"Inspecting thousands of drills each day, women employed by a large Midwest drill and tool company must learn to detect the tiniest flaw in these vital machine accessories. Republic Drill and Tool Co., Chicago"
Stoneleigh: In order to maintain and expand an endeavour that requires two people to make a full time commitment to the project, and others to play supporting vital roles, The Automatic Earth needs to develop and maintain a stable funding base.
For this reason we will soon be making a number of changes to our site and the way it is run. We have secured the programming services needed to develop an expanded and more flexible site, outside of the constraints imposed by blogspot, that will be able to offer greater value to our readers. We will need to maintain programming services and deal with other costs of a more ambitious endeavour.
Today we are instituting a summer fundraising drive in order to take The Automatic Earth to the next level. We ask you to support our efforts on your behalf, so that we can continue to bring you the biggest possible big picture, and help you to navigate the challenges to come.
Thank you all for your support.
Listen to Stoneleigh interview in Portland, OR, June 6 2011 here
Ilargi:
The only reason there's any relative strength left in bank shares is the expectation among investors that any and all too big too fail financial institutions will continue to be bailed out by governments and central banks around the globe, no matter what the cost to societies and taxpayers. And indeed, the way things work these days, there is precious little ground to assume they will not.
What needs to be done, therefore, provided taxpayers wish to retain at least some of what remains of their wealth, is clear: we need to change the way things work. If we don't, our wealth, our money, and all of the fruits of our future labor, will be confiscated by the financial industry, which is free to siphon off enormous gambling profits from bets made with public money, towards its ownership, and equally free to transfer the even more enormous gambling losses to the public sector. They don't just own the keys to the house, they own the house itself. The same house that, for all intents, birthrights and purposes, is our house.
We no longer have any say in the matter. That is, until we do what people have started doing in Greece and Spain: get out onto the streets, and stay there as long as it takes to break down the way things work.
The core of the problem here is this: If you believe that we are witnessing a financial crisis, or you're even still convinced this crisis is over or soon will be, you're missing the point entirely. As I've said for years now, this is not a financial crisis, it's a political one. And until and unless we solve that political crisis, the financial crisis that is part of it can, will and must, of necessity, only deepen. And at the end of it we will all be left with nothing at all. No shelter or clothes to keep our children warm, and no food to feed them.
The crisis can or may be labeled 'financial' in that it expresses itself in ever more dire economic terms. But that's not where it started, nor is it where the core resides. The core lies in the fact that our economic systems have been hijacked by privately owned financial institutions. Any and all economic activities, whether it’s at an individual, small business or government level, depends 100% on the willingness of private banks to lend into existence the debt that is needed to finance said activities.
Whether you're a mother or father who wishes to purchase a home to raise a family, or a farmer who needs to buy seed and equipment for his fields, or a government that wants to build a bridge, all of the above must go hat in hand to banks to obtain the credit (debt) necessary to engage in their respective undertakings. In theory, a prospective homebuyer could go to a George Bailey type cooperative bank, a farmer could ask his clients to furnish the money needed for the seeds from which their food will come next year, and a government could even sell bonds for a particular bridge to be built.
In theory they could. All three could try and raise funding within their respective communities. In practice, however, these communities have long since surrendered the power to fund their own housing, food and infrastructure projects. And with that, they have also given away the power to elect their own leaders. Any politician these days who campaigns on the promise of building a bridge relies on one or more financial institutions to finance that campaign promise. If he or she fails to find favor with these institutions, there will be no bridge and hence no electoral victory, provided of course voters want that bridge in the first place. They will turn to the guy who does get it done.
Obviously, this allows for the bankers to choose who will be elected. And there is the political crisis in a nutshell.
All this has been brewing and developing for a long time. Anywhere in the world where monied interests are not strictly and severely kept out of politics, it is the only possible outcome of the so-called democratic process. If and when power is for sale, it will be sold. In the western world, it got a big jolt of support in the 1980's through Reagan and Thatcher and their Ayn Randian "the individual has more value than the group" intellectual blubberisms, which where carried over into subsequent years by Alan Greenspan, Robert Rubin and Larry Summers, as well as intellectually equal geniuses at the IMF and World Bank.
They dismantled entire societies and sold their assets to the highest bidders, who in by far most cases happened to be their friends and associates, and they got rid of all the pesky regulations in Washington that kept their banker buddies from having full and unbridled access to public funds. And so we find ourselves today with their friend Tim Geithner as the only remaining economic pawn in the government of Barack Obama, a politician as fully bought and owned as any we've ever come across.
Against this backdrop, there are a number of news items that warrant our attention. First off, Michael Hudson, research professor of economics at the University of Missouri, Kansas City, an article that no-one should miss, even if it's long. Hudson lays out the facts like few have done in a long time. I find it somewhat encouraging that even John Mauldin, investors' investor sweetheart, reserves a lot of space for Hudson in his newsletter. However, Mauldin renames the article in question "The Stark Choice for Europe", and that misses Hudson's point by a mile and then some.
it's not only in Europe that the financial institutions have taken over full political power; it's a global phenomenon. Here's some excerpts from Michael Hudson (but don't forget to read it all, click the title):
A World at Financial WarAs with the United States and indeed nearly all countries, EU "aid" is largely self-serving – a combination of export promotion and bailouts for debtor economies to pay banks in Europe’s main creditor nations: Germany, France and the Netherlands. The EU charter banned the European Central Bank (ECB) from financing government deficits, and prevents (indeed, "saves") members from having to pay for the "fiscal irresponsibility" of countries running budget deficits. This "hard" tax policy was the price that lower-income countries had to sign onto when they joined the European Union.
[..] Politically, the continent remains a loose federation. Every member is expected to pay its own way. The central bank does not monetize deficits, and there is minimal federal sharing with member states. Public spending deficits – even for capital investment in infrastructure – must be financed by running into debt, at rising interest rates as countries running deficits become more risky.
This means that spending on transportation, power and other basic infrastructure that was publicly financed in North America and the leading European economies (providing services at subsidized rates) must be privatized. Prices for these services must be set high enough to cover interest and other financing charges, high salaries and bonuses, and be run for profit – indeed, for rent extraction as public regulatory authority is disabled.[..]
At issue is whether Europe should succumb to centralized planning – on the right wing of the political spectrum, under the banner of "free markets" defined as economies free from public price regulation and oversight, free from consumer protection, and free from taxes on the rich.
The crisis for Greece – as for Iceland, Ireland and debt-plagued economies capped by the United States – is occurring as bank lobbyists demand that "taxpayers" pay for the bailouts of bad speculations and government debts stemming largely from tax cuts for the rich and for real estate, shifting the fiscal burden as well as the debt burden onto labor and industry. The financial sector’s growing power to achieve this tax favoritism is crippling economies, driving them further into reliance on yet more debt financing to remain solvent. Aid is conditional upon recipient countries reducing their wage levels ("internal devaluation") and selling off public enterprises.
The tunnel vision that guides these policies is self-reinforcing. Europe, America and Japan draw their economic managers from the ranks of professionals sliding back and forth between the banks and finance ministries – what the Japanese call "descent from heaven" to the private sector where worldly rewards are greatest. It is not merely delayed payment for past service.
Their government experience and contacts helps them influence the remaining public bureaucracy and lobby their equally opportunistic replacements to promote pro-financial fiscal and monetary policies – that is, to handcuff government and deter regulation and taxation of the financial sector and its real estate and monopoly clients, and to use the government’s taxing and money-creating power to provide bailouts when the inevitable financial collapse occurs as the economy shrinks below break-even levels into negative equity territory.
Regressive tax policies – shifting taxes off the rich and off property onto labor – cause budget deficits financed by public debt. When bondholders pull the plug, the resulting debt pressure forces governments to pay off debts by selling land and other public assets to private buyers (unless governments repudiate the debt or recover by restoring progressive taxation).
Most such sales are done on credit. This benefits the banks by creating a loan market for the buyouts. Meanwhile, interest absorbs the earnings, depriving the government of tax revenue it formerly could have received as user fees. The tax gift to financiers is based on the bad policy of treating debt financing as a necessary cost of doing business, not as a policy choice – one that indeed is induced by the tax distortion of making interest payments tax-deductible.
Buyers borrow credit to appropriate "the commons" in the same way they bid for commercial real estate. The winner is whoever raises the largest buyout loan – by pledging the most revenue to pay the bank as interest. So the financial sector ends up with the revenue hitherto paid to governments as taxes or user fees. This is euphemized as a free market.[..]
The Maastricht fiscal and financial rules maximize the commercial loan market by preventing central banks from supplying governments (and hence, the economy) with credit to grow. Commercial banks are to be the sole source of financing budget deficits – defined to include infrastructure investment in transportation, communication, power and water.
Privatization of these basic services blocks governments from supplying them at subsidized rates or freely. So roads are turned into toll roads, charging access fees that are readily monopolized. Economies are turned into sets of tollbooths, paying out their access charges as interest to creditors. These extractive rents make privatized economies high-cost. But to the financial sector that is "wealth creation." It is enhanced by untaxing interest payments to banks and bondholders – aggravating fiscal deficits in the process, however.[..]
The financial sector has an interest in understating the debt burden – first, by using "mark to model" junk accounting, and second, by pretending that the debt burden can be paid without disrupting economic life. Financial spokesmen from Tim Geithner in the United States to Dominique Strauss-Kahn at the IMF claimed that the post-2008 debt crisis is merely a short-term "liquidity problem" (lack of "confidence"), not insolvency reflecting an underlying inability to pay. Banks promise that everything will be all right when the economy "returns to normal" – if only the government will buy their junk mortgages and bad loans ("sound long-term investments") for ready cash.
The intellectual deception at work
Financial lobbyists seek to distract voters and policy makers from realizing that "normalcy" cannot be restored without wiping out the debts that have made the economy abnormal. The larger the debt burden grows, the more economy-wide austerity is required to pay debts to banks and bondholders instead of investing in capital formation and real growth.
Austerity makes the problem worse, by intensifying debt deflation. To pretend that austerity helps economies rather than destroys them, bank lobbyists claim that shrinking markets will lower wage rates and "make the economy more competitive" by "squeezing out the fat." But the actual "fat" is the debt overhead – the interest, amortization, financial fees and penalties built into the cost of doing business, the cost of living and the cost of government.[..]
The role of the ECB, IMF and other financial oversight agencies has been to make sure that bankers got paid. As the past decade of fiscal laxity and deceptive accounting came to light, bankers and speculators made fortunes jacking up the interest rate that Greece had to pay for its increasing risk of default. To make sure they did not lose, bankers shifted the risk onto the European "troika" empowered to demand payment from Greek taxpayers.[..]
That was the deal Bini Smaghi offered: "if there are sufficient privatizations, and so forth – then the IMF can disburse and the Europeans will do their share. But the key lies in Athens, not elsewhere. The key element for the return of Greece to the market is to stop discussions about restructuring."
One way or another, Greece would lose, he explained: "default or restructuring would not help solve the problems of the Greek economy, problems that can be solved only by adopting the kind of structural reforms and fiscal adjustment measures included in the program. On the contrary it would push Greece into a major economic and social depression." This leverage demanding to be paid or destroying the economy’s savings and monetary system is what central bankers call a "rescue," or "restoring market forces." Bankers claim that austerity will revive growth. But to accept as a realistic democratic alternative would be self-immolation.
Unless Greece signed onto this nonsense, neither the ECB nor the IMF would extend loans to save its banking system from insolvency. On May 31, 2011, Europe agreed to provide $86 billion in euros if Greece "puts off for the time being a restructuring, hard or soft, of Greece’s huge debt burden." The pretense was a "hope that in another two years Greece will be in a better position to repay its debts in full."
Anticipation of the faux rescue led the euro to rebound against foreign currencies, and European stocks to jump by 2 per cent. Yields on Greek 10-year bonds fell to "only" a 15.7 percent distress level, down one percentage point from the previous week’s high of 16.8 percent when a Greek official made the threatening announcement that "Restructuring is off the table. For now it is all about growth, growth, growth."
How can austerity be about growth? This idea never has worked, but the pretense was on.
The aim of commercial banks is to replace governments in creating money, making the economy entirely dependent on them, with public borrowing creating an enormous risk-free "market" for interest-bearing loans.
Ilargi: Alright, I’ll stop there. All of Hudson's findings are quotable. The stark picture he so eloquently paints is one that immediately connects itself in my mind with a few other pieces I read today, to provide a panoramic vision of what's really at stake.
First, from Bloomberg's Aaron Kirchfeld and Elena Logutenkova:
EU Banks’ Capital Deficit Means Greek Default Not an OptionThe “fragilities” of Europe’s banking industry mean a Greek default isn’t an option, European Union Economic and Monetary Affairs Commissioner Olli Rehn said in New York last week. By delaying a decision some investors consider inevitable, policy makers risk increasing the cost to European taxpayers and prolonging Greece’s economic pain. [..]
Independent Credit View, a Swiss rating company that predicted Ireland’s banks would need another bailout last year, found in a study to be published tomorrow that 33 of Europe’s biggest banks would need $347 billion of additional capital by the end of 2012 to boost their tangible common equity to 10 percent, even before any sovereign default. [..]
European banks had $188 billion at risk from the government debt of Greece, Ireland, Portugal and Spain at the end of 2010, according to a report this week from the Bank for International Settlements. European lenders held $52.3 billion in Greek sovereign debt, with German banks owning the biggest share, the BIS data showed. [..]
Concern that European lenders lack the reserves to weather losses on an estimated $136 billion in foreign claims on Greece’s government, banks and companies led Laurence D. Fink, chief executive officer of BlackRock Inc., the world’s largest money manager, to say on May 31 that Europe is going to need a “giant TARP,” referring to the Troubled Asset Relief Program that the U.S. introduced to rescue financial firms.
Ilargi: Clearly, Europe's banks are screwed. The only thing that keeps them standing is an old rusty dented tin can that has been kicked down more roads than we care to remember, for a longer time than we do. And that's without the CDS issues waiting in the wings, as I explained in Honey, I Swapped the Greeks. Still, the recipe is clear, from the point of view of "the deciders": throw more public money at the problem, so the financial institutions that invested in Greek debt, or even those that bet against it, will be made whole. Say what you will, but once you read between their twisted lines, these guys have a really simple modus operandi.
And that takes us to the last piece for the day, from Mathieu von Rohr and Helene Zuber at Der Spiegel, who in The Rage of the 'Indignants': A European Generation Takes to the Streets, describe how young people in various European countries are taking to the streets, just like their Arab counterparts have, and still are.
Given the conclusions drawn by a man like Michael Hudson, which I just about fully subscribe to, something that won't surprise too many regular readers at The Automatic Earth (funny: John Mauldin wrote he was sure it would anger many of his readers), where do we go from here?
I’ll never be one to call for a revolution, or to man barricades or carry banners, but still, you know, I’m thinking there's not all that much available in the range of options. Electing different politicians, whatever country you're in, makes no difference anymore, whatsoever. The financial world's grip on public coffers all over the place has reached a pretty "absolute form". Perhaps when you look at the ways in which the ECB and IMF are planning to drain and sell off Greece, you shouldn't just shudder, you should also realize that that gravy train will one day make a full stop in your country, city, community, load up all the goodies and leave with them. And why? Because you let them.
The best hope there seems to be on the horizon for many places is the very young and unemployed that have begun taking over the squares of their cities, from Spain to Greece to Yemen to Egypt et al. If these kids don't make it, if they don't persevere in those squares, their communities stand to be sucked dry of all remaining wealth by the financiers' army of politicians and police forces and what have you, which have all, oh sweet irony, been paid for with your very own tax money.
If you want to know what the state of affairs is in the world, and in your particular part of it, don't listen any longer to Bernanke, or Obama, or Merkel, Smaghi, Christine Lagarde, or Trichet. Start listening to the kids in the squares. Their version of reality has a lot more to do with yours, and certainly yours in the future, than any of the mouthpieces bought and paid for in the political slave auction we for some obscure reason still insist on calling democracy.
I mentioned Yemen, and I should include Syria too: it is hard to oversee, for me, what exactly the power struggles entail in these countries. There are undoubtedly factions being sponsored by the usual suspects, CIA, KGB, Mossad etc. What I do know is that there are places out there that are turning into all-out slaughterhouses, and that many people over there are getting crushed that have the same goals as do the kids in Madrid, Athens, Barcelona. And I think perhaps it's time to express much more support for all of them than we've done so far.
We're not going to solve our predicaments by working from within the systems that brought us these same predicaments. I have no particular political leanings, other than I don't like politics in general, and I don't want to call for any political action either. But through simply looking at what I see happening, and trying to analyze it, I don't see much hope for a change for the better for the people who are losing more of their wealth every day than those kids in the squares. The Generation of Junk, as the Portuguese ones call themselves.
So I guess that's sort of a mission statement after all. And don't worry, I’m easily smart enough to understand that that will rub some people the wrong way. I just don't see another way out anymore, it’s all just about analysis and pattern recognition from where I’m sitting. I’m temporarily lodged in France, to work on the new Automatic Earth website. People here say that if austerity measures like those in Greece and Spain and Portugal would ever reach here, you ain't seen nothing yet. The French know protest, and proudly so. Me, I’m wondering what's going to happen when police start shooting live ammo in the EU periphery. And how far away that moment could be.
We've handed the financial elites absolute powers over our economies, and thereby our lives and well being, as well as our childrens' futures. We’ll have to wrestle it back from their cold dead hands. And that's not going to be an easy one.
Ilargi:
Stoneleigh and I have decided that it's time to change things around here. Observing the shenanigans of the financial and political world inevitably turns to rubber necking and accident tourism, and we feel it's time to talk more about what comes after the present, what we can supply people with that can help them when what we are witnessing today snaps out of this suspended animation and starts its way down into the gorge for real.
We will continue to comment on the economy, but we will also add sections to our new site on for instance preparation, in all its diverse forms, from growing and preserving food to building homes and energy facilities to keeping your remaining wealth where it counts. In short, all that will serve to make people less dependent on the crumbling infrastructures they presently rely upon. We invite anyone who thinks they can contribute to contact us.
We’ll fill you in on the details as we go along. It may take a while longer to get all the pieces to fit into place, but they will be there. In order to make that happen, we do something today that we haven't done for a long time: launch a fund drive. People have been very generous with their donations in the past, and it's thanks to them that we have been able to do what we have done, and to contemplate doing just that, but more and better. In order to achieve this, we need a stable funding base; it is the only way we can make future -financial- commitments involved in everything a larger and more elaborate site requires.
We have been thinking about setting up a members sections at TAE for this purpose, and we may have to go that road at some point. However, if enough people sign up for recurring donations, which for members -if we would be forced to go that route- would be maybe $10 per month, we may not need to do this, which would be a relief: it's not really what we're about. We've set the goal for this Summer Fund Drive at $50,000. We know that may seem like a lot of money to some, but believe me, it's really not; not for what we have in mind.
There are several ways to support the Automatic Earth: One-time donations and recurring donations via Paypal, donations through other means, visits to our advertisers (that’s why they're there!), and clicking on the Amazon box with Stoneleigh’s book favorites in the left hand bar: if, for any Amazon purchase you make, not just those books, you go through their box at TAE, we get a percentage of what you purchase without any extra cost to you. That should be easy... And last but not least, you can purchase either the DVD-ROM or the streaming file of Stoneleigh's lecture "A Century of Challenges", or listen in to the discussion on Deflation/Inflation Stoneleigh had with Gonzalo Lira.
The Rage of the 'Indignants': A European Generation Takes to the Streets
by Mathieu von Rohr and Helene Zuber - Spiegel
For weeks, hundreds of young people have been camping out in central Madrid. And others across Europe have now begun following their example. Protests in Lisbon, Paris, Athens and elsewhere show that Europe's lost generation has finally found its voice.
Any real revolution in Paris has to include the storming of the Bastille. Which explains why 200 young demonstrators are sitting in the shade of the trees at Place de la Bastille on this Thursday evening, wondering how to go about staging such a revolution. Their numbers had already swelled to more than 2,000 by the Sunday before, when they had occupied the entrance to the Bastille Opera and half the square. But then the police arrived with teargas and, since then, have kept strict watch over this symbolic site.
The protestors are trying to create a movement to rival the protests in Madrid and Lisbon. They want tens of thousands of young people to march in the streets of Paris, calling for "démocratie réelle," or real democracy. They believe that there is also potential for such large-scale protest in France, with youth unemployment at more than 20 percent, precarious working conditions and what feels like a constant state of crisis.
"Until now, our problems were always seen as individual problems," says Julien, a 22-year-old physics student who has joined a group called Actions. "You were told that if you couldn't find a job, it was your own fault. Perhaps we are now experiencing a change taking place, and that we are joining forces to form a pan-European movement against this system."
A Fundamental Change
There is a feeling that unites young people throughout Europe, namely the belief that they will not be able to attain the same level of prosperity as their parents did. They feel that they have no future. They are well-trained, and yet they are not finding any jobs. This feeling has been smoldering for years, affecting the generation of "crisis children," who grew up in a world shaped by economic and other crises, but who never took to the streets to fight for their interests.
But a fundamental change is taking place. On March 12, 200,000 people marched down the Avenida de Liberdade, or Avenue of Freedom, in Lisbon. It was the biggest demonstration in Portugal since the 1974 Carnation Revolution, a march of the lost generation.
As in Cairo months ago, everything began on Facebook -- with an appeal that Alexandre de Sousa Carvalho and some of his former fellow students at the University of Coimbra posted. They called upon the Geração à rasca (or "generation of junk"), to join together in protest. "We, the unemployed, the underpaid and the interns, are the best educated generation in the country's history," they wrote. "We are protesting so that those responsible for our precarious situation quickly change this untenable reality."
Carvalho, 25, who studied international relations, is a polite young man with a beard and a leather armband on his wrist. He says that he is normally a patient person. But when he discovered that, despite having obtained a master's degree in English, he would likely only be able to get a limited contract and that he would likely be forced to find work in Africa, he was overcome with fury.
No Benefits
Portugal is the fourth-poorest country in the euro zone. Even in Greece, the per capita gross domestic product is higher. Unemployment has almost doubled to 12.6 percent in six years; among people under 25, the jobless rate is 27 percent. Of those who do have jobs, more than half are working in temporary positions. Many are pseudo self-employed, earn very little and must pay a tax rate of up to 50 percent. They receive no social insurance benefits.
Carvalho says that a song by the band Deolinda inspired them to protest. The lyrics epitomized their feelings about life: "I'm from the generation that doesn't get paid. It doesn't bother me. How stupid can I be? Things are going poorly, and that's the way it will stay. Those who can land an internship are lucky. What a stupid world this is, a world in which we go to school to become slaves."
They had never imagined that so many people would end up taking to the streets. Nor did they think that it would be the beginning of a movement that would take hold in other countries, too. The organizers of the protests in Spain and France contacted him, says Carvalho. They wanted to know how to bring anarchists, right-wing activists, Trotskyists and Catholics together into the streets without a single windowpane being smashed.
In the last few months, the world has gotten used to the images of young people occupying streets and squares. It is familiar with these scenes from Avenue Habib Bourguiba in Tunis, Tahrir Square in Cairo and the Pearl Roundabout in Bahrain. Those are the images of the Arab revolution, and now there are similar scenes unfolding in Europe.
But what do they have in common? The Arab countries are among the poorest in the world. More than half the population is younger than 25. Europe, by contrast, is rich and young people are a minority in societies that are getting older and older. In Arab countries, young people are fighting for democratic rights, while Europe's youth are protesting because they are worried about decline.
Images from the Arab World
In both cases, the protesters are well-educated young people who are unable to find work. They are the driving force of all revolutions. The tools of the demonstrations are also similar, with young people using social networks to organize but lacking central leadership. It almost seems as if the European youth needed the images from the Arab world to finally stand up on their own.
A tent city has been set up on Puerta del Sol in Madrid, the most famous square in Spain, for three weeks. The square has become the world of the "indignados," the indignant. The protesters began building the tent city on May 15, a week before local and regional elections. About 100 people spent the night in the first few nights, but then the election council declared the camp to be illegal -- which only resulted in its growing even faster. On the Sunday of the elections, 30,000 people filled the square and nearby streets, protesting against the economic crisis, incompetent politicians and corruption.
They are also trying their hand at direct democracy. Citizens are encouraged to thrown their suggestions into cardboard boxes set up on the square. Every evening, a committee meets to discuss short-term political ideas and those that are more future-oriented. Two weekends ago, the protesters held gatherings in 120 districts of the capital. They now intend to use these gatherings to refine their ideas and have decided only to meet on Puerta del Sol once a week.
Apolitical young people who long believed that conformity was the best strategy for getting by, have become political overnight. This is perhaps the most astonishing conclusion to be reached by observing this movement. And it also applies to France and Portugal, where the protesters are demanding direct citizen participation and are collecting signatures to support bills aimed at improving the situation of young people.
'I'll Have to Go Abroad'
Patri, an 18-year-old woman, was at the protests in Madrid almost from the start. Last Wednesday, she was sitting at the communication stand in her gray hooded sweatshirt. She was coughing and had dark circles under her weary eyes. Nevertheless, she still wants to stay. "We're making history now," she says. "A chance like this will not come again." Patri is a first-year university student studying English and German. She wants to become a translator. "But I'll have to go abroad," she adds.
More than 44 percent of people under 25 have no work in Spain, and almost one in three young academics is unemployed. More than half of those young workers who are employed have so-called garbage contracts, which are often limited to just a few weeks. Even during the boom years, young people suffered from bad schools, expensive universities and a slim job market. Since the real estate bubble burst three years ago and the crisis erupted, young people, once again, are the ones suffering the most.
In other parts of Europe, the situation among young people is not nearly as desperate as it is in Spain, Portugal or Greece. Still, many can identify with their frustration -- and offshoots of the protests are gradually reaching other European cities. Young people, albeit only a few hundred, have taken to the streets in Hamburg, Vienna and Rome.
Storming the Bastille
Ironically, a 93-year-old Frenchman provided the template for the youth protests. "Indignez-vous!" or "Be Outraged!" is the polemic pamphlet that the former French resistance fighter Stéphane Hessel published last year. The Spanish "indignados" and the French "indignées" have borrowed their names from Hessel's title.
Although Hessel did not establish the pan-European movement himself, he is demanding something that has once again become en vogue after years of apathy: citizen involvement. His appeal is both vague and sufficiently serious to garner approval in many European camps. He advocates nonviolent action in a world in which there is an ever-widening gap between rich and poor.
Although the indignées in France are not yet as numerous as the protesters in Lisbon, Madrid or Athens, they are well organized. In Paris, they sit in the median strip of a boulevard and devise communiqués and plans of attack, but they do so in a very civilized way. When one of them speaks, the others indicate approval or disapproval with hand signals. It looks like a classroom at a university.
