Archive for the ‘Economy’ Category

Now that the election is over, the ongoing crisis in Europe is back front and center — if it isn’t on your radar, it should be. That’s because all the “solutions” so far have merely kicked the can down the road a bit farther. Meanwhile, as politicians negotiate, meet and talk, actual people are suffering. More.

Nowhere is this more evident than in Greece, which is about to be further brutalized by more austerity as the government just passed another multi-billion austerity package to keep the Euro’s leaders sweet. The bailout funds will keep rolling in, but at a steep price. If nothing else tells the story of the toll austerity is taking, this horrible photo of a riot police officer engulfed in flames should.

Protestors rioted in vain against this latest round of austerity, which looks to be the worst yet. More spending cuts will weaken the already frayed social safety net as tax increases will hit the poorest the hardest and labor reforms will allow further exploitation of workers. All this is happening with a backdrop of Greece entering its sixth year in a row of economic contraction with more than 25 percent of its population out of work.

The leader of the radical left main opposition Syriza party blasted the government for “leading the Greek people to catastrophe and chaos.” The government clung to the fact that these cuts will keep Greece in the Euro, which they believe is better than the alternative. Better for whom? The political and economic elite, no doubt, but not the unemployed, poor and disenfranchised, who make up an increasingly large share of the Greek populace.

I don’t see any good outcome for all of this. All the bailouts are doing is bailing out European banks, who could go under, bringing the entire financial system down with them a la Lehman Brothers. While I certainly don’t relish the idea of another global financial crisis, I really wonder if any kind of meaningful change is possible without one. The grip that the banks have on the political and economic leaders of the West is truly a stranglehold one, and I’m not sure what it would take to break it.

No regulatory reforms have succeeded in denting that power and it doesn’t look like the West has the political will to break the too big to fail banks and make the changes in the system necessary to restore some balance of power between the haves and the have-nots. No wishful thinking in the form of the granting of the Nobel Peace Prize to the Leaders of the Euro Zone or the G-7 leaders monitoring the crisis will have much of an impact. So, onward we go, with some type of economic crisis or catastrophe all but inevitable.

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When the Occupy Wall Street protest started a month or so ago, it was dismissed as a rag-tag group of disgruntled young people, old people and the unemployed. Not surprisingly — from where I sit, at least – it has rapidly gained momentum, spreading around the country and around the world.

So what’s happening, and why? An alternative name the protesters give themselves explains at least some of what’s going on. They call themselves the 99 percent, versus the 1 percent who own and control most of the assets, politics and economics in this country and around the world.

During the past 30 years, the 1 percent have gained in every measurable way — income, assets and political and economic power — at the expense of the 99 percent. Most lower and middle class people have lost real income, political and economic power and their chance to retire comfortably, educate their children and live without fear of an economic catastrophe. For a while, the 1 percent kept the 99 percent from feeling the pain via low interest rates and easy borrowing. That masked the reality that the 99 percent were losing in just about everything.

But no more. Once the housing bubble popped and the global financial crisis appeared, there was no escape from the chilling reality that the 1 percent were on top of the world and the 99 percent were left holding the bag.

That’s the reality that the Occupy Wall Street and it’s affiliated movements spring from. The 99 percent are fed up with being on the short end of the stick. For the old, after a lifetime of working hard and striving to save for retirement, they have faced the reality that no retirement is safe from the ravages of “the market” and that one health crisis could bankrupt themselves and their children due to the shredding and pending destruction of the social safety net.

For the young, they are overloaded with student loans purchased to get an expensive college education that would allegedly position them to get a good job on graduation. Problem is, by the time they graduated, the economy went south and took many decent paying jobs with benefits with it. Now all most of them can get is low paying jobs without benefits so they can choose between paying back their student loans or eating and paying rent.

As for those of us who don’t fall into those two categories, but also fall into the 99 percent, some of us are slightly better off, but many of us aren’t. Too many of the working poor can barely make ends meet or aren’t making them meet at all. Too many who still cling to the middle class are either living paycheck to paycheck or are losing the battle and relying on credit cards — or worse, payday loans — to keep themselves afloat. And don’t forget those who are suffering in the wake of the collapse of the housing market. This includes the millions who are underwater on their homes, those who are being foreclosed against and those who were victims of housing boom fraud.

