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.

QE3 - Not for You and Me

QE 1 and 2 worked so well the US Fed has figured it’d be great to go for another round. QE stands for Quantitative Easing, which is a lot like printing money in common terms. The first two involved printing a half-trillion dollars each, which was used to buy near worthless mortgage backed securities from the banks at face value. As a result of those QEs and lots of other money lent to the banks at near zero interest - which, since those super-low interest rates are less than the rate of inflation, is akin to paying the banks to take that money - the stock markets are near all-time highs, corporate profits are soaring to the point that American corporations are sitting on nearly $2 trillion dollars of cash reserves and the 1% are seeing massive gains in their wealth. So it’s worked out fabulously.

Well now, that was a joke, that’s not really why they did it, or why they said they did it. As it happens, the 1% already have a greater share of national income than at any time since 1929. No it’s because they’re worried about unemployment continuing to be stubbornly high and the economy being in the doldrums for a large number of Americans. Which brings up Einstein’s definition of insanity; that is, repeatedly doing the same thing while expecting a different outcome. But feeding the banksters is the only thing they know how to do, it’s the only trick in their bag, so they have to keep plugging away at it.

With all that extra money to play with the banks - or so the theory goes - will be eager to lend it out to businesses who actually need it to do real, productive work in the economy and finally some of it will trickle down to the masses. But that involves risk, it’s much easier to take that new-found free money and buy US treasuries at 2% interest. When they do indulge in risk they speculate on commodities, which inevitably raises the cost of basic foodstuffs and other necessities of life, but hey, that’s the magic of the free market – goods and services are allocated where they can create the most benefit for those capable of paying for them.

QE 3 will mean a mere $40 billion per month, with no end date, of new printed money. It’s free money, figmentary money, conjured up out of thin air, which means, at least in theory, it should cause inflation – if you’ve got an increased amount of money relative to economic size and capacity, then each dollar should be worth less. That’s actually not happening today since in spite of the inherent weakness in the American economy and its massive public debt and budget deficits, there’s such economic turmoil in the world, the dollar still constitutes a safe bet in the minds of many people and so world investors sitting on huge piles of cash have been flocking to US Treasuries. That cheap money that’s easy to print while still maintaining value cannot last indefinitely without drastic belt-tightening changes which are extremely unlikely to happen. If/when the dollar crashes it’ll come suddenly with almost no warning.

Meanwhile as long as it’s so cheap and easy to create money with no ties to anything real, anything of value, why not use it to actually create value? Why not use it in a way that actually makes a difference for somebody besides the bankster 1%? I realize it’s an immense stretch for America’s political and financial leaders - not to mention those of the UK and EU and others who are also indulging in printing money to feed the banksters - to imagine using that imaginary money for the public good, but just in case they’re struck by lightning and come within an inch of death, or close enough anyway, to have a change of heart, here are some thoughts how that free money could be used.

Forty billion dollars would buy a new extensive light rail system for eight to ten American cities. In a few months every city large enough to be able to take advantage of efficient, clean light rail would have one. Roads, bridges, sewage systems, electrical grids, alternate energy applications… whatever, $40b per month is not small change.

The anti-poverty programs of the sixties and seventies (not to mention the programs of the Great Depression) could be resurrected. In the late seventies at the end of Lyndon Johnson’s War on Poverty, before the Reagan revolution changed the US government’s focus to a war on poor people, I participated twice in the make-work, CETA – Comprehensive Employment Training Act – program. Anyone who was out of work for more than a year was eligible.

The first time I helped build a play structure in a small church-owned but publicly accessible park. CETA provided our wages and a small amount of money for administering the contract. The artist/sculptor who they wanted to do the job wasn’t eligible so I agreed to take the job but then work half time and share the pay with him. It was a six month contract which paid $833 month - $10,000 on an annual basis. Not a lot of money even back then, but enough to keep from begging or depending on other people for housing and food. CETA jobs lasted a maximum of one year and weren’t intended to be comfortable jobs but only tide you over until you could find a ‘real’ job and hopefully learn something in the process.