Sitting a few steps away from them is a group of Arab youth from the Paris suburbs, the banlieue, where unemployment is the highest and where cars are still being set on fire. They look perplexed as they observe this strange gathering, and occasionally one of them hurls an insult at the indignées. But the activists are mild-mannered and well-behaved, and no one reacts. They also want to remain peaceful when they storm the Bastille.
EU Banks’ Capital Deficit Means Greek Default Not an Option
by Aaron Kirchfeld and Elena Logutenkova - Bloomberg
A failure by European regulators to make banks raise enough capital to withstand a sovereign default is complicating efforts to resolve Greece’s debt crisis.
The “fragilities” of Europe’s banking industry mean a Greek default isn’t an option, European Union Economic and Monetary Affairs Commissioner Olli Rehn said in New York last week. By delaying a decision some investors consider inevitable, policy makers risk increasing the cost to European taxpayers and prolonging Greece’s economic pain.
“European officials are trying to buy time for the troubled economies to get their house in order and the banks to be strengthened,” said Guy de Blonay, who helps manage about $41 billion at Jupiter Asset Management Ltd. in London.
While estimates of the capital shortfall vary, the vulnerability of European banks to a sovereign shock isn’t disputed. Independent Credit View, a Swiss rating company that predicted Ireland’s banks would need another bailout last year, found in a study to be published tomorrow that 33 of Europe’s biggest banks would need $347 billion of additional capital by the end of 2012 to boost their tangible common equity to 10 percent, even before any sovereign default.
European banks had $188 billion at risk from the government debt of Greece, Ireland, Portugal and Spain at the end of 2010, according to a report this week from the Bank for International Settlements. European lenders held $52.3 billion in Greek sovereign debt, with German banks owning the biggest share, the BIS data showed.
'Voluntary' Role
A year after the rescue that aimed to stop the spread of the debt crisis, Greece remains mired in recession, shut out of financial markets and saddled with Europe’s biggest debt load in proportion to its economy. Moody’s Investors Service said June 1 that it sees a 50 percent chance of a Greek default. In a Bloomberg survey last month, 85 percent of international investors said Greece will probably default.
European officials are preparing a new aid package for Greece that includes a “voluntary” role for investors after the EU and the International Monetary Fund approved the fifth installment of Greece’s 110 billion-euro ($160 billion) bailout last week. Policy makers in Europe have been debating how to let private investors, including banks, join Greece’s bailout without triggering a default. One option they’re considering is asking investors to reinvest in new debt when existing bonds mature, Rehn, 49, said last week.
'Kicking the Can'
Jean-Claude Juncker, 56, who leads a group of euro-area finance ministers, floated the idea last month of a “soft restructuring,” under which maturities of existing debt would be extended. European Central Bank policy makers including Bank of France Governor Christian Noyer have opposed that approach, and Moody’s and Fitch Ratings said they would probably consider it a default.
“They are kicking the can down the road,” said Adrian Foster, head of financial market research for Asia at Dutch bank Rabobank Groep NV in a Bloomberg Television interview on June 3. “Politically, it’s not too attractive to be bailing out the banks again should Greece default.”
ECB President Jean-Claude Trichet yesterday gave his first signal endorsing measures to encourage investors to buy new Greek bonds to replace maturing securities. While Trichet said he’s against imposing losses on creditors, he indicated he’d approve of financial institutions maintaining their level of outstanding credit. “That is not a default,” he said at an event in Montreal late yesterday. “That is something the ECB would consider appropriate.”
Bank Stocks Decline
Concern that European lenders lack the reserves to weather losses on an estimated $136 billion in foreign claims on Greece’s government, banks and companies led Laurence D. Fink, chief executive officer of BlackRock Inc., the world’s largest money manager, to say on May 31 that Europe is going to need a “giant TARP,” referring to the Troubled Asset Relief Program that the U.S. introduced to rescue financial firms.
The 51-company Stoxx 600 Banks Index was the third-worst performing group in the broader Stoxx 600 Index in the past three months, falling 10 percent amid concern that policy makers’ response to Greece’s debt crisis will have repercussions for Ireland and Portugal, which also got bailouts from the EU and IMF.
European banks are trading at 0.83 times book value, according to the banks index, almost the widest discount since the end of 2008 to their U.S. counterparts, which trade at 0.94 times book, based on the 24-member KBW Bank Index. (BKX) The five-year average price-to-book ratio of the 51 European lenders is 1.34, data compiled by Bloomberg show.
'Proper Return'
That banks in both regions are trading below book value indicates investors don’t believe their assets are worth as much as the companies say. Low market valuations make any potential capital-raising more dilutive for shareholders, said Simon Maughan, head of sales and distribution at MF Global Ltd. in London. Questions about regulatory requirements are adding pressure on bank stocks, making a quick recovery unlikely, he said.
“The big issue behind why price-to-book ratios are well below averages is that the market is saying banks can’t make a proper return and certainly not a return anything like they’ve been used to getting,” said Maughan.
Higher Costs
Higher costs related to regulatory changes and slower economic growth in the region make it difficult for European lenders to increase revenue, Deutsche Bank AG (DBK) CEO Josef Ackermann said in a speech June 1. Higher government funding costs also make it more expensive for a nation’s banks to borrow, he said.
“It comes as no surprise that most banks are currently trading close to their book value and that forecasts for future profitability in the sector have been cautious,” said Ackermann, 63. “Because they tend to have lower profitability, they also struggle more to build new capital organically as well as raise fresh capital.” Deutsche Bank, Germany’s largest lender, had net sovereign risks tied to Greece of 1.6 billion euros at the end of last year, the Frankfurt-based bank said in March.
Stress Tests
EU regulators are seeking to assuage investors’ concerns about capital with a second round of stress tests on 90 lenders. The European Banking Authority is promising tougher tests this year after failing seven of 91 banks last year and finding a capital shortfall totaling 3.5 billion euros, or about a 10th of the smallest estimate from analysts. Ireland’s biggest banks needed a rescue four months after passing the test.
Tests carried out in the U.S. in 2009 found 10 lenders including Bank of America Corp. and Citigroup Inc. needed to raise $74.6 billion of capital. The banks were required to raise the funds from private investors or accept government aid.
In Europe, “the test will probably still turn out to be relatively lax,” said Christian Fischer, a partner and banking analyst at Zurich-based Independent Credit View. The rating company picked a 10 percent tangible-common-equity threshold because it’s about 30 percent above average ratio for the past 10 years. Tangible common equity excludes hybrid debt, goodwill and preferred shares from Tier 1 capital.
Goldman Survey
The EBA said on its website earlier this year that under the stress-test scenarios banks will be expected to maintain a core Tier 1 capital ratio of at least 5 percent. A survey released yesterday by Goldman Sachs Group Inc. showed that 22 percent of 113 financial-industry respondents expected the results to provide a “credible reflection” of banks’ resilience, down from 35 percent before last year’s exams. On average, respondents estimated the tests will find that banks need to raise 29 billion euros of capital, Goldman Sachs said, with lenders in Spain, Germany and Greece needing the most.
Banks that fail the tests will have until the end of the year to complete plans to recapitalize or restructure their business, said Andrea Enria, chairman of the EBA, in an April interview. While the EBA will test for declines in sovereign bond values, it won’t include a default in its stress scenario. The publication of the results, scheduled for this month, may be delayed until July after the lenders were asked to submit more information, an EBA official said June 1.
International central bankers and supervisors meeting in Basel, Switzerland, have decided that banks need to hold more capital to avoid future taxpayer-funded bailouts. The Federal Reserve supports a proposal at the Basel Committee on Banking Supervision that calls for a maximum capital surcharge of 3 percentage points on the largest global banks, according to a person familiar with the discussions.
Buying Opportunity
Independent Credit View conducted its own stress tests on 63 banks worldwide, assessing their capital needs by the end of next year after applying assumptions for loan-loss provisions, earnings growth and an increase in risk-weighted assets and liquidity requirements as a result of stricter regulation.
Banks in Portugal, Italy, Ireland, Greece and Spain had the highest capital deficits, and would need to raise $154 billion, or 67 percent of their market valuation, to boost tangible common-equity ratios to 10 percent from 9.1 percent at the end of 2010, according to the study. The estimated capital shortage at 33 European banks amounts to 29 percent of their combined valuation, compared with 20 percent for the North American banks analyzed, according to Independent Credit View’s report.
Last Resort
For Dirk Hoffmann-Becking at Sanford C. Bernstein in London, the impact of a Greek debt restructuring is “seriously overstated,” making it a good time to buy banking shares. “For the first time in nearly three years we are seriously bullish on European banks,” he wrote in a May 27 note.
Citigroup raised European banks to “overweight” the same day, citing the share drop as an opportunity to increase holdings in “stronger” companies such as London-based Standard Chartered Plc and HSBC Holdings Plc, Credit Suisse Group AG of Zurich, Paris-based BNP Paribas SA and DnB NOR ASA in Oslo.
Lorenzo Bini Smaghi, an ECB executive board member, was less sanguine in comments yesterday, saying a sovereign debt restructuring, in which bondholders would take losses, should be an option of “last resort” because it may have “severe implications” on the country and investors. “More often than not, restructurings have been disorderly, harmful and fraught with difficulties,” Bini Smaghi said at an event in Berlin.
Greek banks under siege
by Colin Barr - Fortune
If Europe didn't have enough problems, Greece now has a full-fledged bank run on its hands.
Household deposits at Greek banks have dropped in five of the past six months, falling by a total of 12 billion euros ($17.6 billion), according to Bank of Greece data. Two-year deposits tumbled 8% from a year ago in April and savings deposits plunged at a 16% year-over-year clip in March, notes Graham Turner of GFC Economics in London.
The flight of Greek funds overseas will only add to country's financial crisis, which has Greece on the verge of accepting another bailout from the European Union and the International Monetary Fund. But while officials may yet succeed in kicking this Hellenic can down the road for another year or two, at the very least the bank run adds unwelcome uncertainty. If enough money flees the country, it could hasten the inevitable restructuring of Greek debt – an outcome the European Central Bank is desperately trying to delay in the name of saving undercapitalized banks on the Continent.
A restructuring "will not be deferred indefinitely if Greek depositors continue to vote with their feet," Turner writes in a note to clients Tuesday. "They ultimately have the best sense of whether this level of austerity and privatization is sustainable from a political perspective."
The deposit flight is hardly surprising, considering the dire news coming out of Greece. Talk about its leaving the euro seems far fetched and has been resoundingly rejected by policymakers, but the country's road back to economic competitiveness is steep indeed.
Wages, as measured by unit labor costs, rose just 7% over the past decade in Germany but soared 50% or so in Greece – meaning that workers there are looking at steep pay cuts indeed if they are to bring the country's cost structure into line with the region's so-called core. And that is only a first step in what promises to be a long and punishing economic makeover, assuming the euro zone manages to hold together.
The woes of Greek banks follow a similar tale in Ireland over the past year. There, deposits left the country as it became clear that cleaning up the banking system would cost much more than the government had admitted. That episode ended with the Irish getting a bailout in return for a horrific austerity program that, in typical bubble-era logic, left the investors who funded the banks' wrongheaded expansion binge untouched.
The investors' luck is going to run out sooner or later -- but it is hard to gauge just when, what with Germany pushing for an extension of Greek debt maturities and the ECB screaming in a near panic, Nothing to see here! Move along!
Such is life when your taxpayer dollars are directed mostly to propping up the edifices of banks that served mostly to enrich insiders when times are good. For now, that effort continues mostly unimpeded elsewhere in Europe. There is no sign in the data that banking fears are spreading to Spain, which is by all accounts the next big European economy on the hit list, let alone much bigger Italy.
But then, this being the year of the bank run, it is early yet to rule out problems anywhere on the periphery. "I think Greece is in a league of its own," says Turner, "but we know there has been significant buying of top end real estate in London by Spanish and Italian investors." From one house of cards to another, as it were.
A World at Financial War
by Michael Hudson - Counterpunch.com
The Greek bailout provides an opportunity for privatization grab
When Greece exchanged its drachma for the euro in 2000, most voters were all for joining the Eurozone. Their hope was that it would ensure stability, and that this would promote rising wages and living standards. Few saw that the stumbling point was tax policy. Greece was excluded from the eurozone the previous year as a result of failing to meet the 1992 Maastricht criteria for EU membership, limiting budget deficits to 3 percent of GDP, and government debt to 60 percent.
The euro also had other serious fiscal and monetary problems at the outset. There is little thought of wealthier EU economies helping bring less productive ones up to par, e.g. as the United States does with its depressed areas (as in the rescue of the auto industry in 2010) or when the federal government does declares a state of emergency for floods, tornados or other disruptions. As with the United States and indeed nearly all countries, EU "aid" is largely self-serving – a combination of export promotion and bailouts for debtor economies to pay banks in Europe’s main creditor nations: Germany, France and the Netherlands. The EU charter banned the European Central Bank (ECB) from financing government deficits, and prevents (indeed, "saves") members from having to pay for the "fiscal irresponsibility" of countries running budget deficits. This "hard" tax policy was the price that lower-income countries had to sign onto when they joined the European Union.
Also unlike the United States (or almost any nation), Europe’s parliament was merely ceremonial. It had no power to set and administer EU-wide taxes. Politically, the continent remains a loose federation. Every member is expected to pay its own way. The central bank does not monetize deficits, and there is minimal federal sharing with member states. Public spending deficits – even for capital investment in infrastructure – must be financed by running into debt, at rising interest rates as countries running deficits become more risky.
This means that spending on transportation, power and other basic infrastructure that was publicly financed in North America and the leading European economies (providing services at subsidized rates) must be privatized. Prices for these services must be set high enough to cover interest and other financing charges, high salaries and bonuses, and be run for profit – indeed, for rent extraction as public regulatory authority is disabled.
This makes countries going this route less competitive. It also means they will run into debt to Germany, France and the Netherlands, causing the financial strains that now are leading to showdowns with democratically elected governments. At issue is whether Europe should succumb to centralized planning – on the right wing of the political spectrum, under the banner of "free markets" defined as economies free from public price regulation and oversight, free from consumer protection, and free from taxes on the rich.
The crisis for Greece – as for Iceland, Ireland and debt-plagued economies capped by the United States – is occurring as bank lobbyists demand that "taxpayers" pay for the bailouts of bad speculations and government debts stemming largely from tax cuts for the rich and for real estate, shifting the fiscal burden as well as the debt burden onto labor and industry. The financial sector’s growing power to achieve this tax favoritism is crippling economies, driving them further into reliance on yet more debt financing to remain solvent. Aid is conditional upon recipient countries reducing their wage levels ("internal devaluation") and selling off public enterprises.
The tunnel vision that guides these policies is self-reinforcing. Europe, America and Japan draw their economic managers from the ranks of professionals sliding back and forth between the banks and finance ministries – what the Japanese call "descent from heaven" to the private sector where worldly rewards are greatest. It is not merely delayed payment for past service.
Their government experience and contacts helps them influence the remaining public bureaucracy and lobby their equally opportunistic replacements to promote pro-financial fiscal and monetary policies – that is, to handcuff government and deter regulation and taxation of the financial sector and its real estate and monopoly clients, and to use the government’s taxing and money-creating power to provide bailouts when the inevitable financial collapse occurs as the economy shrinks below break-even levels into negative equity territory.
Regressive tax policies – shifting taxes off the rich and off property onto labor – cause budget deficits financed by public debt. When bondholders pull the plug, the resulting debt pressure forces governments to pay off debts by selling land and other public assets to private buyers (unless governments repudiate the debt or recover by restoring progressive taxation).
Most such sales are done on credit. This benefits the banks by creating a loan market for the buyouts. Meanwhile, interest absorbs the earnings, depriving the government of tax revenue it formerly could have received as user fees. The tax gift to financiers is based on the bad policy of treating debt financing as a necessary cost of doing business, not as a policy choice – one that indeed is induced by the tax distortion of making interest payments tax-deductible.
Buyers borrow credit to appropriate "the commons" in the same way they bid for commercial real estate. The winner is whoever raises the largest buyout loan – by pledging the most revenue to pay the bank as interest. So the financial sector ends up with the revenue hitherto paid to governments as taxes or user fees. This is euphemized as a free market.
Promoting the financial sector at the economy’s expense
The resulting debt leveraging is not a solvable problem. It is a quandary from which economies can escape only by focusing on production and consumption rather than merely subsidizing the financial system to enable players to make money from money by inflating asset prices on free electronic keyboard credit. Austerity causes unemployment, which lowers wages and prevents labor from sharing in the surplus. It enables companies to force their employees to work overtime and harder in order to get or keep a job, but does not really raise productivity and living standards in the way envisioned a century ago. Increasing housing prices on credit – requiring larger debts for access to home ownership – is not real prosperity.
To contrast the "real" economy from the financial sector requires distinctions to be drawn between productive and unproductive credit and investment. One needs the concept of economic rent as an institutional and political return to privilege without a corresponding cost of production. Classical political economy was all about distinguishing earned from unearned income, cost-value from market price. But pro-financial lobbyists deny that any income or rentier wealth is unearned or parasitic. The national income and product accounts (NIPA) do not draw any such distinction. This blind spot is not accidental. It is the essence of post-classical economics. And it explains why Europe is so crippled.
The way in which the euro was created in 1999 reflects this shallow vision. The Maastricht fiscal and financial rules maximize the commercial loan market by preventing central banks from supplying governments (and hence, the economy) with credit to grow. Commercial banks are to be the sole source of financing budget deficits – defined to include infrastructure investment in transportation, communication, power and water.
Privatization of these basic services blocks governments from supplying them at subsidized rates or freely. So roads are turned into toll roads, charging access fees that are readily monopolized. Economies are turned into sets of tollbooths, paying out their access charges as interest to creditors. These extractive rents make privatized economies high-cost. But to the financial sector that is "wealth creation." It is enhanced by untaxing interest payments to banks and bondholders – aggravating fiscal deficits in the process, however.
The Greek budget crisis in perspective
A fiscal legacy of the colonels’ 1967-74 junta was tax evasion by the well to do. The "business-friendly" parties that followed were reluctant to tax the wealthy. A 2010 report stated that nearly a third of Greek income was undeclared, with "fewer than 15,000 Greeks declar[ing] incomes of over €100,000, despite tens of thousands living in opulent wealth on the outskirts of the capital. A new drive by the Socialists to track down swimming pool owners by deploying Google Earth was met with a virulent response as Greeks invested in fake grass, camouflage and asphalt to hide the tax liabilities from the spies in space." (Helena Smith, "The Greek spirit of resistance turns its guns on the IMF," The Observer, May 9, 2010.)
As a result of the military dictatorship depressing public spending below the European norm, infrastructure needed to be rebuilt – and this required budget deficits. The only way to avoid running them would have been to make the rich pay the taxes they were supposed to. But squeezing public spending to the level that wealthy Greeks were willing to pay in taxes did not seem politically feasible. (Since the 1980s almost no country has enacted Progressive Era tax policies.) The 3 per cent Maastricht limit on budget deficits refused to count capital spending by government as capital formation, on the ideological assumption that all government spending is deadweight waste and only private investment is productive.
The path of least resistance was to engage in fiscal deception. Wall Street bankers helped the "conservative" (that is, fiscally regressive and financially profligate) parties conceal the extent of the public debt with the kind of junk accounting that financial engineers had pioneered for Enron. And as usual when financial deception in search of fees and profits is concerned, Goldman Sachs was in the middle.
In February 2010, the German magazine Der Spiegel exposed how the firm had helped Greece conceal the rise in public debt, by mortgaging assets in a convoluted derivatives deal – legal but with the covert intent of circumventing the Maastricht limitation on deficits. "Eurostat’s reporting rules don’t comprehensively record transactions involving financial derivatives," so Greece’s obligation appeared as a cross-currency swap rather than as a debt. The government used off-balance-sheet entities and derivatives similar to what Icelandic and Irish banks later would use to indulge in fictitious debt disappearance and an illusion of financial solvency.
The reality, of course, was a virtual debt. The government was obligated to pay Wall Street billions of euros out of future airport landing fees and the national lottery as "the so-called cross currency swaps … mature, and swell the country’s already bloated deficit." (Beat Balzli, "How Goldman Sachs Helped Greece to Mask its True Debt," Der Spiegel, February 8, 2010. The report adds: "One time, gigantic military expenditures were left out, and another time billions in hospital debt." Translated into straightforward terms, the deal left Greece’s public-sector budget deficit at 12 percent of GDP, four times the Maastricht limit.
Using derivatives to engineer Enron-style accounting enabled Greece to mask a debt as a market swap based on foreign currency options, to be unwound over ten to fifteen years. Goldman was paid some $300 million in fees and commissions for its aid orchestrating the 2001 scheme. "A similar deal in 2000 called Ariadne devoured the revenue that the government collected from its national lottery. Greece, however, classified those transactions as sales, not loans." JPMorgan Chase and other banks helped orchestrate similar deals across Europe, providing "cash upfront in return for government payments in the future, with those liabilities then left off the books."
The financial sector has an interest in understating the debt burden – first, by using "mark to model" junk accounting, and second, by pretending that the debt burden can be paid without disrupting economic life. Financial spokesmen from Tim Geithner in the United States to Dominique Strauss-Kahn at the IMF claimed that the post-2008 debt crisis is merely a short-term "liquidity problem" (lack of "confidence"), not insolvency reflecting an underlying inability to pay. Banks promise that everything will be all right when the economy "returns to normal" – if only the government will buy their junk mortgages and bad loans ("sound long-term investments") for ready cash.
The intellectual deception at work
Financial lobbyists seek to distract voters and policy makers from realizing that "normalcy" cannot be restored without wiping out the debts that have made the economy abnormal. The larger the debt burden grows, the more economy-wide austerity is required to pay debts to banks and bondholders instead of investing in capital formation and real growth.
Austerity makes the problem worse, by intensifying debt deflation. To pretend that austerity helps economies rather than destroys them, bank lobbyists claim that shrinking markets will lower wage rates and "make the economy more competitive" by "squeezing out the fat." But the actual "fat" is the debt overhead – the interest, amortization, financial fees and penalties built into the cost of doing business, the cost of living and the cost of government.
When difficulty arises in paying debts, the path of least resistance is to provide more credit – to enable debtors to pay. This keeps the system solvent by increasing the debt overhead – seemingly an oxymoron. As financial institutions see the point approaching where debts cannot be paid, they try to get "senior creditors" – the ECB and IMF – to lend governments enough money to pay, and ideally to shift risky debts onto the government ("taxpayers"). This gets them off the books of banks and other large financial institutions that otherwise would have to take losses on Greek government bonds, Irish bank obligations bonds, etc., just as these institutions lost on their holdings of junk mortgages. The banks use the resulting breathing room to try and dump their bond holdings and bad bets on the proverbial "greater fool."
In the end the debts cannot be paid. For the economy’s high-financial managers the problem is how to postpone defaults for as long as possible – and then to bail out, leaving governments ("taxpayers") holding the bag, taking over the obligations of insolvent debtors (such as A.I.G. in the United States). But to do this in the face of popular opposition, it is necessary to override democratic politics. So the divestment by erstwhile financial losers requires that economic policy be taken out of the hands of elected government bodies and transferred to those of financial planners. This is how financial oligarchy replaces democracy.
Paying higher interest for higher risk, while protecting banks from losses
The role of the ECB, IMF and other financial oversight agencies has been to make sure that bankers got paid. As the past decade of fiscal laxity and deceptive accounting came to light, bankers and speculators made fortunes jacking up the interest rate that Greece had to pay for its increasing risk of default. To make sure they did not lose, bankers shifted the risk onto the European "troika" empowered to demand payment from Greek taxpayers.
Banks that lent to the public sector (at above-market interest rates reflecting the risk), were to be bailed out at public expense. Demanding that Greece not impose a "haircut" on creditors, the ECB and related EU bureaucracy demanded a better deal for European bondholders than creditors received from the Brady bonds that resolved Latin American and Third World debts in the 1980s. In an interview with the Financial Times, ECB executive board member Lorenzo Bini Smaghi insisted that:First, the Brady bonds solution was a solution for American banks, which were basically allowed not to ‘mark to market’ the restructured bonds. There was regulatory forbearance, which was possible in the 1980 but would not be possible today.
Second, the Latin American crisis was a foreign debt crisis. The main problem in the Greek crisis is Greece, its banks and its own financial system. Latin America had borrowed in dollars and the lines of credit were mainly with foreigners. Here, a large part of the debt is with Greeks. If Greece defaulted, the Greek banking system would collapse. It would then need a huge recapitalization - but where would the money come from?
Third, after default the Latin American countries still had central banks that could print money to pay for civil servants’ wages, pensions. They did this and created inflation. So they got out [of the crisis] through inflation, depreciation and so forth. In Greece you would not have a central bank that could finance the government, and it would have to partly shut down some of its operations, like the health system.
Bini Smaghi threatened that Europe would destroy the Greek economy if the latter tried to scale back its debts or even stretch out maturities to reflect the ability to pay. Greece’s choice was between or anarchy. Restructuring would not benefit "the Greek people. It would entail a major economic, social and even humanitarian disaster, within Europe. Orderly implies things go smoothly, but if you wipe out the banking system, how can it be smooth?" The ECB’s "position [is] based on principle ... In the euro area debts have to be repaid and countries have to be solvent. That has to be the principle of a market-based economy." (Ralph Atkins, "Transcript: Lorenzo Bini Smaghi," Financial Times, May 30, 2011. The interview took place on May 27.)
A creditor-oriented economy is not really market-based, of course. The banks destroyed the market by their own central financial planning -- using debt leverage to leave Greece with a bare choice: Either it would permit EU officials to come in and carve up its economy, selling its major tourist sites and monopolistic rent-extracting opportunities to foreign creditors in a gigantic national foreclosure movement, or it could bite the bullet and withdraw from the Eurozone.
That was the deal Bini Smaghi offered: "if there are sufficient privatizations, and so forth – then the IMF can disburse and the Europeans will do their share. But the key lies in Athens, not elsewhere. The key element for the return of Greece to the market is to stop discussions about restructuring."
One way or another, Greece would lose, he explained: "default or restructuring would not help solve the problems of the Greek economy, problems that can be solved only by adopting the kind of structural reforms and fiscal adjustment measures included in the program. On the contrary it would push Greece into a major economic and social depression." This leverage demanding to be paid or destroying the economy’s savings and monetary system is what central bankers call a "rescue," or "restoring market forces." Bankers claim that austerity will revive growth. But to accept as a realistic democratic alternative would be self-immolation.