So it’s about economic injustice and the long simmering anger that many of us feel against the political and economic establishment. That is, those who bailed out the banks at the expense of the rest of us and who continue to shower political, regulatory and economic advantages on the banks, the banking class and the other 1 percent.

It’s about time this rage surfaced and the 99 percent began to hold the 1 percent accountable. It’s long overdue, and I’m hoping something lasting will come from these protests once people are over the romance of protesting. Don’t let the banking class off the hook!

I wasn’t going to blog today, because I’m trying to get out of town to take my kid back to college and have a ton of stuff to do. But after reading Matt Stoller’s starkly accurate analysis of just what is going on with the Obama administration, I feel compelled to comment.

It’s the best commentary I’ve seen on what is happening economically and politically in this country since 2008. Stoller nails it:

“When you look closely at the most significant areas of government, it becomes clear that the President and his Administration are enormously powerful actors who get a lot done. Handing over our national wealth to the banks and to China is not  nothing. These people are reorganizing the economy and the political system so that there are no constraints on the oligarchical interests that fund and pay them. That is their goal.”

He discusses it in the context of Eric Schneiderman, the NY Attorney General who is bucking the latest give-away to the banks, a “settlement” over robo-signing and other criminal foreclosure and mortgage practices. Stoller lauds Schneiderman for standing up for what he believes — that the banks engaged in criminal fraud on a wide-spread scale and should be prosecuted — despite the very real personal risks attendant upon that position. He excoriates the administration, Iowa Attorney General Tom Miller and other actors in this farce, saying:

“Right now, the ‘settlement’ talks are the equivalent of law enforcement negotiating with a serial killer over whether he’ll get a parking ticket, even as he continually sprays bullets into the neighborhood. Even having these ‘settlement’ talks when the actual crimes haven’t been investigated or a complaint hasn’t been registered should be example enough that this process is rigged as badly as Dodd-Frank.”

Like many, for the first year or so of the Obama administration, I believed that he was a decent guy who would do things for the people who put him into power. That’s where I went wrong: I didn’t realize that it wasn’t the people who elected him, but the powerful financial elite who funded his campaign that he would ultimately choose to be accountable to. And make no mistake, it’s a choice. Obama could have chosen to do the right thing despite the political costs to himself, but he hasn’t. Stoller writes:

Yeah, Obama got money from Wall Street. But Obama is choosing to pursue a policy of foreclosures and bank bailouts not because of any grand corporate scheme. He just wants to. He thinks it’s the right thing to do, and he’s doing it. If you don’t think it’s the right thing to do, then you shouldn’t be disappointed in him any more than you might have been disappointed in Bush. Obama is not trying to do the opposite of what he’s doing, he’s not repeatedly suckered by Republicans, and he isn’t naive or stupid.”

So like Obama and Schneiderman, we all have choices whether to act according to what we believe, to act with integrity, or not. We can continue to delude ourselves about what is really going on in Washington DC and New York and all over the country in regard to the financial elite’s complete ownership of the political and economic system. We can make excuses and continue to enable this system that is running the economy and the people in this country off an economic cliff. Or, we can do what we can to change the system, even if it’s just making a different choice in the voting booth in 2012. As Stoller puts it:

“Paying ugly costs for standing up is routine, unfortunately, in modern America. And the least powerful among us face far worse consequences than the politicians who are embarassed. But integrity exists, and Schneiderman is showing that free will can be exercised in it’s service. This fact is true of many people, not just Schneiderman; Bill McKibbin, Jane Hamsher, Dan Choi and others just got arrested in front of the White House to register dissent. So the next time someone tells you that you hae no choice but to support one of the two branches of the banking party, just remember, you also have free will. And the only person who can take that away from you, is you.”

Thank you, Matt. Follow Matt on Twitter: @MatthewStoller

Austerity = Suffering

Posted: July 23, 2011 in Austerity, Economy, Euro, Europe, IMF, Risk

Seems to me that austerity is a fancy and disingenuous way of inflicting suffering on millions of people without acknowledging it or taking responsibility for it. Austerity sounds like a noble financial principle, not a method of crushing the already have-nots by taking their jobs away, depriving them of access to health care and starving them. But that’s exactly what it is, in varying degrees.

