hands of the wealthy who don’t know what else to do with it besides speculation that causes hardship for the rest of us.

The US Fed has been far more generous with American banks than the ECB with their banks, lending trillions of dollars at 0.1%. So borrow one million dollars, pay back one thousand. Sweet deal. Ah, but these bailouts are paying off, we’re told, the recession was over two years ago, the American economy is now growing at 3% and  unemployment is going down. Evenly distributed, 3% growth would be great, but a recent study showed that 93% of America’s income growth in the last two years went to the top 1%. At the same time, the new jobs created are paying less than the old jobs lost. For the vast majority at the bottom of the economic pyramid, it’s all a downward spiral.

All of which is a cause for demonstration, protest and occupy, which is why the US House of Representatives recently passed a bill (HR347) by a nearly unanimous bi-partisan 388 to 3 that would criminalize a large part of what the occupy movement is doing with long prison sentences and heavy fines. The 1% (income over $400,000) which includes almost all of Congress, are scared shitless of the power of the 99% so are intent to crush dissent and turn the country into a police state.

Legislation has just recently passed that gives the president the right to kill Americans, as well as anyone else in the world, who he considers dangerous, without any judicial review. If he says you’re dead meat, his word is law. The US is already infamous for assassinating many political leaders over the years, including ones who were democratically elected, who were deemed bad for American economic interests. Moreover, as little regard as I have for Obama, there is the possibility of truly evil people gaining of the office of president, who might take the right to decide life and death to grotesque levels. Besides being a terrible example to the world.

Have I depressed you enough? Sorry that’s all I can manage today.