Unless Greece signed onto this nonsense, neither the ECB nor the IMF would extend loans to save its banking system from insolvency. On May 31, 2011, Europe agreed to provide $86 billion in euros if Greece "puts off for the time being a restructuring, hard or soft, of Greece’s huge debt burden." The pretense was a "hope that in another two years Greece will be in a better position to repay its debts in full." Anticipation of the faux rescue led the euro to rebound against foreign currencies, and European stocks to jump by 2 per cent. Yields on Greek 10-year bonds fell to "only" a 15.7 percent distress level, down one percentage point from the previous week’s high of 16.8 percent when a Greek official made the threatening announcement that "Restructuring is off the table. For now it is all about growth, growth, growth."
How can austerity be about growth? This idea never has worked, but the pretense was on. The EU would provide enough money for the Greek government to save bondholders from having to suffer losses. The financial sector supports heavy taxpayer expense as long as the burden does not fall on itself or its main customers in the real estate sector or the infrastructure monopolies being privatized.
The loan-for-privatization tradeoff was called "aiding Greece" rather than bailing out German, French and other bondholders. But financial investors knew better. "Since the crisis began, 60 billion euros in deposits have been withdrawn from Greek banks, about a quarter of the country’s output." (Atkins, FT.) These withdrawals, which were gaining momentum, were the precise size of the loan being offered!
Meanwhile, the shift of 60 billion euros off the balance sheets of banks onto the private sector threatened to raise the ratio of public debt to GDP over 150 per cent. There was talk that another 100 billion euros would be needed to "socialize the losses" that otherwise would be suffered by German, French and other European bankers who had their eyes set on a windfall if heavily discounted Greek bonds were made risk-free by carving up Greece in much the same way that the Versailles Treaty did to Germany after World War I.
The Greek population certainly saw that the world was at financial war. Increasingly large crowds gathered each day to protest in Syntagma Square in front of the Parliament, much as Icelandic crowds had done earlier under similar threats by their Social Democrats to sell out the nation to European creditors. And just as Iceland’s Prime Minister Sigurdardottir held on arrogantly against public opinion, so did Greek Socialist Prime Minister George Papandreou.
This prompted EU Fisheries Commissioner Maria Damanaki "to ‘speak openly’ about the dilemma facing her country," warning: "The scenario of Greece’s exit from the euro is now on the table, as are ways to do this. Either we agree with our creditors on a program of tough sacrifices and results ... or we return to the drachma. Everything else is of secondary importance." And former Dutch Finance Minister Willem Vermeend wrote in De Telegraaf that ‘Greece should leave the euro,’ given that it will never be able to pay back its debt."
As in Iceland, the Greek austerity measures are to be put to a national referendum – with polls reporting that some 85 percent of Greeks reject the bank-bailout-cum-austerity plan. Its government is paying twice as much for credit as the Germans, despite seemingly having no foreign-exchange risk (using the euro). The upshot may be to help drive Greece out of the eurozone, not only by forcing default (the revenue is not there to pay) but by Newton’s Third Law of Political Motion: Every action creates an equal and opposite reaction.
The ECB’s attempt to make Greek labor –("taxpayers") pay foreign bondholders is leading to pressure for outright repudiation and the domestic "I won’t pay" movement. Greece’s labor movement always has been strong, and the debt crisis is further radicalizing it.
The aim of commercial banks is to replace governments in creating money, making the economy entirely dependent on them, with public borrowing creating an enormous risk-free "market" for interest-bearing loans. It was to overcome this situation that the Bank of England was created in 1694 – to free the country from reliance on Italian and Dutch credit. Likewise the U.S. Federal Reserve, for all its limitations, was founded to enable the government to create its own money.
But European banks have hog-tied their governments, replacing Parliamentary democracy with dictatorship by the ECB, which is blocked constitutionally from creating credit for governments – until German and French banks found it in their own interest for it to do so. As Uuniversity of Missouri-Kansas City Professor Bill Black summarizes the situation:"A nation that gives up its sovereign currency by joining the euro gives up the three most effective means of responding to a recession. It cannot devalue its currency to make its exports more competitive. It cannot undertake an expansive monetary policy. It does not have any monetary policy and the EU periphery nations have no meaningful influence on the ECB’s monetary policies. It cannot mount an appropriately expansive fiscal policy because of the restrictions of the EU’s growth and stability pact. The pact is a double oxymoron – preventing effective counter-cyclical fiscal policies harms growth and stability throughout the Eurozone."
Financial politics are now dominated by the drive to replace debt defaults by running a fiscal surplus to pay bankers and bondholders. The financial system wants to be paid. But mathematically this is impossible, because the "magic of compound interest" outruns the economy’s ability to pay – unless central banks flood asset markets with new bubble credit, as U.S. policy has done since 2008.
When debtors cannot pay, and when the banks in turn cannot pay their depositors and other counterparties, the financial system turns to the government to extract the revenue from "taxpayers" (not the financial sector itself). The policy bails out insolvent banks by plunging domestic economies into debt deflation, making taxpayers bear the cost of banks gone bad.
These financial claims are virtually a demand for tribute. And since 2010 they have been applied to the PIIGS countries. The problem is that revenue used to pay creditors is not available for spending within the economy. So investment and employment shrink, and defaults spread. Something must give, politically as well as economically as society is brought back to the "Copernican problem": Will the "real" economy of production and consumption revolve around finance, or will financial demands for interest devour the economic surplus and begin to eat into the economy?
Technological determinists believe that technology drives. If this were so, rising productivity would have made everybody in Europe and the United States wealthy by now, rich enough to be out of debt. But there is a Chicago School inquisition insisting that today’s needless suffering is perfectly natural and even necessary to rescue economies by saving their banks and debt overhead – as if all this is the economic core, not wrapped around the core.
Meanwhile, economies are falling deeper into debt, despite rising productivity measures. The seeming riddle has been explained many times, but is so counter-intuitive that it elicits a wall of cognitive dissonance. The natural view is to think that the world shouldn’t be this way, letting credit creation load down economies with debt without financing the means to pay it off. But this imbalance is the key dynamic defining whether economies will grow or shrink.
John Kenneth Galbraith explained that banking and credit creation is so simple a principle that the mind rejects it – because it is something for nothing, the proverbial free lunch stemming from the principle of banks creating deposits by making loans. Just as nature abhors a vacuum, so most people abhor the idea that there is such a thing as a free lunch. But the financial free lunchers have taken over the political system.
They can hold onto their privilege and avert a debt write-down only as long as they can prevent widespread moral objection to the idea that the economy is all about saving creditor claims from being scaled back to the economy’s ability to pay – by claiming that the financial brake is actually the key to growth, not a free transfer payment.
The upcoming Greek referendum poses this question just as did Iceland’s earlier this spring. As Yves Smith recently commented regarding the ECB’s game of chicken as to whether Greece’s government would accept or reject its hard terms:"This is what debt slavery looks like on a national level. … Greece looks to be on its way to be under the boot of bankers just as formerly free small Southern farmers were turned into "debtcroppers" after the US Civil War. Deflationary policies had left many with mortgage payments that were increasingly difficult to service. Many fell into ‘crop lien’ peonage. Farmers were cash starved and pledged their crops to merchants who then acted in an abusive parental role, being given lists of goods needed to operate the farm and maintain the farmer’s family and doling out as they saw fit. T
he merchants not only applied interest to the loans, but further sold the goods to farmers at 30 per cent or higher markups over cash prices. The system was operated, by design, so that the farmer’s crop would never pay him out of his debts (the merchant as the contracted buyer could pay whatever he felt like for the crop; the farmer could not market it to third parties). This debt servitude eventually led to rebellion in the form of the populist movement. (Yves Smith, "Will Greeks Defy Rape and Pillage By Barbarians Bankers? An E-Mail from Athens," Naked Capitalism, May 30, 2011.)
One would expect a similar political movement today. And as in the late 19th century, academic economics will be mobilized to reject it. Subsidized by the financial sector, today’s economic orthodoxy finds it natural to channel productivity gains to the finance, insurance and real estate (FIRE) sector and monopolies rather than to raise wages and living standards. Neoliberal lobbyists and their academic mascots dismiss sharing productivity gains with labor as being unproductive and not conducive to "wealth creation" financial style.
Making governments pay creditors when banks run aground
At issue is not only whether bank debts should be paid by taking them onto the public balance sheet at taxpayer expense, but whether they can reasonably be paid. If they cannot be, then trying to pay them will shrink economies further, making them even less viable. Many countries already have passed this financial limit. What is now in question is a political step – whether there is a limit to how much further creditor interests can push national populations into debt-dependency.
Future generations may look back on our epoch as a great Social Experiment on how far the point may be deferred at which government – or parliaments – will draw a line against taking on public liability for debts beyond any reasonable capacity to pay without drastically slashing public spending on education, health care and other basic services?
Is a government – or economy – be said to be solvent as long as it has enough land and buildings, roads, railroads, phone systems and other infrastructure to sell off to pay interest on debts mounting exponentially? Or should we think of solvency as existing under existing proportions in our mixed public/private economies? If populations can be convinced of the latter definition – as those of the former Soviet Union were, and as the ECB, EU and IMF are now demanding – then the financial sector will proceed with buyouts and foreclosures until it possesses all the assets in the world, all the hitherto public assets, corporate assets and those of individuals and partnerships.
This is what today’s financial War is about. And it is what the Greeks gathering in Syntagma Square are demonstrating about. At issue is the relationship between the financial sector and the "real" economy. From the perspective of the "real" economy, the proper role of credit – that is, debt – is to fund productive capital investment and economic growth. After all, it is out of the economic surplus that interest is to be paid.
This requires a tax system and financial regulatory system to maximize the growth. But that is precisely the fiscal policy that today’s financial sector is fighting against. It demands tax-deductibility for interest, encouraging debt financing rather than equity. It has disabled truth-in-lending laws and regulation keeping prices (the interest rate and fees) in line with costs of production. And it blocks governments from having central banks to freely finance their own operations and provide economies with money.
Banks and their financial lobbyists have not shown much interest in economy-wide wellbeing. It is easier and quicker to make money by being extractive and predatory.
Fraud and crime pay, if you can disable the police and regulatory agencies. So that has become the financial agenda, eagerly endorsed by academic spokesmen and media ideologues who applaud bank managers and subprime mortgage brokers, corporate raiders and their bondholders, and the new breed of privatizers, using the one-dimensional measure of how much revenue can be squeezed out and capitalized into debt service. From this neoliberal perspective, an economy’s wealth is measured by the magnitude of debt obligations – mortgages, bonds and packaged bank loans – that capitalize income and even hoped-for capital gains at the going rate of interest.
Iceland belatedly decided that it was wrong to turn over its banking to a few domestic oligarchs without any real oversight or regulation over their self-dealing. From the vantage point of economic theory, was it not madness to imagine that Adam Smith’s quip about not relying on the benevolence of the butcher, brewer or baker for their products, but on their self-interest is applicable to bankers? Their "product" is not a tangible consumption good, but interest-bearing debt. These debts are a claim on output, revenue and wealth; they do not constitute real wealth.
This is what pro-financial neoliberals fail to understand. For them, debt creation is "wealth creation" (Alan Greenspan’s favorite euphemism) when credit – that is, debt – bids up prices for property, stocks and bonds and thus enhances financial balance sheets. The "equilibrium theory" that underlies academic orthodoxy treats asset prices (financialized wealth) as reflecting a capitalization of expected income. But in today’s Bubble Economy, asset prices reflect whatever bankers will lend. Rather than being based on rational calculation, their loans are based on what investment bankers are able to package and sell to frequently gullible financial institutions. This logic leads to attempts to pay pensions out of a "wealth creating" process that runs economies into debt.
It is not hard to statistically illustrate this. The amount of debt that an economy can pay is limited by the size of its surplus, defined as corporate profits and personal income for the private sector, and net fiscal revenue paid to the public sector. But neither today’s financial theory nor global practice recognize a capacity-to-pay constraint. So debt service has been permitted to eat into capital formation and reduce living standards – and now, to demand privatization sell-offs.
As an alternative is to such financial demands, Iceland has provided a model for what Greece may do. Responding to British and Dutch demands that its government guarantee payment of the Icesave bailout, the Althing recently asserted the principle of sovereign debt:
"The preconditions for the extension of government guarantee according to this Act are:1. That … account shall be taken of the difficult and unprecedented circumstances with which Iceland is faced with and the necessity of deciding on measures which enable it to reconstruct its financial and economic system. This implies among other things that the contracting parties will agree to a reasoned and objective request by Iceland for a review of the agreements in accordance with their provisions.
2. That Iceland’s position as a sovereign state precludes legal process against its assets which are necessary for it to discharge in an acceptable manner its functions as a sovereign state."
Instead of imposing the kind of austerity programs that devastated Third World countries from the 1970s to the 1990s and led them to avoid the IMF like a plague, the Althing is changing the rules of the financial system. It is subordinating Iceland’s reimbursement of Britain and Holland to the ability of Iceland’s economy to pay:
"In evaluating the preconditions for a review of the agreements, account shall also be taken to the position of the national economy and government finances at any given time and the prospects in this respect, with special attention being given to foreign exchange issues, exchange rate developments and the balance on current account, economic growth and changes in gross domestic product as well as developments with respect to the size of the population and job market participation."
This is the Althing proposal to settle its Icesave bank claims that Britain and the Netherlands rejected so passionately as "unthinkable." So Iceland said, "No, take us to court." And that is where matters stand right now.
Greece is not in court. But there is talk of a "higher law," much as was discussed in the United States before the Civil War regarding slavery. At issue today is the financial analogue, debt peonage.
Will it be enough to change the world’s financial environment? For the first time since the 1920s (as far as I know), Iceland made the capacity-to-pay principle the explicit legal basis for international debt service. The amount to be paid is to be limited to a specific proportion of the growth in its GDP (on the admittedly tenuous assumption that this can indeed be converted into export earnings). After Iceland recovers, the Treasury offered to guarantee payment for Britain for the period 2017-2023 up to 4 per cent of the growth of GDP after 2008, plus another 2 per cent for the Dutch. If there is no growth in GDP, there will be no debt service. This meant that if creditors took punitive actions whose effect is to strangle Iceland’s economy, they wouldn’t get paid.
No wonder the EU bureaucracy reacted with such anger. It was a would-be slave rebellion. Returning to the applicable of Newton’s Third Law of motion to politics and economics, it was natural enough for Iceland, as the most thoroughly neoliberalized disaster area, to be the first economy to push back.
The past two years have seen its status plunge from having the West’s highest living standards (debt-financed, as matters turn out) to the most deeply debt-leveraged. In such circumstances it is natural for a population and its elected officials to experience a culture shock – in this case, an awareness of the destructive ideology of neoliberal "free market" euphemisms that led to privatization of the nation’s banks and the ensuing debt binge.
The Greeks gathering in Syntagma Square seem to need no culture shock to reject their Socialist government’s cave-in to European bankers. It looks like they may follow Iceland in leading the ideological pendulum back toward a classical awareness that in practice, this rhetoric turns out to be a junk economics favorable to banks and global creditors. Interest-bearing debt is the "product" that banks sell, after all. What seemed at first blush to be "wealth creation" was more accurately debt-creation, in which banks took no responsibility for the ability to pay. The resulting crash led the financial sector to suddenly believe that it did love centralized government control after all – to the extent of demanding public-sector bailouts that would reduce indebted economies to a generation of fiscal debt peonage and the resulting economic shrinkage.
As far as I am aware, this agreement is the first since the Young Plan for Germany’s reparations debt to subordinate international debt obligations to the capacity-to-pay principle. The Althing’s proposal spells this out in clear terms as an alternative to the neoliberal idea that economies must pay willy-nilly (as Keynes would say), sacrificing their future and driving their population to emigrate in a vain attempt to pay debts that, in the end, can’t be paid but merely leave debtor economies hopelessly dependent on their creditors. In the end, democratic nations are not willing to relinquish political planning authority to an emerging financial oligarchy.
No doubt the post-Soviet countries are watching, along with Latin American, African and other sovereign debtors whose growth has been stunted by predatory austerity programs imposed by IMF, World Bank and EU neoliberals in recent decades. We should all hope that the post-Bretton Woods era is over. But it won’t be until the Greek population follows that of Iceland in saying no – and Ireland finally wakes up.
Deciding between the Devil and the Deep Blue Sea
by Roger Bootle - Telegraph
There has been another deal stitched up to help Greece. However, it won’t necessarily solve the problem.
The key questions are whether Greece can eventually repay the money, and whether the Greek people will accept the terms. I remain sceptical that any deal, now or later, will represent much more than a sticking plaster. What Greece needs is write-offs, i.e. outright gifts. Yet that is precisely what is so threatening to financial stability, and so politically unpalatable in other member countries.
What is to be done? Like the Irishman who was asked the way to Cork, I wouldn’t be starting from here. But given where we are, a radical solution has to be contemplated. European monetary union has always been a halfway house – more than a fixed exchange rate system but less than a full economic union. Sometime soon, it will have to go one way or the other. Full fiscal integration would imply that the debts of one country are automatically shared by the others. But that is implausible without central control of spending, taxing and borrowing. And that is not acceptable without a political union. Things might yet go this way, although it seems less likely now, with euro-scepticism on the rise across the continent.
It would be more viable, though, for a smaller group. One option might be simply to accept that Greece was an integration too far and allow/encourage her to leave. Yet that is not an easy option either. Greece would still have to default, thereby threatening a financial crisis, while still having to maintain fiscal stringency and enact radical reforms.
But at least she would then have a chance. The New Drachma would plunge, making Greece competitive. It is often said that a country in Greece’s situation cannot afford to default because no one would lend to it ever again. This is wrong. Admittedly, it would be prudent to wait until she has achieved fiscal balance so that she does not need funds immediately. Yet history is replete with examples of defaulting countries being able to borrow again pretty quickly. This is perfectly rational. Once past debt has been "reduced" there is more chance of a new loan being honoured. Moreover, with a combination of default and depreciation there would be the possibility of real economic growth, which is the solvent of all financial ills.
Paradoxically, if Greece made a success of life outside the euro, that would pose a really big threat to the monetary union. Consider the position then for the other peripheral countries still facing a struggle to honour their debts and regain competitiveness. The political and bond market pressures would be irresistible. In this way, the weaker members might peel off one by one, as with the old ERM.
There might be some sort of salvation in this, but it would be extremely messy and dangerous. My preferred solution is for Germany to leave, taking with her those countries which are closely aligned. This group would include Austria, Finland and Benelux. France could go either way. My suggestion is that this group should form a new currency, call it the New Mark, the Northern Euro, or what you will. The remaining countries would be left with the euro.
This has four advantages. First, the weaker countries are not picked off one by one but remain linked to other countries with which they have some close similarities. Second, weaker countries’ debt would continue to be denominated in their own currency. Third, it would be the stronger countries, led by Germany, that would have to face the difficult technical, legal and financial problems of forming a new currency. Lastly, these countries might be both able and willing to go the whole hog to fiscal and political union.
Nevertheless, this radical solution isn’t practical politics at the moment. For a start, virtually no one in the German business establishment would support it. The euro has been a boon for them because it has stopped what would otherwise have been a soaring deutschmark, which would have attenuated Germany’s export boom. But they, and the German public, may eventually change their tune after repeated exposure to euro mission creep, with bailouts and handouts carrying on until the crack of doom.
Could all of this be avoided? Of course. Nothing is inevitable in economic affairs, and the famed political will is still there. Just about. Moreover, Greece is tiny. Whatever ghastly medicine she forces the other members to swallow, the dose may still be small. What the euro-zone needs is good fortune. A strong economic recovery would maximise the chances of keeping default and/or devaluation restricted to Greece alone. As the ancient Greeks would have recognised, that is in the lap of the gods. But you will have noticed the recent signs of weakening across the world economy. The omens don’t look good.
Spanish, German, Greek Banks Seen Failing Stress Tests
by Christopher Bjork - Dow Jones Newswires
Banks from Spain, Germany and Greece are expected to have to raise the most new capital following the next round of European stress tests, according to a survey of investors by Goldman Sachs published Monday. But the survey of 113 fund managers, mostly from hedge funds and long-only investors, also found that only 22% of respondents expect the test to be a "credible reflection of bank resilience," highlighting the lack of credibility of the stress test.
Last year's test rubber-stamped the balance sheets on several banks that later fell on hard times, including Irish banks that a few months after the tests were published had to be bailed out. According to the Goldman survey, investors expect the stress tests to show that banks will need another EUR29 billion in fresh capital. It expects 90% of the banks included in the test to pass. Investors on average expected nine out of the 91 banks that will take the test to fail, down from 10 institutions that failed last year's stress tests.
Some 65% of those surveyed said that the amount of capital raised will leave banks adequately or overly capitalized, while 35% believe that more capital will be needed after the test.The tests are due to be published late in June or early July by the European Banking Authority.
Will Germany and France stave off a Greek default?
by Andrew Lilico - Telegraph
In Greece, government debt is forecast to reach about 170pc of GDP. The cheapest debt Greece can acquire comes through the European Union, and will cost some 5 to 6pc.
So, even if the EU were willing to take on all of Greece’s debts, Greece would be paying more than 10pc of GDP in debt interest. Of course, the EU isn’t going to do anything like that. No plausible market interest rate is going to be less than twice that level. So to repay its debts, Greece would have to be willing, for decades, to devote well above 10pc, perhaps closer to 20pc of GDP simply to paying interest.
The economists’ rule of thumb is that if interest payments reach 12pc of GDP, a normal economy will default. But Greece is in no way normal. The Greeks have a long tradition of defaulting, having been in default for about half of the years since the modern Greek state began in 1830. Lending money to Greece is not an investment. It is an act of cultural charity, a participation in the myths of Athens and Sparta. The Greeks have very good reason to believe that if they default on their debts, another bunch of suckers, weaned on Plato and Pericles and Marathon and Thermopylae and keen to do their bit, will be along soon.
The Greeks are unlikely to feel a moral obligation to repay their debts, having accumulated them by telling lies about their budget deficits, with their millionaires lying about their incomes, widespread pathological non-compliance with tax rules, and cushy conditions for public employees. Order and political respect can often fray when countries must bear the burdens and consequences of debt repayment. But Greek unity and order don’t exist to begin with. Living memory has seen civil wars between communists and anti-communists, coups and counter-coups. In the past week, thousands of protestors have occupied a large square in Athens, condemning their politicians as "thieves"and (hopefully jokingly) threatening to eat them.
Two orthodox church bishops have called for a revolution. Communists have occupied the finance ministry. Greek cross-party talks on the austerity programme have broken down. And the CIA has warned that additional austerity measures could potentially trigger a coup.
Even if they did, against all the odds, choose to try to pay, it would be futile anyway, for the Greeks are certain to be ejected from the euro by 2013 if they have not chosen to leave beforehand. From 2013, there is to be a new financial architecture in the EU: a new, more formal bail-out mechanism with a new bail-out fund; a formal procedure for private sector holders of sovereign debt to take "haircuts" (i.e. lose some of their money); a new system for bank bondholders to be vulnerable to debt-equity swaps in the event that banks get into trouble; and a revision to the Treaty due to be ratified by the end of 2012, intended to place all this on a more secure footing.
Greece obviously isn’t getting in. German and Finnish and Dutch and Austrian taxpayers aren’t going to agree to putting up funds for a new, more formal bail-out fund that pre-commits them to putting up money if that means sending hundreds of billions to Greece. Greece has been semi-detached even in the broader EU structure. In 2005 the European Court of Justice refused to hear a case referred to it by the Greek Competition Commission because the Greek Commission did not qualify as a judicial body under EU rules – specifically because of excessive political control. Without a proper Competition Authority able to refer cases to the European Court of Justice, Greece has thus, at times, barely even been fully part of the Single Market.
The only question of default isn’t whether Greece itself pays – that ain’t gonna happen. It’s whether Germany and France decide to pay Greece’s debts for it, as a way of bailing out the German and French banks. For a while that seemed plausible. But what seems much more likely now is not that Germany and France pay off the debts; merely that they help Greece meet its interest payments for a while so as to put off the formal moment of default until it seems like the German and French banks might be able to take the hit.
I expect default, probably during 2012. Default will trigger a cascade of wider events across the eurozone. However, other than to Ireland, British exposure would be limited, unless and until bondholder losses reached France and Germany. I don’t expect this. But if our banks should indeed become exposed in 2012, this time to eurozone events, would the British government bail them out yet again?
Merkel Pressed by Obama to Take Lead in Europe Debt Crisis
by Tony Czuczka and Mike Dorning - Bloomberg
German Chancellor Angela Merkel is heading home with a message from President Barack Obama to take the lead in managing Europe’s debt crisis. While hosting Merkel for the highest-profile visit of a German leader to the White House in 16 years, Obama made it clear he’s looking to policy makers in Europe’s largest economy to prevent an “uncontrolled spiral of default” in countries such as Greece to avoid “disastrous” harm to the U.S. economy.
“We think that America’s economic growth depends on a sensible resolution of this issue,” Obama said at a joint news conference with Merkel in Washington yesterday. Merkel, while saying it is in Germany’s interest to help debt-laden countries, stuck to her stand that such countries must commit to becoming more competitive in return.
Their remarks underscored the differing agendas as both countries pledge to support action to avoid the euro area’s first default, more than a year after bailing out Greece in the debt crisis that has led Ireland and Portugal to seek international aid. “If the euro as a whole is in danger, it’s in Germany’s interest -- and in every country’s interest -- to help,” Merkel said. “At that point, we will of course take action, but we will act in a way that’s sustainable.”
Obama said Greece will need private investment and “structural reforms” to make it more competitive and more transparent in its economy. “But given their level of debt, it also means that other countries in the eurozone are going to have to provide them a backstop and support,” Obama said. Germany will be a “key leader” in that process, he said.
While the European debt problems have not been a significant drag on the U.S. economy this year, a crisis provoked by a default on sovereign debt could plunge the U.S. back into recession, said Michael Feroli, chief U.S. economist for JPMorgan Chase & Co. in New York. “We believe Europe will continue to find short-term patches for the situation there,” Feroli said. “If we’re wrong, the U.S. expansion could be at risk.”
While prodding Germany to take a leading role, Obama expressed sympathy for Merkel’s effort to convince skeptical German voters of the need for further aid. “The politics of it are tough,” he said. He pledged the U.S. would “cooperate fully,” including through the International Monetary Fund, which has provided one-third of the rescues for the euro area. Merkel pressed for IMF involvement last year as Greece slid toward its bailout.
Debt-Holders
Obama also suggested that holders of Greek debt “have to make some decisions” about whether to work with euro-area governments to manage the debt, taking up a point pressed by German Finance Minister Wolfgang Schaeuble. Bondholders must contribute a “substantial” share of a second aid package for Greece, Schaeuble said in a letter to European Central Bank President Jean-Claude Trichet and fellow euro finance ministers on June 6.