Austerity theory. The theory behind austerity, which really makes no sense at all if you think about it for more than five minutes, is that by readjusting an economy through budget cuts, wage cuts and benefit cuts, that economy will run more efficiently. This, allegedly, will reassure international investors that budgets can be cut and the nation can get it’s fiscal house in order. Then, such investors will flock towards that country’s bonds, bringing down interest rates and making investment possible again. Also, austerity will somehow produce economic growth, because, again, international markets will be reassured.

Except this doesn’t happen. Austerity doesn’t show that a national government can get and keep it’s fiscal house in order because budget cuts are being imposed on the orders of outsiders in cahoots with wealthy and corrupt public officials. And the idea that austerity can somehow pull a rabbit out of it’s hat and produce economic growth is a preposterous myth. It brings economic growth to it’s knees, condemning the people who actually live in that country to a viscous cycle of devaluation in currency and wages, producing economic anguish as standards of living fall and millions of people suffer. There’s nothing in the least noble about it.

Austerity impact. And the ultimate irony is that austerity is inflicted on the people who, in the vast majority of cases, aren’t responsible for the state that the country is in. The people who suffer from austerity are the ones who have little in the first place, who are just trying to survive and are trying to create a marginally better life for their children. The ones responsible for whatever horrible state an economy has descended to are generally the financial and political elite, who either by stupidity or plain greed, have ruined that economy and forced it to it’s knees. If they suffer, it’s in a pretty marginal way. Maybe they have to reduce their fleet of jets; more likely, they benefit by profiting from the inevitable asset-stripping that is part of the IMF austerity recipe. For the financial elite, austerity doesn’t produce homelessness or starvation or a marginal existence hanging on the edge of those states, like it does for many of the have-nots who are punished by these policies.

Austerity also inevitably involves an attack on social services, on the social safety net that not only the poor rely on but the alleged backbone of the economy, the middle class. Pensions, healthcare, employment, housing and other “entitlements” end up on the chopping block. Although the middle class doesn’t suffer as much as the poor, they are victims because their economic security is endangered through these cutbacks, which are another type of wealth transfer to the financial and political elite both inside and outside the country where the austerity is taking place.

Not only does austerity involve dismantling social safety nets, it also ultimately attacks sovereignty. When the IMF comes into rescue a national economy, it requires that state to agree to financial reforms which undermine it’s sovereignty. In Greece, in fact, the EU and IMF have the upper in hand regarding issues such as asset sales — or asset stripping — and certain economic reforms.

Austerity history. For years, austerity was the by-word in the third world when the International Monetary Fund (IMF) “rescued” a floundering economy. Through methods designed to “restructure” an economy — another fancy and disingenuous term — the IMF would dismember an economy, strip assets and impoverish millions, all in the name of dispensing benevolent assistance. Bullshit. Economies would recover eventually, usually in spite of rather than because of the IMF. But not without inflicting widespread damage on the people such assistance was allegedly trying to help. The powerful in those economies would benefit via asset stripping and graft, but the suffering would flood downstream, inflicting severe pain on millions. But few paid attention because after all, this was the third world, and in some obscure way it seemed right, because they didn’t manage their financial affairs correctly afterwards and deserved a bit of punishment or austerity to teach them a lesson.

Austerity today. Now austerity is moving closer to home. In Europe, the peripheral economies of Portugal, Ireland, Italy, Greece and Spain are teetering, and the IMF, in concert with the European Union, European Central Bank and the Euro Zone itself, are determined to punish these wayward economies by inflicting severe austerity on the people in return for financial rescue. The impact of austerity on Ireland is so severe, that at this point the economy is in a economic depression, as if a recession wasn’t bad enough. Official unemployment rates in Spain are 20 percent for the populace as a whole and more than 40 percent for youth.

But despite bailout after bailout, Greece is still floundering and the markets are no more sanguine than they were last year. All austerity has accomplished is to send an already teetering economy into a deep recession, inflict vast amounts of economic pain on the populace and make it that much harder to climb out of the debt-engendered economic hole that the country finds itself in. Ireland and Portugal are also receiving bailout funds and both Spain and Italy are at risk. Italy has the third largest bond market in the world, and if it goes, watch out for the Euro.