Just after that contract ended another CETA job opened up in a community recycling program. The business in question had been picking up food waste but didn’t have a good method for processing it. It’s great stuff when composted but super grody and a bear to deal with. That was a year’s contract for four staff. We learned a lot about composting that year and produced a decent report, but frankly the subject matter didn’t really warrant four people working full-time for a year. The occasional boondoggle aspect was one of the reasons conservatives hated the program so much. Still it kept us (me anyway) off the streets and provided a survivable income.

It also introduced me to a group of people doing a recycling program where I eventually spent 13 years and it became the major focus of my working life. And I was able buy a house on contract because I had a steady income for a year and a half which gave the seller confidence that I could make the payments. Today it’s tough love for the people, welfare for the banksters.

As long as QE money is ‘free’, not costing anybody anything (aside from the future possibility of inflation), not connected in any way to productive endeavor, now only going to line the pockets of the country’s wealthiest citizens, why not spread some of that largesse around? Why not get people working, provide a little hope for the future and a little pocket change for the present? Never. Cannot happen. The poor barely exist in the American political lexicon, now only the middle class matters and according to both candidates that includes people earning up to $250,000 per year, a figure which puts them in the top 3%.

Now the so-called fiscal cliff is approaching. According to agreements made in the past, if the Congress was unable to come up with a reasonable deficit reduction plan, there will be automatic cuts in spending and a return to pre-Bush taxes. In other words, the economy will head downhill, just as many of Europe’s economies are. It’s obvious if you increase taxes and cut public spending, then you will increase unemployment and generally hurt the economy. So now even the Repugs are turning into (back-door) Keynesians.

The only way to increase government revenue without harming the economy is by taxing the wealthy and their special breaks (taxing capital gains at less than working income, exempting inheritance from taxation and giving them a free ride on their stock transactions) since their excessive wealth does nothing good for the economy while their excessive speculation and high-speed trading are truly destructive.

Needless to say that can’t happen since they own the government.

In other news, Hurricane Sandy, a storm of unprecedented size, helped along by ocean temperatures 5º F above normal, wreaked havoc in the eastern US. Global warming, which unquestionably had an impact on the size and severity of the storm, was never mentioned in the debates for good reason: Both candidates were allowed to vet every question, neither wished to broach that uncomfortable topic. However, unprecedented storms, droughts and heat waves have a way of intruding on preordained debate questions. Without drastic changes, starting yesterday, in the way energy is produced and used in the world, and especially the US, then the worst, not to mention the unthinkable, is yet to come.

Meanwhile, after nearly two years of campaigning, the election is finally upon us. Mr. Pain Capital, who earned his money bankrupting healthy companies or sending their jobs to China is neck and neck in the national polls with Mr. Hopelessly Compromised. Still, in American elections the popular vote doesn’t mean much, it’s the votes of the individual states that matter. In that case Obama is ahead, though, as in the case of Ohio, not enough to insure against fraud and theft. He only won last time because his margin was too great to allow for Repugs to steal the election.

The reason why election theft is still a realistic possibility in spite of Bush’s boys stealing two elections in a row is that the Dumbos never thought it was important enough to pursue, uncover and root out the causes of the theft. They never thought it was important enough to hold hearings, do research, fight to have voting machines count honestly. Most of you will be amazed to learn that, according to Jimmy Carter, foremost authority on honest elections, Venezuela has the cleanest elections he’s ever monitored. Simply put, they have machines which in addition to electronic counts also produce a receipt which allows the voter to double check to make sure their vote is counted correctly. Incredibly simple.

Not in America where voting machines are owned and operated by private companies which are allowed to hide their software under the guise that it’s proprietary information. And if many voting machines in Ohio are owned by companies connected to Romney’s son or his partners at Pain Capital, where he still is reaping large returns, well, what the hell. According to the Dumbos, or so it would seem, if you’re smart enough to steal an election, then you must deserve it. Otherwise they would’ve fought like hell against the brazen thievery that put Bush into office twice.