Maturities on Greek bonds should be extended seven years to give the debt-wracked nation time to overhaul its economy, Schaeuble wrote in the letter, which was provided to Bloomberg News and reported earlier by the newspaper Die Welt.
The German stance clashes with the position of European Commission officials and the ECB opposing anything beyond a voluntary rollover of debt. A swap offering investors terms that are “worse” than those of existing securities would constitute a coercive or distressed exchange, and be considered a default, Fitch Ratings said yesterday. The euro climbed 0.8 percent to $1.4688, the strongest since May 5.
U.S. Economy
Obama said he wasn’t concerned that the U.S. would experience a double-dip recession, though said “we’ve still got some enormous work to do” to create enough jobs to make up for the more than 8 million lost during the recession.
The U.S. Labor Department reported June 3 that job growth slowed to 54,000 in May, down from 232,000 in April and the smallest gain in eight months. The unemployment rate rose to 9.1 percent, the highest level this year. It was the latest economic indicator suggesting the nation’s recovery from the worst recession since the 1930s has hit a soft patch. Obama said consumers and markets are “still skittish” as a result of the recession, and any economic data suggesting a slowdown affects confidence and expansion.
“Our task is to not panic, not overreact; to make sure that we’ve got a plan, a path forward in terms of how we make our economies competitive,” Obama said. That includes bringing down the nation’s debt while still maintaining spending in crucial areas such as energy research and education, he said.
Feroli attributes the weakening in the U.S. economy during the first half of the year to high gasoline prices and disruptions from the Japanese earthquake. He forecasts that the growth rate will rise to 3 percent during the second half of the year. The two leaders spoke before a state dinner in Merkel’s honor in the White House Rose Garden. The guest list included government officials from both countries and business leaders such as Robert D. Hansen, chief executive officer of Dow Corning Corp., and Google Inc. Chairman Eric Schmidt.
Medal of Freedom
At the dinner, Obama awarded Merkel the Presidential Medal of Freedom, the country’s highest civilian honor. Previous recipients of the award include investor Warren Buffett, civil rights figure Rosa Parks and one of Merkel’s predecessors as chancellor of Germany, Helmut Kohl. In his toast, the president recalled Merkel’s upbringing in communist East Germany and her political career after East and West Germany were reunited in 1990.
“Tonight we honor Angela Merkel not for being denied her freedom, or even for attaining her freedom, but for what she achieved when she gained her freedom,” Obama said, highlighting her rise to become Germany’s first female chancellor and an “eloquent voice” for human rights. The menu included vegetables and herbs grown in the first lady’s garden on the executive mansion’s South Lawn. The main course was a petite filet with Maryland crab ravioli served on a bed of wild ramp puree from West Virginia. The dessert is German: apple strudel served with schlag, an unsweetened whipped cream.
Bernanke signals no new round of easing
by Robin Harding and James Politi - Financial Times
Ben Bernanke sent a strong signal that the US Federal Reserve is not planning to loosen monetary policy despite weaker economic data, saying that the recovery “appears to be proceeding at a moderate pace”. “The US economy is recovering from both the worst financial crisis and the most severe housing bust since the Great Depression, and it faces additional headwinds ranging from the effects of the Japanese disaster to global pressures in commodity markets,” the Fed chairman said in a speech in Atlanta on Tuesday. “In this context, monetary policy cannot be a panacea.”
Mr Bernanke’s comments will dash market hopes that the Fed might launch a third round of quantitative easing – nicknamed QE3 – in response to weak numbers on growth and the labour market recently. Wall Street turned negative late on Wednesday and the 10-year Treasury yield eased back under 3 per cent after Mr Bernanke’s comments. The S&P 500 closed down 0.1 per cent at its low for the day after an early gain of 0.8 per cent. The yield on 10-year notes dropped 2 basis points to 2.98 per cent, after an early rise to 3.05 per cent.
Jobs data last week showed that the US economy added only 54,000 jobs in May, while annualised growth in the first quarter of the year was only 1.8 per cent. But Mr Bernanke’s comments suggest he expects a ‘soft patch’ rather than a more serious slowdown in the recovery. He noted that “recent indicators suggest some loss of momentum” in the labour market and said that the recovery was “uneven across sectors and frustratingly slow”. But he suggested that “with some moderation in gasoline prices in prospect” growth and hiring are likely to pick up again in the second half of the year.
Under quantitative easing, a central bank buys assets in an effort to drive down long-term interest rates once it has already cut short-term rates to zero. Last November, the Fed launched a second, $600bn round of asset purchases that are due to finish at the end of June.
But Mr Bernanke suggested that, rather than buy more assets, the Fed is more likely to respond to the slowdown by holding on to the assets that it has for a longer period. “Although it is moving in the right direction, the economy is still producing at levels well below its potential; consequently, accommodative monetary policies are still needed,” he said. “Until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established.”
Other Fed officials mirrored that approach. “I have to express some frustration with this economy,” said Dennis Lockhart, president of the Atlanta Fed, in a speech on Tuesday. Mr Lockhart did not talk of further easing but said: “I am wary of tightening monetary policy in the face of quite ambiguous economic circumstances unless doing so is absolutely necessary to meet the [Fed]’s price stability mandate”.
Much of Mr Bernanke’s speech was dedicated to inflation and commodity prices - concerns that have slid down the market’s list as growth data weakened in recent weeks. He was at pains to argue that commodity prices are unlikely to continue rising and that the rise to date was not due to the Fed’s loose monetary policy. “Most FOMC participants currently see the recent increase in inflation as transitory and expect inflation to remain subdued in the medium term,” Mr Bernanke said.
Bernanke's Self-Serving Bold-Faced Lies
by Mike Shedlock - Global Economic Analysis
Inquiring minds are reading Bernanke's blatantly self-serving speech including some bold lies regarding the U.S. Economic Outlook.
I can condense Bernanke's speech down to a single paragraph. An interesting set of word cloud images follows this summation.
Blah, blah, blah brief update. Economic growth slower than expected. Blah, Blah, uneven across sectors and frustratingly slow, millions of unemployed and underemployed workers. Blah, Blah, ability and willingness of households to spend will be an important determinant of the pace at which the economy expands in coming quarters. Blah, blah, signs of gradual improvement. I expect hiring to pick up. Business sector presents a more upbeat picture. Blah, blah, blah Fiscally constrained state and local governments continue to cut spending and employment. The solution to this dilemma, I believe, lies in recognizing that our nation's fiscal problems are inherently long-term in nature. Consequently, the appropriate response is to move quickly to enact a credible, long-term plan for fiscal consolidation. Blah, blah. Establishing a credible plan for reducing future deficits now would not only enhance economic performance in the long run, but could also yield near-term benefits by leading to lower long-term interest rates and increased consumer and business confidence. Blah, Blah, the Outlook for Inflation Blah, Blah, the prices for many commodities have risen sharply, resulting in significantly higher consumer prices for gasoline. Price index for personal consumption expenditures has risen at an annual rate of about 3-1/2 percent, compared with an average of less than 1 percent over the preceding two years. Blah, blah, blah, not much evidence that inflation is becoming broad-based or ingrained in our economy Blah, Blah, subdued unit labor costs should remain a restraining influence on inflation. Blah blah, longer-term inflation expectations reasonably stable. Blah, blah, commitment of the central bank to low and stable inflation remains credible. Blah, blah world oil consumption rose by 14 percent from 2000 to 2010. Blah, blah, U.S. oil consumption was about 2-1/2 percent lower in 2010 than in 2000. Blah, blah improving diets in the emerging market economies. Blah blah, Production shortfalls have plagued many other commodities as well. Not all commodity prices have increased, blah, lumber and natural gas near levels of early 2000s. Blah, blah, dollar's decline can explain, at most, only a small part of the rise in oil and other commodity prices. Blah, blah, blah dual mandate of maximum employment and price stability, and we will certainly do that. Blah, blah, economic recovery in the United States appears to be proceeding at a moderate pace, longer-term inflation expectations remain stable. Blah blah, (FOMC) has maintained a highly accommodative monetary policy, keeping its target for the federal funds rate close to zero. Blah blah, economic conditions are likely to warrant exceptionally low levels for the federal funds rate for an extended period. Blah, blah, blah [blatant lie coming] Federal Reserve's actions in recent years have doubtless helped stabilize the financial system, ease credit and financial conditions, guard against deflation, and promote economic recovery. All of this has been accomplished, I should note, at no net cost to the federal budget or to the U.S. taxpayer. Blah blah blah Federal Reserve be vigilant in preserving its hard-won credibility for maintaining price stability.
Word Cloud of Bernanke's SpeechZero Hedge provides this word cloud image of Bernanke's Speech.
Inspired by Zero Hedge, I ran my summation through a word cloud program.
I believe I've captured the essence of Bernanke's speech perfectly except for the lies.
Self-Serving LiesBernanke did everything possible to mitigate his role and the Fed's role in this crisis. His unmitigated gall comes through loud and clear with this bald-faced lie:
"The Federal Reserve's actions in recent years have doubtless helped stabilize the financial system, ease credit and financial conditions, guard against deflation, and promote economic recovery. All of this has been accomplished, I should note, at no net cost to the federal budget or to the U.S. taxpayer."
For starters, were it not for the complete ineptitude of the Greenspan and Bernanke Fed the US would not be in this mess in the first place. Second, there most assuredly is a cost to the Fed's policies.
Prices are higher, wages are not. Banks were bailed out at taxpayer expense. The Fed pays interest on reserves. That interest comes from taxpayers. The Fed's balance sheet is loaded to the gills with garbage from Fannie Mae and Freddie Mac. The Fed is not at risk on that garbage because Congress approved unlimited backing for GSE debt. That unlimited backing is over $300 billion and counting. Those losses are not all on the Fed's balance sheet of course. However let's not ignore the Fed's role in getting Congress to pass that blatantly stupid bill.
Let's also not forget the Fed cheerleading fiscal stupidity in Congress, not wanting Congress to do anything about monstrous deficits now. Keynesian and Monetarist clowns never want to do anything now. They always want to do it at the "appropriate" time, which in practice means never.
Most importantly I would like to point out the very real cost of those on fixed income, attempting to get by with higher food prices, higher gasoline prices, etc. I dare Ben Bernanke to face senior citizens and tell them there is no cost associated with interest rates at 0%.
In case you missed it please read Hello Ben Bernanke, Meet "Stephanie". That post is about the plight of those on fixed incomes struggling to get by with rising costs and CD rates at 1%.
Finally, there is an unseen cost to the stupidity of Bernanke's policies. That unseen cost is the cost associated with fostering still more speculation in the financial markets. There is another bubble in the stock market, another bubble in junk bonds, and another bubble in commodities.
We have yet to feel the ramifications when those bubble pop, and they will. Bernanke cannot see those bubbles for the same reason he could not see the bubble in housing, the bubble in credit, the rapidly rising unemployment rate, and countless other things he missed.
Bernanke is a complete fool, trapped in academic wonderland, completely oblivious as to how the real world works. To top it off, Bernanke has the gall to knowingly lie about the real world effects of his blatant stupidity.
Ben Bernanke, you are disgusting.
THIS Is The Chart That Worries Bernanke The Most
by Joe Weisenthal - Business Insider
In his latest speech, Ben Bernanke draw particular attention to the long-term unemployed as a matter of particular concern.Particularly concerning is the very high level of long-term unemployment--nearly half of the unemployed have been jobless for more than six months. People without work for long periods can find it increasingly difficult to obtain a job comparable to their previous one, as their skills tend to deteriorate over time and as employers are often reluctant to hire the long-term unemployed.
We're not surprised, as we highlighted this very chart last week when the last jobs data came out.
Decline and fall of the American empire
by Larry Elliott - Guardian
America clocked up a record last week. The latest drop in house prices meant that the cost of real estate has fallen by 33% since the peak – even bigger than the 31% slide seen when John Steinbeck was writing The Grapes of Wrath. Unemployment has not returned to Great Depression levels but at 9.1% of the workforce it is still at levels that will have nerves jangling in the White House. The last president to be re-elected with unemployment above 7.2% was Franklin Delano Roosevelt.
The US is a country with serious problems. Getting on for one in six depend on government food stamps to ensure they have enough to eat. The budget, which was in surplus little more than a decade ago, now has a deficit of Greek-style proportions. There is policy paralysis in Washington. The assumption is that the problems can be easily solved because the US is the biggest economy on the planet, the only country with global military reach, the lucky possessor of the world's reserve currency, and a nation with a proud record of re-inventing itself once in every generation or so.
All this is true and more. US universities are superb, attracting the best brains from around the world. It is a country that pushes the frontiers of technology. So, it may be that the US is about to emerge stronger than ever from the long nightmare of the sub-prime mortgage crisis. The strong financial position of American companies could unleash a wave of new investment over the next couple of years.
Let me put an alternative hypothesis. America in 2011 is Rome in 200AD or Britain on the eve of the first world war: an empire at the zenith of its power but with cracks beginning to show.
The experience of both Rome and Britain suggests that it is hard to stop the rot once it has set in, so here are the a few of the warning signs of trouble ahead: military overstretch, a widening gulf between rich and poor, a hollowed-out economy, citizens using debt to live beyond their means, and once-effective policies no longer working. The high levels of violent crime, epidemic of obesity, addiction to pornography and excessive use of energy may be telling us something: the US is in an advanced state of cultural decadence.
Empires decline for many different reasons but certain factors recur. There is an initial reluctance to admit that there is much to fret about, and there is the arrival of a challenger (or several challengers) to the settled international order. In Spain's case, the rival was Britain. In Britain's case, it was America. In America's case, the threat comes from China.
Britain's decline was extremely rapid after 1914. By 1945, the UK was a bit player in the bipolar world dominated by the US and the Soviet Union, and sterling – the heart of the 19th-century gold standard – was rapidly losing its lustre as a reserve currency. There had been concerns, voiced as far back as the 1851 Great Exhibition, that the hungrier, more efficient producers in Germany and the US threatened Britain's industrial hegemony. But no serious policy action was taken. In the second half of the 19th century there was a subtle shift in the economy, from the north of England to the south, from manufacturing to finance, from making things to living off investment income. By 1914, the writing was on the wall.
In two important respects, the US today differs from Britain a century ago. It is much bigger, which means that it benefits from continent-wide economies of scale, and it has a presence in the industries that will be strategically important in the first half of the 21st century. Britain in 1914 was over-reliant on coal and shipbuilding, industries that struggled between the world wars, and had failed to grasp early enough the importance of emerging new technologies.
Even so, there are parallels. There has been a long-term shift of emphasis in the US economy away from manufacturing and towards finance. There is a growing challenge from producers in other parts of the world.
Frenzy
Now consider the stark contrast between this economic recovery and the pattern of previous cycles. Traditionally, a US economic recovery sees unemployment coming down smartly as lower interest rates encourage consumers to spend and the construction industry to build more homes. This time, it has been different. There was a building frenzy during the bubble years, which left an overhang of supply even before plunging prices and rising unemployment led to a blitz of foreclosures.
America has more homes than it knows what to do with, and that state of affairs is not going to change for years.
Over the past couple of months, there has been a steady drip-feed of poor economic news that has dented hopes of a sustained recovery. Optimism has now been replaced by concern that the United States could be heading for the dreaded double-dip recession.
In the real estate market, which is the symptom of America's deep-seated economic malaise, the double dip has already arrived. Tax breaks to homeowners provided only a temporary respite for a falling market and millions of Americans are living in homes worth less than they paid for them. The latest figures show that more than 28% of homes with a mortgage are in negative equity. Unsurprisingly, that has made Americans far more cautious about spending money. Rising commodity prices exacerbate the problem, since they push up inflation and reduce the spending power of wages and salaries.
Macro-economic policy has proved less effective than normal. That's not for want of trying, though. The US has had zero short-term interest rates for well over two years. It has had two big doses of quantitative easing, the second of which is now ending. Its budget deficit is so big it has led to warnings from the credit-rating agencies, in spite of the dollar's reserve currency status. And Washington has adopted a policy of benign neglect towards the currency, despite the strong-dollar rhetoric, in the hope that cheaper exports will make up for the squeeze on consumer spending.
Policy, as ever, is geared towards growth because the great existential fear of the Fed, the Treasury and whoever occupies the White House is a return to the 1930s. Back then, the economic malaise could be largely attributed to deflationary economic policies that deepened the recession caused by the popping of the 1920s stock market bubble. The feeble response to today's growth medicine suggests that the US is structurally far weaker than it was in the 1930s.
Tackling these weaknesses will require breaking finance's stranglehold over the economy and measures to boost ordinary families' spending power and so cut their reliance on debt. It will require an amnesty for the housing market. Above all, America must rediscover the qualities that originally made it great. That will not be easy.
America is too tethered to take off
by Clive Crook - Financial Times
Concern is growing that the US is falling back into recession. Consumers are scared. The housing market is crippled, with prices still falling. Last week saw more disappointing figures on jobs and manufacturing. Friday’s closely watched payroll numbers were worse than expected. Analysts had predicted 175,000 new private sector jobs, which would have been low; there were 83,000. The unemployment rate rose to 9.1 per cent.
Within weeks, federal borrowing will collide with the statutory debt ceiling, raising the possibility of default; talks to prevent this are getting nowhere. The Federal Reserve’s second programme of quantitative easing, or QE2, is at an end. Higher commodity prices have caused a blip in inflation. All these factors should have lowered the price of US government debt, pushing long-term interest rates higher. But such is the concern about the flagging recovery that 10-year rates fell to less than 3 per cent last week, lower than they have been all year.
Even with a government that worked, remedial action would be hard to devise. Fiscal and monetary policy are both stretched, the options for more action limited and risky. But the very notion of optimal policy just now is Utopian because the US does not have a government that works. If it did, the clock would not be ticking down to a congressionally mandated default even as the economy stalls.
Though asking the question is no more than an academic exercise, what ought US fiscal policy to do? It should combine renewed short-term stimulus (in forms that subsidise jobs) with measures to reduce borrowing (revenue increases and entitlement reforms) in the longer term. How could something so obvious be controversial? In a way, in fact, there is no controversy: Democrats and Republicans are agreed in rejecting this out of hand.
To the exclusion of every other consideration, Republicans want to cut spending as deeply and quickly as possible, adding to the risk of a second recession. For them, further short-term stimulus is out of the question.
Democrats, on the other hand, recoil at the idea of long-term fiscal control. This is camouflage, they think, for dismantling Medicare (health insurance for the elderly) and Social Security (pensions). Once you start worrying about long-term deficits, they say, you have conceded half the argument to the other side. In Washington, you concede nothing.
Democrats are right that zeal to cut spending immediately is dangerous, but they are wrong – wrong on the economics and wrong on the politics – that long-term borrowing can be left to take care of itself. On the present fiscal trajectory, even the US will exhaust its capacity to borrow. As for the politics, the Democrats’ complacency over public debt has moved opinion behind the Grand Old Party’s drive to cut spending immediately. Partly thanks to the Democrats, a position that deserves little support actually commands plenty.
By holding their respective views so implacably, the two sides have ruled out using long-term fiscal consolidation to make room for new stimulus. And the parties’ respective positions on taxes only compound the problem. Republicans refuse to consider tax increases of any kind – even as part of a reform that would lower marginal tax rates. Democrats have also promised not to raise taxes for 98 per cent of households. Higher taxes on households making more than $250,000 a year is almost their only recommendation for deficit control, and that is plainly insufficient to deal with the long-term problem. Neither side has any interest in the profile of public borrowing over time – which is the fiscal variable that matters most.
It is probably too late to revisit these arguments. Positions are too deeply entrenched. Success in the debt ceiling talks has come to mean avoiding, for the time being, the calamity of a self-inflicted default. Once you filter out the noise, getting fiscal policy right in a more intelligent sense is not even being discussed.
That leaves, first, housing policy. Housing has been at the centre of the recession and it continues to blight the recovery. The market, unable to deal promptly with the surge in foreclosures, has failed to find its floor and stabilise. Even now, the administration should revisit this issue and look for ways to reduce and/or expedite foreclosures, either by taking them out of loan servicers’ hands or by giving distressed borrowers new options for reducing principal.
And then there is monetary policy. The Fed is divided on how far the risk of higher inflation argues for caution in maintaining, let alone increasing, the monetary stimulus provided by very low short-term interest rates and quantitative easing. Markets had come to assume there would be no QE3 when the present phase of easing ends: the only question was how quickly QE2 would be unwound.
The stalling recovery, and the evident incapacity of Congress and the administration to respond, should silence talk of a rapid exit from QE2 and put QE3 back on the table. The case for additional easing is strong. A responsible central bank is always mindful of the risk of inflation – but with wages showing no sign of responding to the blip in prices, this danger is hardly imminent. True, exiting from an even larger programme of easing will pose problems, but again this should be weighed against the much greater costs of a failing recovery.
The economy is faltering and the government – if not actually making things worse – is flailing uselessly. The Fed is all there is.
Bank Shares Take a Beating, and It May Not Be Over Yet
by Nelson D. Schwartz - New York Times
Michael Scanlon is tempted by bank stocks, truly he is. They are cheap — selling at near their lows for the year, and trading at well below the valuation of other large companies. But Mr. Scanlon, who helps oversee $7.5 billion for the John Hancock family of mutual funds in Boston and specializes in financial companies, is not about to give in and buy more shares. "It’s just not going to be a smooth ride," he said. "You wake up every day and there’s a new headline and a new concern."
Bank stocks took another tumble late last week after Moody’s, the credit rating firm, warned it might downgrade the debt of giants like Bank of America, Citigroup and Wells Fargo as the government eases back on support for the sector. Even as the market absorbed that news, reports that Goldman Sachs had been subpoenaed in an investigation by the Manhattan district attorney further unnerved investors, and sent that giant investment’s bank’s shares sinking.
Pessimism about the sector was reinforced by weaker-than-expected economic data, including a bleak reading on unemployment on Friday. What’s more, well-known hedge fund investors like John A. Paulson and David Tepper have been quietly selling the big positions in the sector they had earlier amassed, a sign the smart money has already begun to bail.
Mr. Tepper, in particular, had made huge profits by scooping up beaten-down bank stocks when they bottomed out in late 2008 and early 2009 in the midst of the financial crisis and riding their subsequent recovery. But in the first quarter of 2011, he sold off about a third of his positions in Citigroup and Bank of America. For Mr. Tepper, the timing was impeccable. Since the beginning of April, the KBW Bank Index has dropped 8 percent, compared with a much more modest 2 percent decline in the benchmark Standard & Poor’s 500-stock index. Last week, bank stocks sank to their lowest point since early December.
For individual investors, who have long favored bank stocks as a source of dividends and at least the promise of stability, their recent performance has been a big disappointment. And few experts expect a turnaround anytime soon. "I haven’t seen investor sentiment this bad in a long time," said Jason Goldberg, a longtime bank stock analyst at Barclays. "Not owning the group has been the right call, and people are skeptical about getting back in."
By many measures, the sector is pretty cheap. Diversified banks are trading at about 9.4 times earnings, compared with a multiple of 12.4 for the broader S.& P. 500, according to FactSet Research. But then, they may deserve to be selling at a discount. Besides the worries about a possible debt downgrade and the investigations into the role they played in the financial crisis, major banks are facing headwinds on many fronts.
For starters, federal regulations passed last year are set to cut deeply into revenue on everything from debit card transactions to trading on Wall Street. The restriction on debit card fees, known as the Durbin Amendment after the senator who proposed it, Dick Durbin of Illinois, could alone cost the top 25 banks roughly $8 billion in lost revenue, Mr. Goldberg said.
The new regulations are set to go into effect on July 21, although Senator Jon Tester, Democrat of Montana, is pushing a proposal on Capitol Hill that could come up for a vote as early as next week that would delay their start by 15 months. Even if Mr. Tester wins a reprieve for the banks, other rules in the broader Dodd-Frank bill, which overhauled financial regulations, could cost the industry another $8 billion, according to Mr. Goldberg.
In addition, new international rules now being developed to require major institutions to hold more capital as a buffer against future financial crises will also erode profitability. That is because money set aside as ballast is cash that will not be available to lend out or pay dividends or buy back stock.
More than any of the changes hurtling toward them is a more fundamental problem that banks face — revenue is stuck in neutral. And a huge chunk of profits is not coming from the actual business of lending money, but instead represents gains from the release of reserves set aside in the past for possible loan losses. As these costs have eased, that money for a rainy day has fallen to the bottom line.
In the first quarter of 2011, the top 20 banks earned $27.5 billion in pretax income. Nearly $11 billion, or 40 percent of that, came from the release of reserves, according to Mr. Goldberg. The proportion was even higher in the fourth quarter of 2010, when it hit 54 percent. While that money has helped camouflage anemic revenue and lackluster loan growth, it is hardly a long-term strategy for sustainable profit increases.
Then there are the legal headaches. The biggest banks face another threat from an investigation into mortgage servicing abuses by all 50 state attorneys general, who are pressing for a settlement of $20 billion or more. The banks themselves are holding out for a much more modest payment of $5 billion, and though the momentum has shifted in favor of the banks lately, the uncertainty about how big the inevitable hit will be has further undermined shares.
Even if the banks are able to avoid a giant settlement, a potentially more expensive headache is the effort by private investors to force them to buy back soured mortgage securities. The industry has already set aside billions for these claims, known as "put-backs," but tens of billions in potential losses still loom.
As badly as the broader sector has performed, some banks have held up better than others. Bank of America has been among the worst performers, falling 15 percent since the beginning of April to close at $11.28 Friday, hurt by a lackluster first quarter and persistent worries that its huge portfolio of troubled mortgages will sap earnings for years to come. Similarly, Wells Fargo has declined 15 percent to $26.86, another victim of mortgage-related worries, as well as its dependence on the United States economy for the vast bulk of its business.
Citigroup, which has more exposure to faster-growing international markets, has fallen 10 percent to $39.85 over the same period, although results in its investment-banking business were weak in the first quarter. It also resorted to a 1-for-10 reverse stock split to lift its share price out of the single digits, a move usually reserved for penny stocks and other shaky investments.
JPMorgan, at $41.57 a share, is also off 10 percent, although analysts say its underlying earnings power is much stronger than that of Bank of America or Citigroup, and it has been using extra capital to buy back stock and raise its dividend. In fact, the Federal Reserve vetoed Bank of America’s plan to increase its dividend in March, even as it permitted rivals like JPMorgan, Wells Fargo and others to raise theirs.
Goldman Sachs, meanwhile, ended the week at $135.33, not far from its 52-week low of $129.50. "It’s hard to look past what’s going on right now," said Mr. Scanlon, the John Hancock analyst. "Who knows what I’m going to read tomorrow?"