The IMF, EU and ECB seem to be coming to their senses a bit, because the latest bailout trims borrowing costs for the peripheral countries and forces bondholders to take a haircut, reducing the ultimate debt loan for those countries. But it’s not nearly enough. Without the option of an internal devaluation of currencies, the peripheral countries will have a long, painful journey of years trying to work their way out of a massive load of debt with a shrinking economy. Not a pleasant prospect.

And the US, the debt ceiling issue still hasn’t been solved. Massive amounts of budget cuts in the federal budget are on the table, on top of city and state budget cuts. With the economy barely growing, the housing market on its knees and employment growth anemic at best, all this budget cutting will do is send the economy back into a recession. The social safety net is being shredded further with gigantic cuts in education, healthcare, employment and housing just when people need it the most.

Where will it end?

Is it 1961 or 2011? I’m wondering because the International Monetary Fund (IMF) is acting more like the former than the latter. If it was 1961 (the year of my birth, BTW), there would no question that the next leader of the IMF should be a European. But it’s 2011, folks, and the outdated, cosy, cold-war agreement that the leader of the IMF should come from Europe while the leader of the World Bank should come from the U.S. is not only outdated, it’s dangerous.

As Bob Dylan would say, “the times, they are a changin” but as far as the Western Global Political and Economic elite goes, change isn’t desirable or good. It’s clear to anyone with a brain in their heads that the economic and political momentum on the planet has shifted from the west to the east. But instead of trying to make this transition work as seamlessly and painlessly as possible, the soon-to-be-have-nots are kicking and screaming and hanging to every ounce of political and economic power they have for every possible second.

If the stakes weren’t so high, it would almost be funny. But they couldn’t be higher: with the global financial system in danger yet again — this time from the Euro zone yet again — Western political leaders are intent on reinforcing the status quo by selecting another French politician as the leader of the IMF. Outside of her gender, is Christine Lagarde that much different from Dominique Strauss-Kahn? Does France, and Europe itself, a country and a continent with declining economic and political influence, really deserve this job, especially in a time of financial crisis?

Frankly, no, they don’t. And shame on anyone who is pretending that this selection process will be merit based and include everyone. Come on! People, it’s a done deal. The US and Europe have the votes to sew this up and nothing else but raw votes and raw political power matter. Yes, Australia and South Africa are in favor of a change to the status quo, but Brazil is willing to go along with a European candidate, God knows why. A back-room deal, maybe?

Really, it is shameful, short-sighted and flat-out stupid that preserving the status quo and the delicate feelings of the Europeans matters more than saving the global financial system. Because that’s what’s at stake. The weaker members of the EU are literally burning with riots in Spain and Greece, economic depression in Ireland and any kind of sensible solution off the table, but so what. We’ve got important status-quo preservation work to do.

Not that actually opening up the IMF managing director selection process and choosing someone from outside of the current EU-US power axis would necessarily make a difference, but a different outlook and some emerging market cred might help. But we’ll never know, will we because we’re getting more of the same.

As Martin Luther King once said, “Freedom is never voluntarily given by the oppressor; it must be demanded by the oppressed.” If it was up to the current powers that be, IMF vote re-alignment would happen eventually, say in about 100 years. If emerging markets want more say commensurate with their growth prospects and potential to contribute funds to all these bailouts, they better start demanding more. Because otherwise, it ain’t gonna happen.

Next time, I’ll share more of my thoughts on the so-called solutions being put forth by the powers that be in regard to Greece, what’s likely with Spain and a few other thoughts. For now, I’ll leave you with some links:

  • Markets aren’t going to give the Euro any breathing room: The markets are going to continue to pound the Euro, Greek, Spanish and Portuguese debt until the Euro Zone, IMF, US and anyone else with influence on the situation realizes that more needs to be done beside rearranging the deck chairs on the Titanic currently known as the Euro (from Business Insider).
  • Political protests go viral across Europe: Many Europeans are fed up with austerity; it’s being seen in elections, which many not produce the desired results, but will at least send a message (Roar Mag).
  • IMF Candidates by the numbers: Are you kidding me? This should be in The Onion, not the New York Times. Right, a candidate from Azerbaijan has a chance because that country has the highest growth rate in the world. And sure, Singapore is right in there because it’s unemployment rate is 2.5 percent. Or, OMG, maybe Paraguay, because it has low debt. Yeah. (Reuters via New York Times).