Dollar to gain ground as global economy cools
by Andy Bruce - Reuters
The dollar looks likely to claw back some of its losses against the euro and yen over the next 12 months, boosted by fresh signs the global economic recovery is waning, a Reuters poll showed on Tuesday.
After plummeting more than seven cents against the dollar in the first half of May, the euro has surged more than 4 percent since May 23, boosted by expectations the European Central Bank will hike interest rates again in July. It looks unlikely that rally will last, especially if forthcoming economic data entrench the view that the world's global economic engines are cooling fast, which could see investors flocking back into the greenback, a traditional safe haven. "The U.S. dollar remains beholden to the economy and rates, but also politics into mid-2011. Despite the market's 'natural' negative view of USD, perceptions could quickly shift," said Tim Riddell from ANZ.
In May, the dollar hit a new record low since the post-Bretton Woods era began in 1973, according to the Federal Reserve's broad trade-weighted index. While it has been hurt partially by expectations interest rates will rise elsewhere in the world before the Federal Reserve follows suit, political deadlock over efforts to cut the U.S. debt pile has also depressed dollar sentiment.
Still, the poll showed the standard dollar index .DXY finishing the year around 76.9, strengthening from current levels near 73.6. While the euro has also been boosted over the last two weeks by expectations the European Central Bank will continue hiking interest rates as soon as July, the poll showed it giving up most of the modest gains it has made so far in 2011.
The survey of 61 analysts taken over the last week suggested the euro will depreciate slowly against the dollar -- from current levels around $1.47 to $1.45 in one month, $1.44 in three, $1.40 in six and $1.38 in 12 months. The findings were broadly similar to last month's poll, with the exception of the one-month forecast that is 3 cents weaker than in May. "We remain structurally bearish on the euro, although rate expectations should keep it supported in the short-term, until the USD recovers lost ground," said Chris Walker from UBS.
Last month's survey of foreign exchange strategists and economists predicted the euro would hit around $1.48, not too far off Tuesday's level of $1.4675.
Short-Term Downgrade
Overall most contributors have downgraded their euro forecasts for the short term (one to three months) but kept their forecasts for the long term horizon (one year). Only seven out of 59 analysts thought the euro would be stronger against the dollar 12 months from now. "The widening interest rate differentials story should return to be the main driver for EUR-USD, pushing it back toward 1.50 in the medium term, although big swings are still expected in the near term," said one of them, Roberto Mialich from UniCredit.
Economists polled by Reuters last week showed the European Central Bank holding fire on hiking interest rates again until July. As in last month's poll, analysts expected the yen to weaken toward 90 against the dollar over the next 12 months from current levels just above 80.
While the yen soared after March's earthquake and tsunami that triggered a repatriation of yen funds, it has also gained from uncertainty about the U.S. dollar. On Tuesday, Japanese Finance Minister Yoshihiko Noda said he was closely watching currency movements after the dollar slipped below the 80 yen mark. Rising U.S. yields and the threat of government intervention to curb a strong yen should push the yen back to around 90, said Chris Walker at UBS.
On Tuesday the dollar sank to a record low of 0.8328 Swiss francs after the head of international payments at the Chinese forex regulator said the greenback would continue to weaken against other major currencies. The survey suggested this would be temporary, with the poll showing the dollar at 0.88 francs in three months, 0.90 in six and 0.94 in a year's time.
Darkening economic prospects in Britain mean the pound is unlikely to re-test its 2011 highs against the dollar, the poll showed, with sterling set to hover around the $1.63 mark for the next 12 months. Overall, most analysts cut their cable forecasts across all the time horizons.
Meredith Whitney: State finances are worse than estimated
by Shawn Tully - Fortune
Meredith Whitney is issuing a fresh warning to mutual funds, banks, and politicians: The state of state finances is far worse than what you think, or at least than what you've been willing to tell the investors and taxpayers who will eventually carry the burden. In a new report released today to her clients, Whitney summons what appears to be the most comprehensive set of data ever assembled on state budgets and debt.
Her conclusion is that the future deficits that need to be closed, either by new taxes or draconian cuts in social services, are far bigger than the official numbers show, and that debt levels, when all liabilities are counted, vastly exceed the official estimates. Late last year on 60 Minutes, Whitney predicted hundreds of billions in defaults on municipal bonds in the next five years. That controversial call was widely condemned, especially on Wall Street, where the muni market is an enormous profit spinner.
Now, Whitney tells Fortune she never meant to make more than a general forecast. "I never intended on framing the scale of defaults as a precise estimate, but I continue to believe that degree of municipal defaults will be borne out over the cycle. I meant to point out that the state debt problem is a massive headwind for the U.S. economy, second in importance only to housing." Whether you agree with it or not -- and she's still getting little support from rating agencies or anywhere else -- the numbers she's assembled, and the risks they pose, are daunting.
Whitney's latest report is even more thorough than last year's analysis that started the uproar. It covers 25 of the largest states, adding ten new ones to the list, including Arizona, Nevada, Connecticut, and Wisconsin. The problem starts with spending. Since 2003, state governments have raised annual outlays from $1.5 trillion to almost $2.2 trillion, or $700 billion, yet tax receipts have risen only $400 billion, or $300 billion less, to $1.4 trillion. In fact, spending kept surging all during the recession, while income from sales, income and corporate taxes went totally flat in 2007.
Three big problems, no solution
But 46 states are obligated to balance their budgets each year. So how are they bringing receipts in line with spending when taxes fall 36% short of revenue? And remember, this gap is growing despite big tax increases that are becoming more and more difficult. The states are getting that extra money from three sources. First, the federal government enormously increased aid to the states under the stimulus or American Recovery and Reinvestment Act. Since 2009, the ARRA has delivered $480 billion in grants and contracts, padding over one-third of their combined deficits. But the last stimulus dollars expire this month.
Even with a historic increase in federal assistance, the states have relied on two additional measures to plug the remainder of the shortfall -- measures that will be harder and harder to repeat. The states tapped "rainy day" funds or surpluses reserved for emergencies. Their governments used $9 billion of that cash in 2010, with Connecticut totally exhausting its $1.4 billion in reserves, and Pennsylvania tapping its emergency savings for $755 million.
Second, the states have immensely increased their issuance of General Obligation bonds that fund what corporations strive to avoid -- paying operating expenses with long-term debt. Those securities are backed exclusively by state tax revenue. In 2000, the states issued $67 billion in GO securities; last year, they raised $148 billion from those bonds. While Whitney acknowledges that this class of securities is unlikely to see defaults, they still place a huge burden on the future. The reason: Fixed interest expenses are absorbing a bigger and bigger share of state budgets, leaving a shrinking portion for everything else. Today, debt service absorbs half of Nevada's budget, and 40% of Michigan's. In Arizona, California, Connecticut, Ohio and Illinois, the share now exceeds 20%.
The third and biggest problem, pension costs, both increases current cash expenses and artificially understates what the states should be spending today. Even by putting the minimum into their pension funds, they're still crowding out spending for everything else because the costs are rising so fast. Hence, it ensures that future tax increases and spending cuts will be far greater than advertised. The states are systematically underfunding their pensions. Today, they cover 77% of their future liabilities versus 103% in 2000. If they fully paid their annual pension costs, the states would need to increase spending by over $700 billion a year, or over 40% of their current outlays.
And those figures don't include future spending on health care costs, falling into a little-known category called OPEB or Other Post Employment Benefits. Most states simply pay these OPEB costs directly from revenues. No actual income-generating funds, accumulated for the future, back them in most states. New Jersey, New York, Connecticut and Illinois are all pay-as-you go states with totally unfunded OPEB liabilities. As those costs inevitably swell, they will apply even more pressure to state budgets.
Giant shadow of debt
Whitney also presents a startlingly bleak picture of state debt. States have two types of liabilities that are fully backed by tax revenues. One is on-balance sheet, and the other is excluded from the states' books. The first type is the General Obligation bonds that fund salaries and current expenses. Those are fully visible to investors. But the bigger problem is the giant shadow cast by the pension and OPEB liabilities that are absent from balance sheets. In fact, states weren't even required to report the OPEB number at all until 2008, and the pension figure is consistently understated because states generally far overestimate future returns on their retirement funds.
As Whitney shows, these off-balance sheet numbers are an incredible three times the size of all on-balance sheet debt, totaling $2 trillion. The load is rising quickly; the unfunded pension burden has jumped 50% in the past year.
Naturally, some states are far healthier than others. Indiana, says Whitney, is a "model citizen," while California and New Jersey already face such high tax rates that they have little room, or political will, to raise more revenue. The danger is a continuation of what's already happening, what Whitney calls "state arbitrage," in which the low-tax, business friendly venues such as Texas and North Carolina keep drawing companies and workers from the fiscally-challenged states. That could cause a vicious cycle where the weak get even weaker as their tax bases erode, and the strong reap the rewards from fiscal prudence.
The damage from state arbitrage could increase the scale of defaults in the second type of municipal securities: Revenue Bonds. Once again, Whitney sees little threat to General Obligation bonds because states simply won't default. What the fiscal calamity calls in doubt is Revenue Bonds that back specific projects such as subsidized housing, toll roads, land acquisitions, and nursing homes. Those bonds are supported by the cash flows from the projects themselves, and they aren't guaranteed by the state governments. So if the cash flows fall short of the interest payments, they need to be restructured -- at a big cost to the investors who own them. And the revenue bonds now dwarf general bonds in total volume, totaling $2.7 trillion, versus $1.4 trillion for the GOs.
Whitney points out that Florida has issued 90% of its municipal offerings in revenue bonds, many tied to real estate. Those real estate-related securities are the most vulnerable. Only time will tell if the "hundreds of billions" figure Whitney ventured on 60 Minutes will materialize. But her report shows that of all the problems investor and politicians are worried about, the mess in state finances is one of the most dangerous, and certainly the most overlooked.
Geithner warns on light-touch oversight
by Tom Braithwaite and Nikki Tait - Financial Times
Tim Geithner, US Treasury secretary, warned overseas markets against undercutting American financial regulations financial regulations, urging them to avoid following the "tragic" example that the UK set in light-touch oversight. In outspoken remarks that outlined the US position on a range of international regulatory issues, Mr Geithner called for a global deal on derivatives and endorsed forcing the largest banks to hold more equity capital. But such a surcharge need not be "excessive".
Mr Geithner said it was essential for Asia to fall into line in imposing tough restrictions on derivatives trading. Officials said there was concern that Singapore and Hong Kong could try to lure business with softer rules.
Alluding to the painful fallout from the financial crisis, Mr Geithner held up the UK’s past policies as a negative example. "The United Kingdom’s experiment in a strategy of light-touch regulation to attract business to London away from New York and Frankfurt ended tragically," he said. "That should be a cautionary note for other countries deciding whether to try to take advantage of the rise in standards in the United States." "As we act to contain risk in the US, we want to minimise the chances that it simply moves to other markets around the world," Mr Geithner says. He says the US is going to "bring the world with us".
Mr Geithner called for global agreement on how much collateral, or "margin", to impose on uncleared derivative transactions. The Group of 20 nations has agreed that standardised over-the-counter derivatives should use clearing houses by the end of 2012 in an effort to improve transparency and safety of financial instruments blamed for exacerbating the financial crisis. But there remain differences on what to do with uncleared transactions, with the US proposing to force counterparties to stump up more cash or safe securities against trade – a move fiercely opposed by banks and some large non-financial derivatives users.
Mr Geithner’s call for a common standard for margin – in the same way, he said, as the Basel committee agrees international bank capital rules – comes after warnings from Wall Street banks that business is set to migrate to Asia. "Risk in derivatives will become concentrated in those jurisdictions with the least oversight. This is a recipe for another crisis," Mr Geithner said. On bank capital rules, he said "a simple common equity surcharge should be applied internationally".
Mr Geithner’s warning about a race to the bottom came as the International Monetary Fund backed the UK in a European fight over bank capital rules. The IMF said European Union members should be allowed to "gold-plate" capital requirements with higher minimums when national circumstances warranted. There remain other transatlantic differences on financial reform, highlighted by letter sent last month to Mr Geithner from Michel Barnier, the European commissioner responsible for financial markets, where he argued that Brussels was ahead of the US in several areas – including capital requirements for banks and limits on bonuses for financial executives. "The level playing field must be a reality, not an empty slogan," he wrote.
Yet Europe, too, is also most concerned by developments in other regions. Concerns that the imposition of tougher regulatory standards within the 27-country European Union bloc will simply push business into markets where standards are less onerous have been raised repeatedly in Europe. The argument was made forcefully during the battle over new EU hedge fund rules, with claims that funds would move to Switzerland or Singapore – and resurfaced in the effort to cap bank bonuses.
The response of EU policymakers has been to publicly downplay the likely loss of business – but to also urge global compliance tougher regulatory guidelines. Mr Barnier has warned financial groups not to make a "bad calculation" for short-term profits.
Illinois highway construction halt could mean 52,000 layoffs
by Paul Merrion and Greg Hinz - Crain's
Gov. Pat Quinn is announcing that Illinois faces an imminent shutdown of state highway projects, a spokesman for the governor confirmed Monday morning.
About 31,000 construction workers will be laid off starting June 17, according to a construction industry source. Another 21,000 layoffs are anticipated from the shutdown of hundreds of other capital construction projects, ranging from high-speed rail to drinking water and wastewater projects, according to a memo prepared by the governor's office. "These job losses are nearly equivalent to the number of new jobs created across the entire country in May," the memo noted.
Funding expires June 30 because the Illinois House and Senate did not agree on renewing the state's capital construction funding authority before the legislature adjourned last week. At a news conference in Chicago Monday morning, Gov. Quinn said he would call the legislature back into a special session to deal with construction spending. The Illinois Road and Transportation Builders Assn. called Gov. Quinn's announcement today to halt road construction projects a "grievous mistake," that will have dangerous repercussions for countless families and businesses throughout the state.
"These road construction projects are exactly what will provide some stability to our economy," said Michael J. Sturino, President and CEO of the IRTBA. "To ask our workers, our families, our citizens to pay for the inability of our elected officials to come to a budget agreement is, frankly, appalling."
According to IRTBA, if the Illinois Department of Transportation is forced to shut its doors on all road construction projects in the state, due to the budget impasse, it will put about 31,000 people out of work and onto the unemployment rolls. The shutdown itself will cost approximately $30 million, and the daily cost to maintain the shutdown would be around $3 million. According to Mr. Sturino, the reverberations from a move like this would also negatively impact all Illinois motorists, too.
"State legislators need to understand that their bungling will be devastating to our businesses, thousands of workers and their families," he said. "I don't think it's unreasonable to ask the legislature to halt their own pay if they can't do their jobs and produce a budget."
Millions of British households face record high energy bills
by Myra Butterworth - Telegraph
Millions of households were warned last night that they face “unacceptable” rises in their energy bills after one of the biggest power firms announced average increases of nearly £200 a year.
Scottish Power became the first of the six major suppliers to disclose a new round of price rises. It told five million customers that gas and electricity bills would go up by 19 per cent and 10 per cent respectively. The increase, which will take effect on Aug 1, will push households’ average annual bills to almost £1,400; the highest level ever. Other energy suppliers are expected to follow suit and increase their prices within weeks.
The announcement is a fresh blow to households whose budgets have been squeezed after repeated increases in inflation. The Bank of England has previously warned that rising energy bills are likely to be one of the main factors behind the continued rise in the cost of living. The Spanish-owned company, which made an operating profit of approximately £800 million last year, blamed the increases on a “prolonged” rise in wholesale gas and electricity prices, which have jumped 30 per cent since November.
Experts said that the rise had been driven by increased demand for gas from Japan after the nuclear crisis in March. However, they pointed out that wholesale prices were still lower than three years ago during the financial crisis.
Scottish Power’s announcement was widely condemned by ministers, MPs, the energy watchdog and consumer groups. Audrey Gallacher, of Consumer Focus, said: “This huge increase will be a body blow for consumers and we fear other firms will follow Scottish Power’s lead. “Companies have been softening customers up for price rises for months but customers will be shocked at the scale of this rise. “We know suppliers like the comfort of the pack and that price rises come in waves. Every household in the country will now be bracing themselves for impact. “When this affects the cost of keeping warm and well, it is not an acceptable state of affairs.”
The consumer champion estimated that half a million people would struggle to pay their energy bills if the other five energy firms followed suit. Richard Lloyd, the executive director of Which?, said: “These price hikes from Scottish Power will be a shock for its millions of customers already struggling with the rising cost of living.” Last night MPs on the House of Commons business, innovation and skills committee threatened to order a new inquiry into power bills if other companies followed suit. Adrian Bailey, the chairman, said: “This increase is quite astonishing. It will have an enormous impact on the state of the economy.
“This is a double whammy. If Scottish Power is followed by others, I think we would want to look at the pattern of increase over the last year and any links to the international market. If there is a disconnect, we had already bought before listing or selling an enlarged “Friends Life” in 2013. The move meant Resolution failed to meet its original aim of building an insurance group valued at £10bn.
Speaking yesterday, John Tiner, chief executive, said the group is now valued at closer to £8bn than the original £10bn target. However, he added: “Our strategy means that we now have a businesses with focus and a competitive advantage over our rivals.” Yesterday’s buy-back is unlikely to net a significant payout for the eight senior partners – which include Messrs Cowdery, Biggs and Tiner – who invested £20m in the company when it was listed in December 2008.
The value of their holding is now thought to be just over £28m, however they have received income through management fees paid to Resolution Group, a privately-owned consultancy, which sits separately from the listed Resolution Ltd. These fees are worth about 0.5pc of the non-cash value of the company, subject to a minimum payment of £10m, although no annual figures have so far been disclosed.
The eight partners will also be handed a so-called “value share” that is separate from their holding when the company is eventually listed or sold. According to a recent disclosure, this would be worth about £29m if they sold the company based on its current share price. Sources close to Resolution told the Daily Telegraph that although further deals were currently off limits for the UK business, it could eventually be merged with the assets of a foreign insurer looking to exit the UK.
Resolution Group has already strengthened its executive team ahead of the launch of its next consolidation project in the insurance industry. Steve Taylor-Gooby from advisory group Towers Watson has been recruited to help explore opportunities in “life, asset management and other financial sectors” across Europe and the US. Future ventures will focus on merging closed life funds – insurance funds that no longer write new business. Mr Cowdery’s first business consolidated these funds in the UK before it was sold to rival Pearl for £5bn in 2007.
First-time Buyers Fade From US Housing Market
by Matthew Strozier - Wall Street Journal
There’s more evidence today that cash buyers and investors are dominating the housing market.
A report out today from Capital Economics says that cash buyers and investors together have driven 70% of the increase in existing home sales seen since last July, while first-time buyers have been responsible for just 6%. Favorable valuations "mean there is plenty of scope for housing to perform well in the medium-term," the report, "U.S. Housing Market Monthly," says. "But over the next year, weak demand, high supply and many more forced sales of foreclosed properties will push prices lower."
Indeed, the influence of cash buyers and investors is one signal that prices are falling. Cash buyers often buy at a discount, something sellers are willing to offer because they know the deal won’t be scuttled by picky lenders or appraisers. The fact that regular transactions have slowed may also indicate that more buyers are having trouble getting qualified for a loan.
"The point we’ve been stressing is that first-time buyers are really a small percentage of what is going on here," said Paul Ashworth, chief U.S. economist for Capital Economics, a research firm with North American headquarters in Toronto. The report looks at buyers between July of last year and January, showing, in part, the drop-off after the first-time buyer’s tax credit expired.
Last month, the Journal reported on the boost that cash buyers are providing for troubled markets around the country. In the Miami-Fort Lauderdale area last year, cash buyers represented more than half of all transactions, according to an analysis from real estate portal Zillow.com. In the fourth quarter of 2006, they represented just 13% of deals.
Average UK house price drops £7,000 amid fragile economy
by by Myra Butterworth - Telegraph
The average price of a home in Britain has dropped almost £7,000 during the past year amid the economic uncertainty. Halifax, Britain’s biggest mortgage lender, said average house prices dropped to £160,500 in May, down from £167,200 a year ago. However, there was a marginal improvement of 0.1 per cent on last month. It blamed low pay growth, higher taxes and high inflation, which have all put pressure on household incomes.
Martin Ellis, Halifax’s housing economist, said: “Confidence is also weak as a result of uncertainty about the economic and employment outlook. These factors are probably constraining housing demand and applying some downward pressure on prices.” But he added: “Overall, we expect a moderate improvement in the economy during the remainder of 2011, which combined with continuing low interest rates, is likely to support housing demand.”
But some analysts predict further falls in house prices amid the fragile outlook for the economy. Paul Diggle, a property economist at Capital Economics, said: “For now, low interest rates and lender forbearance are helping to limit the pace of house price falls. But some further falls look more likely than not for the rest of this year and next. “The full force of the fiscal consolidation has yet to hit, with public sector job losses likely to build from here. And the squeeze on households’ real incomes from rising inflation will get worse before it gets better.”
It comes as separate research suggests borrowers are unaware about the true cost of remortgaging. It means the 400,000 people expecting to remortgage this year face having their household budgets squeezed even further. A total of 45 per cent of Britons said they did not know how much a mortgage arrangement fee is, while 44 per cent estimated just £532. But the average application fee is £957, and can be more than £1,500.
Earnings from three fifths of working week goes on debt
by Myra Butterworth - Telegraph
Struggling Britons spend three fifths of their working week earning the money needed to pay off their debts, new research suggests.
The average person in debt has to work until 4pm on Wednesday each week to repay just their unsecured debts. Only then do they begin to earn the cash needed to cover the cost of their basic living costs. The new figures from the debt charity Consumer Credit Counselling Service highlights the pressure facing households to meet rising living costs while at the same time paying off their debts.
The average person contacting the charity last year owed £22,500 on credit cards, personal loans, overdrafts and other types of unsecured debts. Their repayments each month were £675, the equivalent of 58 per cent of their typical earnings of £1,170 after tax.
It comes after official figures showed last month an increase in the cost of living, with the Consumer Prices Index jumping to 4.5 per cent, up from 4 per cent the previous month. It is now at the highest level since October 2008. Delroy Corinaldi, external affairs director at CCCS, says: “With rising prices continuing to push up the cost of living, household budgets are under increasing pressure – and these figures show how difficult it can be to escape from debt once it builds up.”
You can't expect anyone investing $1 billion to be fully rational
by Heather Stewart - Observer
With the Greek debt crisis hurtling towards yet another nerve-shredding denoument, many City wheeler-dealers could do with a session on the analysts' couch – but a new book suggests that psychoanalysis can offer insight into what's happening in the minds of even the most "rational" investors.
In Minding the Markets Prof David Tuckett, from University College London, argues that contemporary economics, with its neat mathematical models and fully rational robot-like decision-makers, fatally under-estimates the importance of emotions.
There is plenty of economic research – by George Akerlof and Robert Shiller, for example – on the psychology of market bubbles. But Tuckett's insight, based on in-depth interviews with more than 50 investors, each managing more than $1bn, is that stocks, shares and derivatives are a special kind of asset, and decisions about whether to buy and sell them are particularly subject to stories and emotions.
For one thing, the value of financial assets is prone to extreme uncertainty: thousands of unpredictable events can affect the profitability of a company, for example, from the collapse of a key supplier to a sudden change in the cost of commodities to a natural disaster many thousands of miles away.
At the same time, the owner of a share – or a credit default swap – has nothing they can eat, drink, live in, or even hold in their hands: they have to weave a story, a narrative, even to understand why it's worth buying the asset in the first place, let alone hanging onto it when its value has soared to once-unthinkable heights.
Given these special characteristics, Tuckett argues, financial assets tend to become what he calls "phantastic objects", which their owners invest with extraordinary powers and think about in ways that are unavoidably emotional.
Subconsciously, investors suppress nagging, negative thoughts (How can this firm possibly be worth that much? What if US house prices don't go up for ever?) and plough on in what psychoanalysts call a "divided state".
The high-pressure, short-termist culture of financial markets exacerbates this tendency to weave fantastic stories – not just to make judgments about the value of stocks but to love or hate them. The traders piling into tulips, credit default swaps or gold ingots are carried along by a collective frenzy of hopes, fears and anxieties – what Tuckett calls "groupfeel".
As he points out, even regulators, and watchdogs such as the International Monetary Fund, were caught up in the maelstrom, soothed by the idea that financial innovation had made the world a safer place – and reluctant to be the cause of the pain that would result from pricking the bubble.
His book wins a ringing endorsement from Bank of England governor Mervyn King, who may have felt in need of therapy himself at the heart of Britain's banking collapse, with Gordon Brown breathing down his neck and Sir Fred Goodwin insisting that RBS was just fine, thanks.
But the findings should give anyone who studies financial markets a jolt. Tuckett shows that contemporary economics, even spiced up with the insights of behavioural economics, just cannot predict how the financial world will behave.
That won't surprise anyone who watched the blind arrogance of the noughties boom collapse into the panic and mistrust of the credit crunch, at colossal cost to the world's taxpayers. But it should encourage politicians to be extremely cautious about extending the reach of the financial markets into more walks of life – "financialisation".
Turning food into a financial asset to be speculated upon, for example, is sometimes portrayed as the best way of channelling investment into agriculture and boosting global crop yields. But Tuckett's research – as well as studies by bodies such as the United Nations Conference on Trade and Development (Unctad) – suggest financialisation inevitably brings with it irrationality, volatility and sheer bloody-mindedness.
The sub-prime crisis should have taught us that the roofs over the heads of millions of poor Americans were too important to be traded on the world's bourses. That argument applies yet more forcefully to the food in the mouths of the world's poor.
UN report calls for regulation to curb speculators pushing up food prices
by Phillip Inman - Guardian
Government intervention may be needed to burst the huge bubble that has developed in the price of commodities such as food staples and oil, a UN report says . Prices have rocketed in response to dysfunctional commodities markets, according to the report, which also disputes the view of many senior economists and central bankers that commodity prices have jumped as a result of a surge in demand.
"The changing role of commodity markets, which are turning into financial markets, has enormous repercussions for the economy," said one of the report's authors – Heiner Flassbeck, a director at the UN conference on trade and development (Unctad). "The possibility of allowing governments' direct intervention in the physical and financial markets needs to be considered," the study concluded.
Investors are encouraged to behave like a herd, says the report, with few incentives to arbitrage or bet against the tide of rising prices. Without checks and balances in the system, investors create price bubbles that put many basic foodstuffs out of the reach of millions in the developing world. Oil may be as much as 20% over valued while maize, the staple food of many developing world economies, is subject to wild swings in price.
The report follows a similar investigation by Christian Aid, which urged world leaders to commission a review of commodity markets after it found that a huge influx of profit seeking investors distorted the market. The charity blamed pension funds and other long term investors for pushing up prices by seeking high returns from investment in commodities' markets. In April, the World Development Movement blamed Barclays Capital, the investment banking arm of the high street bank, for driving up prices.
BarCap is the UK's biggest player in food commodity trading, and one of the top three banking players along with Goldman Sachs and Morgan Stanley. BarCap has pioneered the creation of derivatives that allow pension funds and other investors traditionally barred from commodities exchanges to bet on food prices. Nearly $270bn is invested in derivatives that follow commodity prices, up from $90bn in 2005, according to Unctad.
A separate report by the UN special rapporteur on the right to food, Olivier De Schutter, argued that the appetite for investments in commodities was even higher. He found that commodity index funds rose from $13bn (£7.9bn) in 2003 to $317bn by 2008. While there are no definitive figures on how those index funds break down, one estimate suggested their holdings in agricultural commodity markets rose from about $3bn to more than $55bn over that period.
Using these new derivative products, pension funds, especially in the US, have invested large slices of their overall portfolio in commodities as it has become more difficult to generate above average returns from more traditional sources of income, such as stock and bond markets.
Unctad, which commissioned the report, said the efficient market hypothesis that many economists believe regulates trading in commodity markets has broken down. "If the efficient market hypothesis were to apply, commodity price developments would reflect nothing but information on fundamentals. However, this study shows that the hypothesis does not apply to the present commodity futures markets," the report says.
"Another major factor is the financialisation of commodity markets, which has played a significant role in price developments in recent years," the report says. Its importance increased steadily after 2004, as reflected in rising volumes in commodity derivatives markets – both at exchanges and over the counter (OTC). "This phenomenon is a serious concern, because the activities of financial participants tend to drive commodity prices away from the levels justified by market fundamentals, with negative effects on producers and consumers."
Traders interviewed by the report's authors said they were encouraged to join other traders buying commodities by a lack of transparency over what was happening in the market. Traders are unaware of other buyers and their trading positions, information that can prove crucial when deciding to buy or sell a commodity. They said the situation in the EU was worse than the US, where regulators produced weekly reports on rule changes and trends. Largely unregulated over-the-counter markets, which allow individual institutions to trade with each other away from the main markets, also needed greater transparency, it said.
Unctad said a transaction tax on commodity trading, which could raise billions for investment in developing countries, would slow the pace of financial markets, limiting the scope for misinformation.
Commodity prices reached a record in 2008 as traders anticipated a rapid recovery from the credit crunch of 2007, but the market crashed after the collapse of Lehman Brothers. In the last six months prices have soared again, though not yet to 2008 levels. Critics of commodity traders fear a slowdown in the global economy could trigger a sell-off in commodity derivatives, triggering exaggerated falls in prices.
Fukushima nuclear plant may have suffered 'melt-through', Japan admits
by Justin McCurry - Guardian
Fuel rods have probably breached containment vessels – a more serious scenario than core meltdown – according to report
Molten nuclear fuel in three reactors at the Fukushima Daiichi power plant is likely to have burned through pressure vessels, not just the cores, Japan has said in a report in which it also acknowledges it was unprepared for an accident of the severity of Fukushima.
It is the first time Japanese authorities have admitted the possibility that the fuel suffered "melt-through" – a more serious scenario than a core meltdown. The report, which is to be submitted to the International Atomic Energy Agency (IAEA), said fuel rods in reactors No 1, 2 and 3 had probably not only melted, but also breached their inner containment vessels and accumulated in the outer steel containment vessels.
The plant's operator, Tokyo Electric Power (Tepco), says it believes the molten fuel is being cooled by water that has built up in the bottom of the three reactor buildings. The report includes an apology to the international community for the nuclear crisis – the world's worst since Chernobyl in 1986 – and expresses "remorse that this accident has raised concerns around the world about the safety of nuclear power generation".
The prime minister, Naoto Kan, said: "Above all, it is most important to inform the international community with thorough transparency in order for us to regain its confidence in Japan." The report comes a day after Japan's nuclear safety agency said the amount of radiation that leaked from Fukushima Daiichi in the first week of the accident may have been more than double that initially estimated by Tepco.
The 750-page report, compiled by Japan's emergency nuclear task force, concedes that the country was wrongfooted by the severity of the accident, which occurred after the plant was struck by waves more than 14 metres high following the earthquake on 11 March. "We are taking very seriously the fact that consistent preparation for severe accidents was insufficient," the report said. "In light of the lessons learned from the accident, Japan has recognised that a fundamental revision of its nuclear safety preparedness and response is inevitable."
The nuclear task force's head, Goshi Hosono, said Tepco had failed to adequately protect plant workers early on in the crisis, and had provided inadequate information about radiation leaks. About 7,800 workers had been involved in the battle to stabilise the plant as of late May, the report said. While their average exposure dose was well within safe limits, "a certain number" may have been exposed to more than 250 millisieverts per year, the maximum allowable dose under revised government guidelines for Fukushima workers.
The report acknowledged that bureaucratic red tape, and the division of responsibilities across several government agencies, had hampered the response to the accident. It said the government would separate the country's nuclear safety watchdog from the trade and industry ministry, a recommendation made earlier this month by a team of experts from the IAEA.
The trade and industry minister, Banri Kaieda, said Japan would share all available data and co-operate with the IAEA. "Our country bears a serious responsibility to provide data to the international community with maximum transparency, and to actively contribute to nuclear safety," he said. The most urgent problem facing workers at Fukushima Daiichi is how to deal with vast quantities of highly radioactive water that has accumulated in reactor buildings and basements and in ditches.
The estimated 100,000 tonnes of contaminated liquid – runoff from water used to douse overheating reactors – is hampering efforts to repair the plant's cooling systems. Tepco has said it hopes to have a system in place by the middle of the month to remove radioactive substances from the water, enabling it to be reused to cool reactors.
163 comments:
@IM (from last thread)
"Even 'the workers owning the means of production' is a crappy term. It is widely interpreted as meaning not the workers in that particular business but the wider swath of society if not the whole country. That is so Old Hat. We don't need companies owned by towns or cities or states or countries. We need them owned by the people who actually work in them on a day to day basis, up close and personal."
I completely agree, and I think the latter is something that has a decent chance of occurring on local scales in certain regions after things have settled down a bit. I was just pointing out that it is not really a viable option at the scale of the global economic/financial system, as is clearly evident from the economic problems that arise when labor's share of the "swag" has increased during the 20th century. But when the inequitable system is breaking down anyway, I think it would be much more sustainable and equitable to implement "co-ops" in various communities. Our "justice" will be measured by how equally we share the losses.
For any who are interested in worker run businesses, I really enjoyed Naomi Klein and Avi Lewis' movie The Take.
In case you needed some more incentive to get out of debt quickly...
http://www.news10.net/news/article/141072/2/Dept-of-Education-breaks-down-Stockton-mans-door
The U.S. Department of Education issued the search and called in S.W.A.T for his wife's defaulted student loans.
Amazing...
Constitution? What Constitution?
It is interesting that some people are floating around the possibility of a "technical default" by the UST...
http://www.zerohedge.com/article/republicans-are-pushing-brief-default-china-warns-us-playing-fire
it seems on the surface like a very dangerous course of action for those in power, and they absolutely cannot afford to let rates significantly rise. However, if the "default" was purely symbolic and simply a function of not rolling over some very short-term debt, I could actually see them trying it to help contain long-term rates. It would have to be clear that institutional bondholders will not really be impaired in any way (immediate losses would be somehow subsidized in the future?), and also disguised as a credible commitment to reducing medium-term deficits via entitlement "austerity".
I don't know, still seems quite unlikely... but not altogether impossible. The "end of QE" tactics + natural debt deflation + imploding EU periphery + Japan is probably all that is needed to maintain the Treasury/USD markets, but I can't say I would be very surprised to see them try and push their luck a bit further. Then again, the talk of "default" right up until August really gets much of the same effect without much of the interest rate risk.
Wonderful,passionate essay, Ilargi. Thank-you.
The brave page who stood alone in the Senate with her hand-made sign, " Stop Harper " is an iconic image. One of those junk generation you have written about.
@Lautturi, those notes from the Finnish Parliament memo that you posted on the previous thread are a joke,right? This can't possibly be a serious,doable action plan? Can it?
Ash said...
In case you needed some more incentive to get out of debt quickly...
http://www.news10.net/news/article/141072/2/Dept-of-Education-breaks-down-Stockton-mans-door
The U.S. Department of Education issued the search and called in S.W.A.T for his wife's defaulted student loans.
Interestingly the page seems to be gone already. Googling the above sentence does turn enough up however.
I fear that if it's to the point where they are going to break your door down and handcuff you in your underwear on your front yard for 6 hours over student loans... there are other trivialities over which they would take the same actions.
@ Ash
Have I somehow gotten a grip on your mind? You have once again attributed another person's comment to me.
But, since you brought my name into it, I might as well try to add something. There are two employee owned supermarket chains where I have done a fair amount of shopping.
In the Northwest, until 4 years ago, I shopped regularly at Winco. The prices generally beat investor owned stores by a good margin and Winco offered good selection and some foods in bulk.
In the midwest we have HyVee stores. Rather than low prices, HyVee tries to offer more of a one-stop experience. They offer as many or more departments and product choices than most investor owned stores and generally a more pleasant shopping experience.
Of course, this is just one more anecdote.
IM, it appears that you are, in fact, somebody to me! At least somebody I can repeatedly mis-attribute comments to...
Which reminds me, isn't your name a bit of a contradiction? How can no body have an individual identity? And if a tree falls in the woods, and no one is walking in the woods to see it, does it actually fall? Does the tree or the woods even exist, for that matter, or are they no bodies?
Re: today's article
It was indeed great stuff, and I have always enjoyed Hudson's analysis as well... but I have a tendency to automatically ignore many of Maudlin's e-letters. He's not even that horrible, but he always talks about how he's "off to Rome for a night" to do some wine and cheese tasting, or something to that effect.
Hopefully, Canada will one day take a lesson from Norway on how to deal with traitorous heads of state who sell out their country to Big Brothers to the south.
Ash said ...
Which reminds me, isn't your name a bit of a contradiction? How can no body have an individual identity? And if a tree falls in the woods, and no one is walking in the woods to see it, does it actually fall? Does the tree or the woods even exist, for that matter, or are they no bodies?
I choose to divide the naked apes into two groups, the somebodies and the nobodies. They are easily distinguished. As you pointed out about Mauldin at least putting on airs of being a somebody. Nobodies are for the most part unnoticed or ignored and usually reticent to highlight the simplicity of their lives and their general powerlessness.
In most versions of Unix and unix-like operating systems, nobody is the default user account to which unowned files may be assigned and usually is login disabled. It's a decent metaphor to apply to human nobodies. We're allowed to own and be what the somebodies allow.
I have made up my mind that the universe will do what the universe will do whether or not there are any apes to see or hear it. Whether a singular nobody could actually exist is at least questionable. It would seem a contradiction. I chose the name in part because I'm not particularly good at choosing names. It seemed cute and I do get some mileage out out of it, as when someone says nobody did such and such, and I can respond with "I did not." Hehehe.
I guess all I can say to draw on a thin coat of legitimacy is that like some of my heroes, such as Joe Bageant, Fred Reed and Black Elk, I try to represent, as best I can, the viewpoint of at least some of the nobodies who either aren't present or choose not to comment. I do regret that I don't have a better talent for it.
Re the swat team. This student loan couple got off easy. Check out the poor ex-marine in Arizona, trying to defend his wife in the middle of the night. Took about 70 rounds - water tight, closed coffin situation. Seems to be a wrong address. Glad I am living in a safe country like Mexico right now.
I think we are headed for Iraq on the Mississippi. Swat versus the most heavily armed civilian population in history. Bring the beer and popcorn. With the NFL strike, maybe we can put it in the stadiums this fall. But with automatic weapons you might take out a lot of spectators as well. Chalk it off to audience participation. We could learn something from that other failed empire.
Nice cover story. However here's the straight dope:
Odysseus offers Polyphemus the strong and undiluted wine given to him by Maron. The wine makes Polyphemus drunk and unwary. When Polyphemus asks for Odysseus' name, promising him a guest-gift if he answers, Odysseus tells him "οὔτις," literally "nobody." Being drunk, Polyphemus thinks of it as a real name and says that he will eat "nobody" last and that this shall be his guest-gift—a vicious insult both to the tradition of hospitality and to Odysseus. With that, Polyphemus crashes to the floor and passes out. Odysseus, with the help of his men, lifts the flaming stake, charges forward and drives it into Polyphemus' eye, blinding him. Polyphemus yells for help from his fellow cyclopes that "nobody" has hurt him. The other cyclopes think Polyphemus is making a fool out of them or that it must be a matter with the gods, and they grumble and go away.
The problem is that Greece is "also" too big to fail. God knows what all those Greek CDS entail and who else would fail.
On the other hand people in Europe do not easily go to the streets anymore, unions have been long reduced in power and new powers take time to organise themselves. Those who should go to the steets are not the Greeks or the Spaniards, but the Germans and the other creditor countries, this is where the stealing of public money is going on.
I fully agree that it is a political problem and not only a financial problem, but the new politicians required here take time emerge. Society is so much addicted to house prices and to the house ATM, that it takes time to change all this. Especially here in London where I live.
Change will happen eventually.
el g,
Hmmm, so that's why my comments are ignored. ;)
Actually, umaperegrina beat you to that analysis a long time ago. As I told her, there's no connection. I had forgotten most of Odysseus' tale a long time ago. I remembered the cyclops, but not the "nobody" trick.
And now how about we talk less about me and more about Generation Junk or something relevant.
IM said..."In most versions of Unix and unix-like operating systems, nobody is the default user account to which unowned files may be assigned and usually is login disabled. It's a decent metaphor to apply to human nobodies. We're allowed to own and be what the somebodies allow."
Ah ok, I think I get it. I would then consider you to belong to the shadow of society. The relatively abstract side of an object that most choose not to look at until they are forced to (perhaps when they fall flat on their face). The object itself reflects the sunlight in various beautiful, yet often misleading ways, and the shadow moves helplessly with the object but is content to exist without attention. I've always trusted the shadow of an object more than the object itself, for no particular reason. Perhaps some of us embrace our own shadows more than others.
That's also why I've always referred to you as "IM"... as in, "I think, therefore I am". I don't think you have to be a somebody to think. That, and because it's shorter to write. In the presence of others, I guess we all must be "somebody" to one degree or another.
@ scandia
No joke about "zombie resurrection plan"... er, European Stabilising Mechanism - ahum, private bank proposal - unfortunately (ó_ò)
I know one other Finn who has published this info in a Finnish site - both of us are getting quite a lot of attention in blogosphere.
However, in the real life (oxymoron if there ever was one) - Finnish politicians are playing funny talks left and right (flipping jackets as the saying goes here) as the attempt on forming Cabinet is still going on. Our dear (moron) resident is only concerned about international image of Finland as we don't have Cabinet to show and shake hands with money lords (or turds). The worst Lady just today promised EU resident van Romply (whatever) that Finland will be no problem when it comes to Greek issue...
I think I understand very well your feelings a post or two ago when you confessed living in an imaginary once-lawful century. Those were the days...
It was kind of funny for me to find that memo, write/post about it all over the place - and then Ilargi talks about exactly the same issue here. I try to find that memo in English but don't hold your breath, please. I have a tendency not to deliver (>_<)
One more strange thing - last week I remember talking here about a possible terratwist attack in Finland. Lo and behold - just two days ago there were some bombs discovered. I hate to be right (ò_ó)
On the question of political leadership, I feel like I got a lot of education last night watching one of Adam Curtis' documentaries. It's three one hour segments and IMHO worth watching all the way through.
The Power of Nightmares, subtitled The Rise of the Politics of Fear
As sometimes happens that mysterious manipulator Sere N. Dipity somehow causes me to view it just days after the death of James Arness. In the film, Arness along with the late Raymond Burr were presented as inspirations for the half-baked hero of the neo-cons, Leo Strauss. Who says the universe bends toward justice?
But, the point I wanted to raise is the opinion elicited at the end of the final segment that under the politics of fear, the person with the most vivid imagination for what terrible things could happen usually gets to set the agenda. In other words we get to be led by the nut cases and seriously paranoid.
It boils down to there is good reason to be very afraid even if there is nothing obvious to be afraid of, because there is no predicting when one of the nut cases will decide that you are pure evil and have SWAT fill you full of holes.
We do not deserve democracy... and we do not deserve this planet either, not for a long time...
@ lautturi
RE: the bombs.
The documentary I just mentioned above draws together the complimentary threads of the neo-cons and the jihadis. Per Curtis, both groups are afraid of the same thing and seek approximately the same solution. The neo-cons have a much better body count. Their schemes have not yielded the desired results, but they seem to be one-trick ponies.
@ I. M. nobody
watched the Nightmare trilogy a few years ago. It's been downhill into the rabbit hole ever since...
I'd say this is beyond a "political crisis" - this is a systemic breakdown. Increasing aberrant political behaviors are just a reflection of this breakdown. Politician's jobs are to support and perpetuate the system, not dismantle it, like needs to be done. I'd expect their behavior to become more erratic and irrational as time goes on - just symptoms of an outdated and flawed social organization.
"I’ll never be one to call for a revolution,"
Au contraire! TAE is a welcome voice with the revolutionary resonance sweeping the globe. Embrace it and keep it going.
Tom Waits knows the score...
God's away on business...
http://www.youtube.com/watch?v=W9mhsW5aWJM
"Ship is sinking
The ship is sinking
The ship is sinking
Who are the ones that we kept in charge?
Killers, thieves and lawyers"
@ El g - I left a lengthy response to our discussion on population dynamics on the last post.
Cheers
@Lautturi, ..." the worst Lady " LOL
@ SA
You know nothing prevents you from copying that reply in the previous thread and reposting it here. Continuing a pissing contest on an old posting is kind of the blogospheric equivalent of the infamous Heidi Bowl. Most of the audience won't see how it ends.
Don't look now folks, but new Chinese "Special Economic Zones" have been proposed for locations like Boise and Detroit!
http://endoftheamericandream.com/archives/china-wants-to-construct-a-50-square-mile-self-sustaining-city-south-of-boise-idaho
@scandia
Our worst Lady has indeed been quite useless to most Finns. She's opposing NATO membership so that counts for something I guess... then again that's pretty easy when 3/4s of people oppose NATO. Though lately, she's been hinting otherwise (no small surprise there).
However, she been apologizing and covering previous residents wherever and whenever (sounds familiar, eh?). Especially indicative of her true colours was how she ordered the records about bank saving procedures in 1990s be kept secret. Then-resident (ex-Finance Minister and ex-Bank of Finland boss, again sounds frustratingly familiar) gave guidelines to courts about protocols if/when over-debted small scale businesses or citizens went head to head with banks - banks were to win. Results were about 99% in favour of the regular suspects, plenty of broken families and suicides (>_<)
People here call worst Lady Moominmamma as she's always fuzzing about insignificant issues - gay issues, Swedish language issue, our international reputation, do not upset anybody outside our borders etc. I remember very clearly when one reporter asked Russian prez Medvedev why Finns can't buy land in Russia but Russians can in Finland (there are many who are pretty upset about this). Worst Lady snapped something like "this is not appropriate question" very quickly, don't remember exactly what - but to most of Finns she's quite a spineless worm if you ask me (ô_ô)
SA
As to what IMN refers to as our "pissing contest," I read your last post. I have been considering a response. I doubt we would ever agree, but my inspiration to torpedo ideas similar to those that you appear to hold, comes from my antipathy to certain ideas espoused by James Corbett, who is both becoming influential and in some areas does an admirable job. But in the areas of population, peak oil, and AGW, does a true disservice to the anti-NWO movement.
I have decided to write an essay on the topic as I think it relevant to TAE message and submit to Ilargi as a possible lead article. If he doesn't like it, then I would probably upload in segments here. It may take awhile. It's been going up to 40C here every afternoon and the only reliable way I know to combat the heat is 1.2 liter bottles of Cerveza Clara Pacifico Ballenón .
lautturi
Is Olli Rehn a popular political figure in Finland, and what party does he belong to? I see him as the Hermann Göring of the European Commission.
Update on the Stockton raid
U.S. Department of Education spokesman Justin Hamilton confirmed for News10 Wednesday morning federal agents with the Office of the Inspector General (OIG), not local S.W.A.T., served the search warrant. Hamilton would not say specifically why the raid took place except that it was part of an ongoing criminal investigation.
Hamilton said the search was not related to student loans in default as reported in the local media. OIG is a semi-independent branch of the education department that executes warrants for criminal offenses such as student aid fraud, embezzlement of federal aid and bribery, according to Hamilton. The agency serves 30 to 35 search warrants a year.
http://www.news10.net/news/article/141108/2/Questions-surround-feds-raid-of-Stockton-home
search warrant
http://www.news10.net/news/pdf/Ed-dept-Wright-warrant-060711.pdf
a link to original video
http://www.youtube.com/watch?v=iTrNlAunWV0
Things must be getting you excited ... good post!
Me? I am jumping up and down!
Ash said...
In case you needed some more incentive to get out of debt quickly...
"The U.S. Department of Education issued the search and called in S.W.A.T for his wife's defaulted student loans."
Amazing...
Your link no longer works. There is a new story up about it, that says it's okay, the warrant wasn't for not paying her student load as previously reported . . . "OIG is a semi-independent branch of the education department that executes warrants for criminal offenses such as student aid fraud, embezzlement of federal aid and bribery."
Well that clears a few things up. I imagine the SWAT team was fully justified given that his estranged wife might have been involved in fraud or even (gasp) bribery! /sarc
@Ilargi, I just read the Hudson article. Kinda covers it, eh.
Your closing words, " We'll have to wrestle it back from their cold dead hands. And that's not going to be an easy one. "
Indeed. This is where I am stuck. The groups I work with want to be " peaceful", want to use the rule book written by these cold dead hands. I really don't know what to do.
"Hamilton said the search was not related to student loans in default as reported in the local media. OIG is a semi-independent branch of the education department that executes warrants for criminal offenses such as student aid fraud, embezzlement of federal aid and bribery, according to Hamilton."
Ah, I see... makes sense, as I wouldn't have expected the Untouchables to get that tough on debtors just yet. I suspect the criminal warrant was "related to student loans in default", but they were loans taken out with fraudulent information, never meant to be repaid.
Still, how long before the OIG re-classifies "student aid fraud" to include any minor mistake on your application? Perhaps they even wanted it reported incorrectly at first, so people think twice about defaulting on their student loans. Sure as hell got me thinking about how much faster I can pay mine off.
@Lautturi, Jeez, you are taking off my rose coloured glasses about Finland!!! Wondering what role Nokia plays in all this?
bluebird said...
Update on the Stockton raid
Whoops - sorry for the double up!
Illargi your editorial is spot on.
The political scene in the United States has deteriorated to the point where it is totally insensitive to the concerns of its citizens.
As I was telling my wife, trying to bring about change by working "within the system" is futile. A government that is totally unresponsive to the concerns of its citizens will only wake up when huge numbers of its citizens are in the streets protesting, endlessly.
Like you, it is hard not to comment on the French. They get their act together and are out in the streets at the drop of a hat. Many times this has resulted in TPTB relenting from some new proposed action (legislation)that the masses do not approve.
El G said "I think we are headed for Iraq on the Mississippi. Swat versus the most heavily armed civilian population in history."
I agree. If people start protesting in mass it is likely to get nasty - fast. In California some 4 years ago a small group of peaceful demonstrators in a park was shocked to see army tanks appear and circle the park. It was a clear message by TPTB. In another incident, police broke into a home where retiree age people were having a discussion of the current political and economic dilemma. An article on this event was sent to me by one of the people in the group discussion. Unfortunately, I did not save it but I think Michael Moore covered it in one of his films.
Beware people of USISTAN, response to serious protests is likely to turn ugly fast. Agitators will be planted in the crowds by TPTB to discredit the peaceful protests. TPTB will say the protesters are being secretly organized by terrorist cells, or that the Communist or anarchists are behind it all. TPTB will go into full denial that there is any basis for this kind of discontent.
Be aware that even the SS, excuse me Homeland Security, is getting into active aggressive preparation. There have been several very brief mentions that the Homeland Security has sent out RFPs (requests for proposals) for development of new crowd control devises purportedly for control of crowds in military operations in ongoing wars. Who are they kidding? How many of these devises have ever been used by the military in US excursions in Iraq or Afghanistan and other places? Zero to the best of my knowledge. Bombing and other mass murder is used to control these situations. These devises that cause body surface heating to the point of excruciating pain, that emit loud noises that have people rolling in the street in agony, that emit irritating chemicals, or that create psychological confusion of people, are for control of US citizens not people on some foreign shore. TPTB know that sooner or later things will go bad in Usistan. One can only abuse the people so long before they start to react.
I have always been one for sensible gun control because many of weapons such as easily concealed hand guns and guns of mass destruction - ie automatic military weapons usually end up killing family members, students at schools rather than the "criminals" that the NRA always talks about.
However, these heavily armed citizens just might be able to stop the abuses. Perhaps it is time for me to rethink my objections about possession of these terrible weapons.
Thank you Ilargi for the excellent roundup on Europe - must have taken ages to select the articles.
Robert,
I don't know much about the US, however, often the best way to scare the TPTB is a tax-strike.
Nassim, tax strikes are individual protests easily put down by individual arrests or penalties. I think that only mass action by large groups will be effective in Usistan.
Robert,
I meant a mass tax-strike.
If the people in Syria, Jordan, Palestine, Egypt and Yemen are prepared to be shot at for protesting peacefully, a few victims of administrative measures seems, to me, a small price to pay. It would certainly rattle treasury-holders.
@ el G
Olli isn't really liked by many - but worshipped by some (you know who). His party is the one that lost most in elections (-31%). The reason people don't like him is that he is 110% expansive EU-phile. His latest is getting Romania and Bulgaria into Schengen area ie. no border control with EU. That will play out well...
Olli has very typical tunnel vision for a politician - he's been playing with the idea of being next Finnish resident, too. The words are not enough to depict what kind of disaster that would be - if it were to happen. I doubt it but nowadays... who knows (0_O)
@ scandia
Nokia was a one time miracle that did help pulling Finland out of 1990s depression. Now it's mostly sold out, still getting all kinds of "research support" money from Finnish government - and still keeps threatening/moving departments out of Finland. Nokia is suffering from gigantism/elitism methinks ie. hanging in old beliefs being so great and important... it would be almost funny watching it crash if Nokia didn't effect so many here in Finland.
Sorry to break the crystal image about Finland. I guess Finland is more like an ice castle now - and summer is heating up big time.
Nassim said, "I meant a mass tax-strike. "
Perhaps, if there were mass demonstrations where every one tore up a tax form and pitched them in a fire, a big fire.
Mass demonstrations are important because it is difficult to hide such things from world wide media attention. Individual actions can be taken care of behind the scenes with little public airing but with devastating effect on the individual.
Personally, I feel that mass demonstrations and nation wide strikes are the way to go.
It will be interesting to get comments from others. :-)
Robert,
Yes, a bit like burning draft cards.
"Perhaps, if there were mass demonstrations where every one tore up a tax form and pitched them in a fire, a big fire."
Couple that with mass defaults in protest and we're in business. Just bring it down
"I’ll never be one to call for a revolution..."
---
that's why you and your wholly political website, propaganda and ilk are part of the problem.
After what I have seen in Spain I have come to the conclusion that it is futile to be “anti-Fascist” while attempting to preserve capitalism. Fascism after all is only a development of capitalism, and the mildest democracy, so-called, is liable to turn into Fascism when the pinch comes. We like to think of England as a democratic country, but our rule in India, for instance, is just as bad as German Fascism, though outwardly it may be less irritating. I do not see how one can oppose Fascism except by working for the overthrow of capitalism, starting, of course, in one’s own country. If one collaborates with a capitalist-imperialist government in a struggle “against” Fascism, i.e. against a rival imperialism, one is simply letting fascism in by the back door.
- George Orwell
Where I part company from him [Franz Borkenau] is where he says that for the western democracies the choice lies between Fascism and an orderly reconstruction through the cooperation of all classes. I do not believe in the second possibility, because I do not believe that a man with £50,000 a year and a man with fifteen shillings a week either can, or will, co-operate. The Nature of their relationship is quite simply, that the one is robbing the other, and there is no reason to think the robber will suddenly turn over a new leaf. It would seem, therefore, that if the problems of western capitalism are to be solved, it will have to be through a third alternative, a movement which is genuinely revolutionary, i.e. willing to make drastic changes and to use violence if necessary, but which does not lose touch, as Communism and Fascism have done, with the essential values of democracy. Such a thing is by no means unthinkable. The germs of such a movement exist in numerous countries, and they are capable of growing. At any rate, if they don’t, there is no real exit from the pigsty we are in.
- George Orwell
On Dr. Gabor Mate's site I came across a quote which I'll paraphrase as without first establishing relationship any plan of action leads to conflict.
What with the growing gap of inequity between the have's and have nots the possibility of establishing relationship becomes ever more remote.
In this context what action then can we instigate and avoid conflict?
The way I read this is that TAE is now championing Anarchy as their preferred solution to the world's problems. That'll work out real well. Yeah.
"I do not see how one can oppose Fascism except by working for the overthrow of capitalism, starting, of course, in one’s own country. If one collaborates with a capitalist-imperialist government in a struggle “against” Fascism, i.e. against a rival imperialism, one is simply letting fascism in by the back door." - Orwell
Well said, George.
I don't get it, MM. Are you saying TAE is "part of the problem" because it has not focused on the demise of global capitalism as a part of our destination? If so, you are incorrect about the latter part. Does someone have to state, "I hereby call for a global revolution against the oppressive chains of capitalism" before you will consider them to be not a "part of the problem" anymore?
@Ash
In regard to student loans and their similarity to un-payable mortgages.
"but they were loans taken out with fraudulent information, never meant to be repaid. "
Hmmm, a pattern is emerging here.
Facilitating Sheeple into Debt. Then morphing that into debtor's prison and morphing that into Free Labor.
Sounds like 'training wheels' cotton picking to me.
Just the warm up act I guess.
The Lizards Masquerading as Humans who run the Ponzi Kamikaze Banks aren't making good on their bad debts but no SWAT teams at their doors.
This is an astonishing example of Right In Your Face Broad Daylight Hypocrisy, and still the U.S. middle-class (formerly middle-class, they just don't know yet) can't connect the dots.
The Chinese Red Army 'runs' (owns) prisons and uses them as forced labor manufacturing facilities.
The U.S. looks like it is catching a Wiff of this.
Less fossil fuel will bring the loss of 'energy slaves' which to some extent can be compensated for by real slaves under another name.
The unparalleled dysfunctional quality of what passes as 'thinking' in the U.S. has crossed the Rubicon from Surreal into an overproduced episode of Faux Demonic Possession.
It's like Alice in Wonderland has transmogrified into Alice in Chains
.
From the "Orwell quote of the day" Dept.:
One does not establish a dictatorship in order to safeguard a revolution; one makes a revolution in order to establish a dictatorship.
--George Orwell
I have no illusions about the "revolution" 2.0, new and improved.
Ash
I think Metanis and M&M are referring to violent, armed revolution as the only meaningful form of revolution. Regarding Orwell, I regard him as an amazing genius, the political equivalent of Albert Einstein. However, when one quotes him, one must be aware of what stage in his writing one is quoting from. His enthusiasm for armed socialist revolution waned appreciably after the abuses of Stalinism starting seeping out to the west.
As to this blog, Stoneleigh has made her opinion quite clear that she believes that counter violence to a fascist state is not productive. So if that is your thing, this is probably not the blog for you.
@Metanis
What an Agent Provoca-trollish comment about TAE 'anarchy' advocacy.
Are you payed by the word for these over reactionary conclusions like the old time telegrams from yesteryear?
Urgent
Losing control STOP
Must regain bearings STOP
Maybe toss out some incoherency STOP.
yours in solidarity
me tan is fading need more lotion
_
While Stoneleigh was here in Portland we managed to squeeze in a radio interview on KBOO-FM, our community-supported radio station. Here is a link to a page where you download or listen to the audio of that interview:
KBOO radio interviews Stoneleigh
El G,
Yeah, I just think Orwell also makes a great point about the concept of revolution. Whatever type of revolution, whether violent or non-violent, regional, national or local, it must be done outside of the "capitalist-imperialist" system if it is to make significant progress towards breaking the chains of fascist oppression. In fact, that's why I think many of the European and (soon to be) American "mass protests" are or will be counter-productive (at least short to medium-term), especially if they are violent. Then you are just setting yourself up to be killed or have others around you killed when, at the end of the day, the unequal distribution of wealth will remain or even get worse.
So, in that sense, I guess I disagree with those who advocate for violent protests in the abstract, and are somewhat misinterpreting Orwell. And the media, though they may initially give you publicity, isn't necessarily your friend either. Now, if the "revolution" evolves to be organized and conducted without high reliance on established structures of capitalism and to disrupt its key processes while minimizing risks of being co-opted or exploited, then that's a different story... and that may very well happen, just not at the global or even regional scale.
MM and Metanis,
Revolution? Anarchy? We do not call for or promote either one. People need to be careful about what they ask for because they might get it. Personally I ignore politicians, as to do otherwise only encourages them (to paraphrase Dimitri Orlov).
I think politics will be a nightmare in the future, as those at the top seek to sustain their level of prosperity by squeezing the masses relentlessly, as Rome did during its decline. Energy slaves are very likely to be replaced by the human variety, quite possibly drawn from the ranks of today's debtors, as someone else pointed out.
Nothing good is likely to come from the top down, whomever takes the reigns of power and by whatever means. Politics is already nothing but political theatre, or prole-feed as Orwell put it, and democracy an illusion. During contractionary times we are going to see the darker face of human nature thoroughly expressed through politics. I fully expect far more controlling impulses to manifest, in tandem with the masses being frightened enough to ask to be controlled for their own 'safety'. Of course this is a recipe for losing both freedom and security.
Our relative freedom was in the interests of the powerful during expansionary times, as our economic actions in our own interests generated plenty of revenue for those at the top. This continued even as we exceeded what we could afford and began to dig ourselves into an ever deeper hole. Soon this will no longer work, as the broken system will grind to a halt. Then, our freedom will no longer be in the interests of the powerful because they will gain nothing from it and would be threatened by it.
I would suggest simply that we do the best we can to exist in the world in ways that are constructive, despite politics and politicians. They aren't going to go away, and are going to become increasingly heavy-handed. They will probably try to supress many of the initiatives that would make the most positive difference, as decentralization in all its forms is not in their interests at all. They will want to keep the wealth conveyors to the centre fully operational, even when doing so is no longer possible, and attempting to continue the impossible will make a bad situation worse (very expensively). This will make our task much harder, but life goes on. Those who navigate this period will have done so by taking it one step at a time in the face of many obstacles.
@Stoneleigh, Your words. " taking it one step at a time in the face of many obstacles' speaks to my not knowing what to do.
Also this board has more than once proposed the solution, " Withhold"
At no time in history has any true social change
come in a manner that was not opposed with hostility by the dominant orders of the time. The elite, learning from history, have already put mechanisms in place to deal with such opposition. They used to call dissidents "communists" now it's "terrorists".
There already has been increased harassment of anti-war and socialist groups in the US with the aid of the patriot act.
Violence, if not instigated, will be fetishized by the media and turned around on any opposition.
No, all violence will be counter productive in the coming revolution.
A mass action tax strike in Usanistan is impossible. Wage slave taxes are withheld by employers. If masses of workers changed their exemptions to nullify withholding, the IRS would just change the rules. The actual tax strikers are TPTB who are allowed to do it with impunity. They hate taxes and fund the Tea Party to make sure taxation remains ineffectual.
Armed revolt by the masses of heavily armed civilians is also very unlikely. Most of them are still caught in the fantasy that prosperity will return. Our idea of revolt is to change out a few of the office-holding nut cases via the ballot box.
The NRA is conflicted. It only hates the government when Democrats are in power and the influence it enjoys under the current system might not survive a systemic change. I wouldn't be waiting for Wayne LaPierre to lead the revolution.
IMHO, the Germans are more likely to revolt than Usanistanis. But, if we do, it will be an awful mess.
"... outside of the "capitalist-imperialist" system ..."
What is OUTSIDE?
Get out of debt.
Put savings into ... matress, precious metals
Stop feeding the system, pay cash
Start growing, making, repairing, reusing
Find entertainment, joy and peace within thyself.
jal
I should add ...
a source of income ... black market ... go Greek
jal
"What is OUTSIDE?"
Right, the only "outside" is conceptualizing outside. You can't unplug, well, unless you are homeless.
Interestingly, stopping feeding the system(especially on a mass-scale) increases social woes - which eventually will catch up with you. So, it would appear, personal survival runs in diametric opposition to social survival. Interesting paradox, indeed.
Power concedes nothing without a fight.
The trick, then (if you are of a nonviolent bent like me) is to build structural support parallel to existing structures. CSA'a are parallel structures, for example, to the dominant agri-corporate food delivery system.
Of course, parallel structures themselves may come under attack or be co-opted by a fearful authority. What else is new?
It is possible to build parallel structures for almost every system that sustains, although some systems--such as water supply--are more challenging than others.
Why, you can even build a parallel structure for providing credit! People all over the world are already doing this. One well-designed, web-based system is called the "Community Exchange System." Not barter, but the community extending money-less, script-less credit to itself.
It's a fascinating, workable system that we are trying to implement in Wilmington, NC through our nonprofit, the
Southeastern Alliance for Community Change.
Learn more about the Community Exchange System here.
* A degree in Sociology is like an underwater mortgage; Dept. of Ed. sends in the SWAT team; There are plenty of jobs for those who can't repay their student loans in the Hunger Games
* Nobody:
- is a cute name
- is a contradiction
- is the default unix user account
- took the rap for blinding the cyclops
- is less relevant than genaration junk
- was separated at birth from UR Somebody
- I think, therefore IM Nobody
* Greece is too big to fail; Finland is an ice castle; US Govt. debt default is dangerous; China to purchase US states of Idahuang, Michangchung, Ohuai'o
* Democracy is only for powerful people; The rich and the poor are separated by a great gulf; Neocons and jihadis are two perps in a pod; Stalin cured Orwell of revolution; Fascism and imperialism are the natural born children of capitalism; I'll give up capitalism when you pry it from my cold, dead, invisble hand
* We are half past political crisis and approaching a quarter to system break down; Politicians perpetuate the system; Don't bite the hand that feeds you, lick the boot that kicks you; Starve the beast and the beast will eat you;
* Change from within the system is futile; We must protest; TPTB to use beams and chemicals to control the masses; Time to rethink hand gun ownership
Above link was malformed! Try this...
Southeastern Alliance for Community Change
“The volunteers are violating the controversial city restrictions imposed in July 2006 when the City of Orlando passed a "large group feeding" ordinance criminalizing homelessness and groups that share food inside downtown parks more than twice a year.” Arrests continue for feeding America's hungry: US right to food abuse
Not OUTSIDE, rather ALONGSIDE!
Interesting discussion of parallel structures here.
...
SecularAnimist said...
"What is OUTSIDE?"
Right, the only "outside" is conceptualizing outside. You can't unplug, well, unless you are homeless.
Interestingly, stopping feeding the system(especially on a mass-scale) increases social woes - which eventually will catch up with you. So, it would appear, personal survival runs in diametric opposition to social survival. Interesting paradox, indeed.
---
Humm!
Outside social structures have always existed.
Seach for ... Amish, hutterites, doukhobors, mennonites, gypsies
"Outside social structures have always existed.
Seach for ... Amish, hutterites, doukhobors, mennonites, gypsies"
It's still shortsighted thinking and empirically does lead to increased social problems by lack of feeding the system.
This thinking that you can build some self-sustaining little enclave outside and disconnected from society at large while the world burns is not only shortsighted it's illogical. It'll catch up to you, well, if you are under 60.
btw- How are the Romas doing in france. And I go to the nice air conditioned Amish markets. They sure look to me like the feed off the system.
The Orlando story is a perfect example of authority attacking or co-opting parallel structures.
They probably did this out of embarrassment.
It doesn't matter. Parallel structure will rise and fall, just like everything else.
The point is, you can rarely get OUTSIDE. You can insulate, assimilate, cooperate, terminate, demonstrate, whatever. But you can't really get outside. Even the Amish aren't completely outside.
We are all interconnected and--gasp--interdependent. Of course, not many people get that, so they struggle.
I'm interested in maximizing the value of interdependence while minimizing violence. Difficult, to be sure, but I don't really see an alternative. Every doomstead can be breached by "the system" in some way.
Robert
I have always been one for sensible gun control because many of weapons such as easily concealed hand guns and guns of mass destruction - ie automatic military weapons usually end up killing family members, students at schools rather than the "criminals" that the NRA always talks about.
================
I use to believe this also. When young, I use to shoot rifles competitively, but I was always for strict hand gun control. After reading Joe Bageant's chapter on gun control in Deer Hunting with Jesus, I flipped my position 180. Suggest you re-read it.
@ TAE Summery
You rock, man/woman, you ROCK!!! One of your very best, spilled my tea all over the place (^_^)
bosuncookie said...
"Every doomstead can be breached by "the system" in some way"
---
Correct!
The economic/social system is changing.
Depending on your position in the system you must be mentally prepared to accept those changes and to "bend in the wind".
That's the importance of
"Find entertainment, joy and peace within thyself"
jal
jal
The only revolution worthy of the word is a revolution of maturity.
@IMN, after TAE Summary's post your anonymous I Am Nobody no longer serves. Time for a name change in these times of regime change:)
Perhaps the board could brainstorm on the task of naming you anew.I Am Someboy lacks wit. Hm-m-m...Wit is not my strong suit. How about " Everyman"? No, not edgy enough...
The point is, you can rarely get OUTSIDE
You can't! You are connected to it. Running away to "doomsteads" is about as shortsighted as it gets.
Thinking that "not feeding the system" increases social well being or even your personal survival is just wrong.
And don't get me wrong. I have not paid interest since the late 90s and consume very little. Still, I know my personal actions wide spread will cause increased social dysfunction. In a sense, that is needed to move forward. But, still, thinking about your personal survival as described by many in the "transition" community, then stopping there, does nothing to advance social survival - which is what is needed - and will catch up to you. Heck, I'm in my 30s, revolution is the only logical conclusion.
I'm with jal...........
"The only revolution worthy of the word is a revolution of maturity."
Logistics, logistics
Indeed, social maturity is needed but also needs to be defined.
re: "outside"
As the existing central structures of order, discipline and "safety nets" break down, the implicit incentives for remaining "inside" will become less powerful, but that could be partially or wholly offset by the explicit incentives for some time(i.e. various fascist police state tactics). I believe opportunities of "outside" existence or resistance may eventually and naturally present themselves, but they will necessarily be at very small scales of organization. It is probably best to prepare in such a way, physically and mentally, that you and ideally others around you are ready to seize the opportunity when it arrives. That most likely will entail using "insider benefits" when they still exist for most people. A somewhat true to principle Amish community with weapons doesn't sound like a bad start at all...
scandia,
I got a good laugh out of our Summarizers treatment of me and my handle. There are probably better names for me, but I am kind of attached to this one now and changing it would decouple my future comments from those in the archive. That might not be such a bad thing though. :)
"The only revolution worthy of the word is a revolution of maturity."
Maturity is looking beyond your own personal survival and recognizing it's integrity is only as good as the whole of society - especially in today's world. "Lifeboat" preparations are good in a "put your oxygen mask on first" kind of way - but that is about it.
Following on what SA said, I think it could be useful to not think about building a lifeboat, but rather building an ark. No, we cannot save the world as individuals, but if we always think about saving at least one other besides ourself then it helps to overcome that "bunker up" mentality where we break all contact and go "every man for himself". It's exactly that psychology, as expressied through neoliberalism, that has gotten us to the bottom of this hole. A survival plan which is little more than 'I'll dig faster, and pull away from you losers' is not going to be very helpful in the medium to long term.
We need to maintain the social contacts, and the psychological recognition that individuals can only survive in a functioning society.
El G said:
"But in the areas of population, peak oil, and AGW, does a true disservice to the anti-NWO movement"
I see what you are getting at, but..
I would caution you to frame the human races interface with the earth as a human overshoot problem, which is infinitely hard to quantify, over a consumption overshoot problem, which is a slam dunk to quantify.
Seriously where does winning the argument that we are in human overshoot lead but to a spiritual prison and, ultimately, a behavior modifier?
And so it is with population and "carrying capacity". Unless the particulars and assumptions (including, most notably, level of consumption) are first defined, the numbers are completely meaningless. If everyone lived like the average sub-Saharan African, on a buck a day? Then the number would be X billion. If everyone lived like Bill Gates? Then the number would be 1/10000th of X billion.
But even settling on some mid-range estimate for lifestyle, it remains a very difficult question, and scholars of much greater learning than me have come up with a wild variety of answers -- the "wild variety" reflecting the difficulty of the analysis, the large number of variables, and the wide range of plausible estimates for those variables. In this case, method and assumptions are EVERYTHING. To get a sense of this, I suggest chapter 10 of Joel Cohen's book "How Many People Can The Earth Support"; the chapter is titled "Eight Estimates of Human Carrying Capacity". The chapter that follows that is very good too.
It is a (somewhat) interesting academic question, but of little practical value for us right here right now. And the obsession of some is unhealthy in many regards as it takes focus off of realistically fixable problems. We --the human race -- have the population we have, and we'll have to deal with it, as best we can. We can do things to lower fertility in Africa(as many small NGOs are doing successfully), but that is the most we can do on the population front; other than that, it is largely out of our hands.
The rest of the world's population growth is in dramatic decline that started in the 60s, with some going negative. All studies indicate this trend will continue and is speeding up. The theoretical question of "how many the earth can support" is of less importance than dealing with the realities that confront us.
Did you see the solar flares.
Those splashes are the size of the earth.
http://www.nasa.gov/mission_pages/sunearth/news/News060711-blast.html
"Find entertainment, joy and peace within thyself"
jal
@ IMN
The Germans revolt ?
You must explain that to me.
FB
@SecularAnimist said
Seriously where does winning the argument that we are in human overshoot lead but to a spiritual prison and, ultimately, a behavior modifier?
=============
This is exactly where I part company with you and James Corbett. In science circles, tailoring one's hypotheses and data in order that they lead to a morally reassuring or warm and fuzzy outcome is called fudging the results.
My recommendation is to take a handful of Xanax and look the bear in the eye. That said, I have stayed Pacifico free for the day so far and am into writing an essay as mentioned in an earlier post.
In science circles, tailoring one's hypotheses and data in order that they lead to a morally reassuring or warm and fuzzy outcome is called fudging the results.
Pulease! Which science circles?
Sorry, Malthus was flat out wrong. We know this because of the demographic transition. It is measurable and observable. Data shows this.
As far as carrying capacity... do you even have an inkling of how infinitely impossible that is to quantify? Where is the peer review to establish your so-called science circles.
Optimism is contingent on where you place your bets. It must be some sort of internal payoff for you. Because as much study I have given it, it's impossible to discern.
But you know what, extracting billions of tons of resources to ship them around the world, with little or no social application, just to dig a holes and stick them back in the ground within a few months - while screaming "resource shortfall! Billions must die! Malthus was right!" is just ... I'm not even sure what the word is to articulate that action.
@ FB
I wouldn't think it would require explanation. It was once upon a time, over here at least, said of the German's that "they wouldn't even disobey a Don't Walk on the Grass sign let alone revolt against the government."
We have always been ready to ignore such signs, but are much better at talking about revolting than actually doing it.
No Pacificos for me, today. Stoneleigh will be giving her talk in our little town of Sebastopol at 7 tonight.
Malthus is a strawman. I will present my own ideas on the subject for what they are worth. However, those idea will indicate that due to peak oil, the human population is in a huge "bubble" which will collapse catastrophically with the collapse of oil production and lead to a lot of misery. Sorry, I brought up Malthus in the first place. He is a disreputable character and had repulsive social ideas. But he did get a few very basic things right about populations, such as they grow and decline exponentially.
You're still standing on a HUGE assumptions... Fist, that we even NEED a fraction of the oil we use. Aside from a myriad of other assumptions and variables in constant flux.
Peak oil is not a problem, it's the solution... and no not to the "population problem"
Our problem is we've had too much
"populations, such as they grow and decline exponentially"
Right, until they don't - like the current demographic transition is showing - going into population decline without physical limits.
@SecularAnimist
Please read this book. These are not assumptions.
Some non-romanticised history books might be of help in your quest for understanding what might happen, also.
"Some non-romanticised history books might be of help in your quest for understanding what might happen, also."
Uh-huh. Well, I was discussing the massively, observably incorrect assumptions about human population growth - which is quantifiable with data.
What is to come, is largely a collective choice. But being stuck in false premises such as exponential population growth as a law of physics may skew your view of possibilities. So, I try to correct the MDD (Malthusian Derangement Disorder), that is ever-present in DGT(doomer group think)whenever I can. Due to it being observably and measurable false, if you follow the recent data. But, like I said, optimism is contingent on where you place your bets, emotional or otherwise. I won't be betting on Survivor Earth the final battle as the outcome of this current global social conflagration we are entering. You are more than welcome to dwell in that prison if you please. But I will try and push for something else.
Steve Keen compares US and aussie housing situation. If you thought things were bad in US, listen/watch this. Speechless, I tell you, I'm speechless.
@ SA
Push on that rock Sisyphus. It belongs at the top of this hill.
You seem fixated on the issue of physical limits. Now it is true that they do apply in the case of the higher animals. It is also true that fair minded as they are, the higher animals to not apportion the available resources equally. There is a pecking order and those at the bottom will starve before those at the top. Sometimes even when food is not particularly scarce.
The Naked Ape used to follow that system, but some damn fool figured out the idea of money. In short order food was monetized and apportioned like most everything else, according to ability to pay. Even though money is made out of nothing, it is not and never will be equally distributed. Because it is how naked apes maintain their pecking order.
Naked Apes are not starving on the Terra Planet because it can't grow enough food. It happens because they can't find their way to the money river. As the money supply falls, which oil decline will surely abet, more naked apes will starve. Money isn't just used to buy food, it also underlies the production. The trend line will get pretty steep as best I can see.
The vaunted demographic transistion is largely a misinterpretation as near as I can tell. Poor people tend to have lots of children, if they can feed them, because survival is uncertain and the kids are their old age security. When food is so scarce they cannot feed themselves, as happens in places like the Sahel, large families do not appear to be common. In the modern developed world once DINKS decide to procreate they quickly realize that while they can feed more than two kids they probably will not be able to buy diplomas for more than two. It's money all the way down.
I have not read Malthus, but I did subject myself to Corbett's article on the topic. As near as I can tell, without going to the source is that the fine upstanding Christian Rev. Malthus was really defending the naked ape pecking order system, which is still functioning so very well today. It should be recalled that in his time the UK was steadily exporting the detritus of its pecking order, including my peeps, to places like Usanistan, Canada, Oz and elsewhere.
So, you and Corbett keep pushing those rocks, just like the gods commanded. I would advise packing a big lunch. Food is going to get scarce. Don't even bring up shutting down the ethanol and biodiesel mills. The apes higher up on the pecking order like to drive.
lautturi said...
Steve Keen compares US and aussie housing situation. If you thought things were bad in US, listen/watch this. Speechless, I tell you, I'm speechless.
---
Last line from Steve.
"People living in palaces in poverty."
yep!
Retails sales have got to suffer.
This picture will become apparent in more than Aussie land.
jal
SA -
Are you familiar with the newly emerging field of Biophysical Economics?
Anyways, one of the academics involved is George Mobus who has a blog, "Question Everything."
His post where he shares his conclusion that we (current global human society/population) are in overshoot, and that a crash in human population is unavoidable:
Past the point of no return
And an overview of Biophysical Economics with a focus on the concept of net energy (which also shows output from his dynamical modeling of human population):
Net Energy and the Economy — Biophysical Economics Meeting, 2011
He also has an excellent review of William Catton's follow up volume to Overshoot: Humanity's Impending Impasse
I don't think Catton or Mobus are merely making "HUGE" assumptions regarding carrying capacity of planet Earth for 7 billion humans.
And, having been raised Catholic, I am happy to say that I've fled that flock and consider myself a secular animist now. Thanks for your posts.
You seem fixated on the issue of physical limits
Actually, NO - I am not - well only to the extent in which they are relevant. Neo-malthusians are because malthus was. He viewed all poor as surplus population - in which the physical limits of food production were teaching a moral lessen to -which was false. In essence, if you are outside of the market system(gods favor) then you must have done something to deserve it. In other words, he was a lunatic good at math and poor on understanding population dynamics.
Anyway
"have made up my mind that the universe will do what the universe will do whether or not there are any apes to see or hear it. "
I'm much more concerned about what humans do - we seem to have a lot of control over that. Even though the neo-malthusians don't think so.
"In the modern developed world once DINKS decide to procreate they quickly realize that while they can feed more than two kids they probably will not be able to buy diplomas for more than two. It's money all the way down."
So you are saying that people can think and make choices beyond their food limit. You are also implying that DINKS, if they could afford it would breed like rabbits - sure you don't want to rethink that one
""Christian Rev. Malthus was really defending the naked ape pecking order system, which is still functioning so very well today."""
Indeed, he was and so are his modern day followers. And you keep on defending the pecking order while I push the rock against it)
Look out, seems there is a lot of pushing going on around the world.....
I don't think Catton or Mobus
Well Catton and Mobus are not they only people ever to study such things. I know, I know NOT picking the worst possible "predictions" goes against DGT(doomer group think) but at times, get this, some other people have some good points.
One thing is for sure, we are in consumption overshoot - that is easy to discern.
Given the massive disparities in resource per capita - like 100-1 in some cases and massive amounts of waste. Capitalism is a perpetual irrational waste machine in the name of profit. Playing get off my planet is a little rude at this stage in the game.
Oh the humanity! - we may have to stop shipping plastic shit around the globe for no reason other than GDP.
"The vaunted demographic transistion is largely a misinterpretation as near as I can tell"
One more point them I am done.
Do you feel an uncontrollable urge to procreate when around copious amounts of food?
@ SA
Rabbits breed like rabbits, humans breed like humans. It's in the rule book somewhere. I have noticed that the securely well off are sometimes prone to reproduce rather prolifically. It does not appear that education and wealth necessarily guarantee small families.
As to how humans use their thinkertoy to decide about reproduction, I'll give an example. When we first married, my ex-wife insisted she wanted a backyard full of kids. After the second one was born she decided that was enough.
Your assertion that I am a defender of the pecking order system is an unwarranted aspersion unsupported by anything I have written. For whatever reason, I was granted the wisdom to understand what I cannot possibly change. It seems you were given the task of pushing on that rock. I won't mind if you do get it to the top, but I hope you understand that the gods are no better than the apes that imagined them. They have rigged it so that it will immediately roll back down. They just can't help themselves. It's who they are, it's what they do.
Malthus was really defending the naked ape pecking order system,
Hmmm, are you looking at the same out of control world I am. If anytime in history that the pecking order is LOSING control is now
Your assertion that I am a defender of the pecking order system is an unwarranted aspersion
I apologize, you are correct..
I was granted the wisdom to understand what I cannot possibly change
Your voice matters more than you think. Lots of people can make big changes.
@SA
"What is to come, is largely a collective choice."
Is there such a thing as a "collective choice" made by large groups of humans, or are choices actually made by a few at the top of the hierarchy while the majority is tricked into believing they had a say in the matter?
SA -
Thanks for the accusation of "doomer group think" merely because I think Mobus and Catton make compelling data-driven arguments.
Have you even read any of their works?
Population crashes across the entire spectrum of living organisms have been observed and documented (there's your data). Are we humans exempt from that?
Like Mobus, I take no pleasure in having reluctantly come to the conclusion that a large decrease in human population will occur in the 21st century with lots of suffering.
And this painful conclusion had nothing at all to do with "groupthink" but rather careful evaluation and weighing of arguments and evidence.
The assertion has been repeatedly made here that the world's population has stopped growing or slowed down its growth.
Here is what Wikipedia has to say on this matter - World population
So far as I can see, and the data is from the UN, the blue line is still rising by around 800 million people per decade. Because of the age-distribution of people in most countries, there is no way this graph is going to flatten out (let alone drop) without some almighty change in our environment (i.e. war, plague and famine on a prodigious scale).
The second assertion that has been cropping up is that Malthus must be wrong because we don't like his character or morals or what he has to say. This, once again, falls into the realm of "trusting the scientist" who is telling you his/her opinion. It is pseudo-religion and magic-speak. Malthus was not so very different from his contemporaries in his views of the world. He was part and parcel of his epoch. He was warning his contemporaries that the wonders of the 18th century were unlikely to be repeated for the 19th century - we all know he was wrong on that score.
Malthus placed the longer-term stability of the economy above short-term expediency. He criticised the Poor Laws, and (alone among important contemporary economists) supported the Corn Laws, which introduced a system of taxes on British imports of wheat. He thought these measures would encourage domestic production, and so promote long-term benefits.
Thomas Robert Malthus
If you think a little about that, his view corresponds somewhat to that of the TAE - more sustainability and more localisation. He understood the "Limits to Growth" better than anyone of his time. He was simply way ahead of his time - something the TAE has been also repeatedly accused of. :)
I can't believe I am posting the same link twice within the past few days, for SA's benefit now, about how Malthus was indeed wrong because he was too optimistic (and didn't understand ecological overshoot and resultant population crashes).
Takes about 2 minutes to read:
Overshoot in a nutshell (Malthus was an optimist)
@ SA
Your voice matters more than you think. Lots of people can make big changes.
Experience has taught me that my voice matters a lot when people already agree with me and hardly at all when they don't. You are adding to that experience.
Most of the time lots of people can make big messes.
http://tinyurl.com/44lbwly
If this were a stock, would you mortgage the farm to the hilt, take the money and go long :-)
Just wondering how the truth or falsity of Malthus, overshoot, etc. is impinging upon your plans for the future?
Population does not increase from rising birth rates. Population increases from the absence of such limiting factors as a scarce food supply, a person’s low body fat that reduces the chance of surviving famine, infanticide,
infant mortality, disease, war, a nomadic culture, or a weak immune system. Currently, world population is increasing about 80 million people a year--or about the population of Egypt, each year. Al Bartlett puts it well: Everything general culture regards as "good" is responsible for our population's exponential growth. What we make of this is what we make of it.
WOW!! Channeling Ilargi's thoughts, a new CNN poll shows that 48% of americans believe that we may experience another Great Depression within the next 12 months!
I haven't watched tv news (or much of anything else really) in several years. When I did watch a lttle CNN, I thought that Jack Cafferty was at least interesting. But check out this video from the Cafferty Report.
I find it absolutely stunning (and very refreshing) to see this kind of blunt assessment on a MSM outlet.
"What is to come, is largely a collective choice."
This statement made me immediately think of the scene from The Life of Brian where Brian tells the 'collective', "You've got to think for yourself, you're all Individuals" and the 'collective' repeats, in unison, "Yes, we're all Individuals!"
"What is to come, is largely a collective choice."
Sounds like a condominium association meeting with 7 billion members trying to agree on whether cement lawn ornaments will be allowed or not.
That's funny, I don't recall any 'collective' decisions (I assume that means majority collective, not minority collective) that ever, in all of human history, had any lasting relevance at all.
"We're all going to eat!"
Yay!
"We're all going to consume stuff!"
Double Yay!
"We're all going to reproduce, but not too much, just enough to replace ourselves!"
huh?
Yay any way!
"Lordy, Lordy, it's amazing we all agree about these last three points even though we were so hopelessly deadlocked on that lawn ornament thing."
It's a Miracle!
_
Darn ... I had no effect on the conversation by pointing out that We just missed being sent back into the stone age.
Did you see the solar flares.
Those splashes are the size of the earth.
http://www.nasa.gov/mission_pages/sunearth/news/News060711-blast.html
Darn ... I had no effect on the conversation by pointing out that We just missed being sent back into the stone age.
Jal,
I know as well as anyone how powerful the sun is. However, this sunburst is not that dramatic - it is just that there is now a satellite equipped to monitor the event closely.
This Solar Cycle seems to have been a little late. However, by 2013, it should be in full swing. It would be interesting to see what effect it will have on the climate.
We live in a dangerous universe and it is important to accept it the way it is. Nothing is forever.
@SA,
>>Hmmm, are you looking at the same out of control world I am. If anytime in history that the pecking order is LOSING control is now<<
you have that **exactly** backwards. the reptiles have more control now than ever before.
meditate on it and i think you'll "get it."
http://questioneverything.typepad.com/question_everything/2009/11/humanitys-impending-impasse-.html
Mobus says:
I have contemplated writing a book on the evolution of what I call eusapience, true sapience, as the future of the genus Homo. Necessarily, the species sapiens must go extinct to allow the rise of a new, wiser, species of humans. And an evolutionary bottleneck would be the most likely mechanism for this to happen.
Heh, now that's what they call a tough sell!
I can hear blood vessels popping from here.
the reptiles have more control now than ever before.
I would say that this issue -- just how much in control are the reptiles -- is the great unknown. When debtors can work to pay of their debt, they are controlled. But when enough of them realize they have no way to pay off the debt, well, the game changes.
Another issue for the reptiles is what about the other reptiles?
Nassim,
We live in a dangerous universe and it is important to accept it the way it is. Nothing is forever.
You must be skipping comments. We have it on the authority of a Mr. Secular Animist that lots of people can change anything. Though it might be necessary for me to speak louder or something. I have no idea why that would be important. But I'm willing to do it if it would prevent going back to the stone age.
Though in case that does happen, we can take some comfort in the truism that stone agers never even came close to exhausting their stone reserves. Sustainability Baby!
@ Ka
When debtors can't pay their debts, they will get to learn the real meaning of controlled. The get out of jail free cards should soon disappear from the deck.
Do Lizards have to watch out for other Lizards? Does Sarah Palin know anything at all about Paul Revere? The answers to these questions should be of no concern at all to the likes of you and me. I will say though that the Lizards will have to figure out their own answers, just like Sister Sarah.
@ scandia and others interested in proposed "European Stabilizing Mechanism"... here's the official English draft. First few pages are in Finnish but then you can browse some legal mumbo jumbo that pretty much translates into what I wrote June 5th:
1) the Mechanism will be stationed in Luxemburg as a private bank (funded by member states) always trying to turn profit
2) the bank/Mechanism can invest whatever and wherever it likes as long as funds are not needed to prop up some memberstate (ie. other banks in need of their thoughtfully invested money)
3) if there are investment losses, the bank/Mechanism can demand more funds from memberstates
4) all personel (present, past, future) working in the bank/Mechanism are exempt from
- taxes
- oversight
- responsibility
5) all personel (present, past, future) working in the bank/Mechanism are
- above the law (no dragging into courts)
- to be quiet about the bank/Mechanism for all eternity
- to be "well educated economists" or some such morons
6) bookkeeping and assets are untouchable
7) memberstates have to pay their fees in time passing all other fundings they might think about ie. primary funding obligations are to the bank/Mechanism
8) if you can't pay other memberstates have to fill in the gap
9) if you can't pay you lose your vote - other memberstates will decide for you (buhahaa!)
10) if you are getting funding, your primary duty is still to pay your fees
11) the bank/Mechanism will be working like a glove with IMF camouflaged as private sector responsibility
The fix is in! Everything is a OK!!!
@Lauturi, double damn, the blog monster just ate my long response to the ESM draft!!!!Haven't the heart to repeat myself at the moment. Perhaps this evening.
As IMN's friend, Fred, says, " I need a drink! "
@ scandia
Blog-monster (^_^) my stomach hurts from laughing! Do you know if Blog-monster has any relations to Flying Spagetti Monster? awwww...
I've learnt the hard way that one should always -repeat- ALWAYS copy one's text before submitting. My condolences - been there, done that - many times.
When it comes to ESM draft - it gets weirder the further one reads. The (ir)responsibilities etc. from page 16 onwards sure sound like some absurd alternate dimension speak.
A drink (or few) sure sound an appropriate response (>_<)
pO1
Thanks for the link to Cannibals and Kings. Now I don't have to reinvent an inferior wheel :-)
Group
On a moral level, the Corbett/SA group and we "doomers" are sort of allies and on the same page. We both believe in a non-police state, a reasonably equitable distribution of goods based, at least to some extent, on labor input. That if faced with a choice between a reduction of human misery for the many or ridiculous luxury and coercive power for the few, one should choose the former. In short, we are both anti-reptile.
We differ on what we see the likely outcomes to be, and where we might allocate our scarce resources and energy. We "doomers" see the collapse of high tech and high energy society as baked into the cake, due to peak finance, peak oil, and peak everything else. We see the actual probability of a horrendous collapse of human population with corresponding horrors and misery as an inevitable outcome of our biological heritage, when we learned to utilized a cache of a previously unusable high energy resource, and expanded into the environment. While we are not bacteria in a petrie dish and the rise and fall of our population may be a bit more complicated, we are both life forms that share the same DNA and basic mandate of all life - expand and multiple until you can't.
Realizing that our resources, time, freedom from reptilian coercion, and energy are quite limited, doomers have chosen to put their energy into an attempt to save themselves, their families, and their small local communities. The SA types wish to put the energy into a global talkfest against the reptiles. Youse pays your money and youse takes your choice.
Also note the debating tactics of the Corbett / SA group. First, they deny the most obvious facts, such as populations rise and fall on exponential growth and decline. When your debating partner denies that one plus one equals two, it limits the debate. Second, when one questions their facts and reasoning, they always revert to moral arguments, usually in the form of ad hominen attacks against famous historical figures. They are dependent on this. For example, in this "pissing contest" (as IMN put it), I replied, OK forget Malthus. Agreed, he was rather creepy. We morally upstanding people will produce a set of ideas based on our on research and thoughts. Then he comes back and labels us neo-Malthusians. His ideas cannot stand on their own merit without villainization by association of our moral integrity.
I will concede to SA, that if an impeccable moral figure such as Jesus were to descend from the sky, with Gort standing at the ready behind his right shoulder, and he addressed the reptiles in their Bilderberg convention and said that thou shalt stop this bullshit or else, and he addressed Joe and Jane Bagadonuts and said thou shalt no longer race 500 cu in Trans Am NASCARs on Sunday or else, then we might be able, over many generations, to get the human population down to a sustainable level with very little misery, and stop the mass extinction of our fellow creatures on the planet. My problem is that I regard the probability of this happening at somewhat less than 50%.
For the gold bugs: http://jessescrossroadscafe.blogspot.com/2011/06/kitco-named-by-revenue-quebec-in.html
-----------------------
Kitco accused of big time tax fraud in Quebec.
We are way Way WAY past talking through the 'problems' for 'solutions'.
Number One, we don't have problems, we have dilemmas.
Dilemmas don't have solutions. You can, at best, hope to cope with dilemmas not solve them.
Energy, food, super insulated shelter, non synthetic clothes, transportation, these things are so far into overshoot that even a Victorian 1880's style of technology seems undo-able within decades.
I do want to give a plug for pedal power. Was over at the Energy Bulletin and saw this article on low tech power. It's not going to 'solve' the (ESDA) Energy Slave Disappearing Act, but it might get the garden plowed in The Pinch coming up.
I remember trying stuff like this in the late 70's from Rodale Press until Ronald McDonald Ray-Gun shot the whole conservation thing down as 'evil' to Duhmerican Values.
That's what I luv 'bout Duhmerica, the 'Conservatives' never did, will or do believe in Conservation.
What a Craptabulous country.
_
Pedal Power Link correction
_
@IMN,
Note that I said that if "enough" debtors.... The purpose of debtors prisons is to (a) coerce the families of the imprisoned to get to work to repay the debt, and (b) scare other debtors into paying up. But if the families and the other debtors can't, then all the lizards have is a huge refugee population to feed and house, i.e., a huge expense, and no way to get their money back. What happens then? As I said, it's unknown. I suppose the lizards could try slave labor, but can they succeed on this scale? When you ain't got nothing, you got nothing to lose.
On intralizardry control, what I am wondering (that is, I don't know) is how the control situation works between and among the usastani lizards, the eurolizards, the sinolizards, etc. I doubt that there are 5 Grand Illuminati running the whole show.
From the Energy Bulletin article.
The Pedal Powered Winch: Substituting a Farm Horse or Tractor
This does work surprisingly well. We modified a standard 'come-along' winch to a pedal crank and it is quite powerful.
You won't be needing that gym membership in the future.
If people compliment your taunt buff farmhand physique and ask,"Do you work out?"
You can say, "No, I just work."
_
El.G. thanks for the suggestion. I have been meaning to order some of Joe B.'s books.
@El G, re your proposal that Jesus be invited to the Bilderberg meeting, I've been pondering how all the Christians, the multitude of priests,clerics,padres,popes and nuns rationalize their compliance, their willing cohabitation with reptiles?
I am not a Christian because I know I would betray the teachings before the day had passed.I can't sleep when I take vows I don't intend to keep. So I always wonder how others who take the faith to heart sleep at night? Apparently quite well so what am I missing?
Intra-lizardry Control
Not only are they into infanticide, fratricide, sistercide (:>)?), matricide, homicide, genocide, ecocide and even coincide, they are Cannibals.
The Lizard Class has all the bases covered (with slime)
_
Robert said...
El.G. thanks for the suggestion. I have been meaning to order some of Joe B.'s books.
======
That's easy because he only wrote two, and he just managed to squeak out the second one, Rainbow Pie, before he died. For non-fiction, they are real page turners, filled with humor and Southern cussing.
A Walk in the Woods said...
Intra-lizardry Control
==========
I should be an expert in this as I observed the numerous geckos on my deck in the Caribbean vie for territory for 13 years. But geckos seem so much cuter than your average Bilderberg financier. Maybe if they weighed 400 kilos and ate people (like Bilderbergers), I would change my mind.
People may find the progressive rate chart for a Mexican residential electric bill interesting. The billing period is 2 months, so monthly usage before you jump into a new bracket has to be divided by two. Converted to USD.
Basico 1st 150kWh 6.1 cents per kWh
Intermedio next 250 kWh 7.4
Excedente over 400 kWh 21.5
(Sorry, it's nearly impossible to format in blogspot comment)
scandia,
I'm guessing the reason Christians can sleep might be attributable to perhaps having an understanding of the deeper meaning of their religion. That it is imperial right down to the bone. Rev. Malthus prescriptions for what to do about the poor (who we are told will always be with us) is morally reprehensible, in any religious context, but well within the boundaries of permissible Christian thought. Reading the bible was enough to cure me of Christianity. I don't know if this video represents ultimate incontrovertible truth, but I did find it interesting and not beyond reasonable. If it is accurate, then Jesus does show up at Bilderburg.
Zeitgeist
RE Malthusian immoral thoughts.
Once again Sere N. Dipity brings two threads together. I was looking for info on animal powered machinery and came across this paragraph about a UK happening in his time. The Lizards responded as they are wont to do.
The Swing Riots in the UK were partly a result of the threshing machine. Following years of war, high taxes and low wages, farm labourers finally revolted in 1830. These farm labourers had faced unemployment for a number of years due to the widespread introduction of the threshing machine and the policy of enclosing fields. No longer were thousands of men needed to tend the crops, a few would suffice. With fewer jobs, lower wages and no prospects of things improving for these workers the threshing machine was the final straw, the machine was to place them on the brink of starvation. The Swing Rioters smashed threshing machines and threatened farmers who had them.
The riots were dealt with very harshly. Nine of the rioters were hanged and a further 450 were transported to Australia.
@ Ka
I think the above speaks to your questions. The Lizards will not feed and house the "refugees" they will let them starve and kill any that refuse to do so quietly. Losing their credit bets will make them less wealthy, monetarily, but they will still be Lizards. Actually, we are being very unfair to lizards (the kind that look like reptiles) here.
El G,I miss Geckos. We see them in most tropical areas and we love to watch them run across the ceiling upside down. Where we live we just have cute little lizards chasing flies on our terrace.
Seen the big ones on Rinca Island near Komodo Island. Can't say I cared much for them. They would hunt deer and buffalo and seemed very interested in hunting us.
@IMN,
I am not expecting the masses with nothing to lose to successfully revolt against TPTB. But, as Stoneleigh has said, I expect the areas of control to contract due to energy scarcity (unlike 1830), leaving uncontrolled peripheries available for the aforementioned masses to inhabit. A nasty, brutish, and short inhabitation in many cases, to be sure, but where the eventual replacement to industrial civilization will work itself out.
That is, this is one possible scenario.
Ka,
Agree on that being a possibility. Doomsteading is not the only approach to preparing for collapse. For some, it may well be better to, as Willie Nelson's character Doc Holliday says in the 1986 remake of Stagecoach regarding a telegram requesting his help, "travel lightly and come well balanced." Referring to a Colt revolver on each hip. It may take some travelling to find those anarchic areas.
@IMN....thank-you so much for that offering of " Zeitgeist". I feel like I've been stomach punched! I had not been aware of the plagarism/sources of the Christian story, of the Horus myth. To think I've lived many years thinking I carried some mutant gene, that there was something fundamentally wrong with me for not being a " good Christian ". The film has set me free.
The chapter on the history of central banks intentionally setting up panic is particularly timely /relevant to current events.
Its like taking candy from a baby to fleece panicking sheep!
The final segment on people wanting/willing to be microchipped is beyond chilling.Shish, I wouldn't even do that to my cat let alone my child!
If the board hasn't seen " Zeitgeist " take a couple of hours and do it now via IMN's link.
Ka,
Sere N. Dipity rides again. I treat myself to a a couple of morsels of Fred everyday. I think it helps keep me somewhere near well balanced. And, of course, todays read seemed to speak at least obliquely to your points. Damn!, that Sere is one mysterious creature.
Revolt and jihad are for the young. Fred writes about the well established route taken by some with lots of experiences, and little else. It may vaguely resemble where some of us might end up as the Terra Planet swirls toward the abyss. May be worth a small investment of hopium.
Drunks, Time, Life, Death, and Such
It seems that Mr. Market is starting to get the message that Benny the Fix will be out of the really good crank in 20 days. This will be the summer of our discontent until they fly in the next shipment to 33 Liberty Street and hand out the little packets to Lloyd, Jaime and the gang. Expect a lot of ugly hallucinations, particularly among the Ph.D. talking heads. How much pain can we take before they open the store again?
scandia,
As near as I can tell with a year and a half of comments to go by, there seems to be about as little wrong with you as any human that has ever lived. If my posting a link to a video helped you realize that, then my mission is already accomplished. Any future good that I might do would just be gravy.
Thanks, you have made my day.
el g,
I see what you mean and doing good things for the dollar, just like Stoneleigh says. Which, BTW, I heard her say again last night at the Sebastopol Grange. The gentleman sitting next to me said he knows Jim Sinclair and quoted him as saying the dollar is toast. I demurred. It may be toast someday, but not quite yet. He also said several times "she is brilliant" and took copious notes. I quite agree with that.
@IMN,
That Mr. (or is it Ms.) Dipity is something else, thanks for the link -- Fred describes well my ideal retirement plan.
Scandia,
I agree with IMN.
It's a little like being a musician in a grade school band that is butchering a beloved piece by Mozart. Your love for the music is not diminished. Like Stoneleigh traveling the world, you do what you can because you are called to it and can do nothing else. It's how we love. The quality of the band, or audience, or yourself is not the issue. You just play your heart out. Does it bother us the band is so darn bad? Sure. But that's not the point. Does it bother us we're such limited players? Sure. But the music is the point. Just the music. Like IMN, I've been listening to play and there's no doubt you've got music....
Ka,
I guess I should spell it Sara. In my mind, definitely female.
http://www.nasa.gov/mission_pages/sunearth/news/News060711-blast.html
UPDATE - 06.10.11:The CME from Tuesday's spectacular flare still hasn't reached Earth.
NOAA forecasters estimate a 20-30% chance that the cloud may yet deliver a glancing blow to our planet's magnetic field and spark geomagnetic storms during the next 24 hours. High latitude sky watchers should remain alert for auroras.
Also, the two STEREO video have been replaced with better quality versions. Check them out.
The riots were dealt with very harshly. Nine of the rioters were hanged and a further 450 were transported to Australia.
That seems quite lenient to me - compared to what is happening in Bahrain, Syria, Yemen and so on.
Nassim,
Quite true, but shouldn't we allow for that being a rebellion in a rural population and those Lizards didn't have automatic weapons for their mercenaries.
It is worth paying attention to what the Lizards in those countries are willing to do without apparently feeling any remorse. I don't think they differ in any very significant way from Lizards everywhere. The people in the streets do seem to have something not often observed. It will be interesting to see what other populations have to show.
Nassim said...
The riots were dealt with very harshly. Nine of the rioters were hanged and a further 450 were transported to Australia.
That seems quite lenient to me - compared to what is happening in Bahrain, Syria, Yemen and so on.
===========
Hanging the nine was lenient but sending the remainder to Australia was something else again :-)
sending the remainder to Australia was something else again
Just my point :)
Robert said...
Seen the big ones on Rinca Island near Komodo Island. Can't say I cared much for them. They would hunt deer and buffalo and seemed very interested in hunting us.
==============
I saw a video that indicated that the last human that a Komodo dragon ate was a Swiss missionary. He was quite popular and they have petitioned the Swiss rectory to send a replacement. They used to be considered more foul mouthed than Bevis and Butthead, but scientists have recently discovered that they are in fact venomous. But, hey, we discuss venomous lizards all day long here.
@IMN and Ric, How do I hug you back:)
Just saw a headline of a developing story that some Swiss politicians are attempting to arrest Kissinger!!! Wow, now there's a reptile that needs a cage.
Another post deleted. I get the feeling you ladies would rather be alone.
ZH has the list of the Bilderberg attendees. Can you guess who Ireland sent?
Peter D. Sutherland, Chairman of Goldman Sachs Int'l!!!
Can't make this shit up:)
@scandia,
>>I've been pondering how all the Christians, the multitude of priests,clerics,padres,popes and nuns rationalize their compliance, their willing cohabitation with reptiles?
I am not a Christian because I know I would betray the teachings before the day had passed.I can't sleep when I take vows I don't intend to keep. So I always wonder how others who take the faith to heart sleep at night? Apparently quite well so what am I missing?<<
the bible is an amazing book. did you know it says the following?
Mat 24:5 - 5For many shall come in my name, saying, I am Christ; and shall deceive many.
who comes in jesus' name and says that jesus is christ?
who are christians, alex!
so this is nothing new.
religion is most often used as just another bureaucratic control mechanism.
but that doesn't reflect badly on god, it reflects badly on those who put self interest waaaaay ahead of the interests of others, contrary to what god desires.
you have insight into how gracious god is - forgiving us in spite of ourselves, not because we have aren't spiritual train wrecks.
god really is good in spite of scriptures that portray him as pretty mean when taken out of context (those people he killed in the old testament will live again and experience much better times - see ezekiel 37) and despite how badly those coming in his name and proclaiming jesus to be christ have deceived people.
I've been pondering how all the Christians, the multitude of priests,clerics,padres,popes and nuns rationalize their compliance, their willing cohabitation with reptiles?
scandia,
Personally, I think there is a good future in store for priests. Whoever ends up running the place will need them to keep the plebs in check by promising them a better afterlife.
I am not saying that they will be Christians or whatever as I suspect it is about time some new religion replaced the ones that have been unable to fulfil their promises.
In this week's Guns & Butter, Bonnie Faulkner interviews physics Prof. Steven Jones. Jones is a hero of mine for some research and experiments that he has published regarding 9/11, and he was forced into early retirement by BYU where he was a full professor and tenured. He is world recognized and had his muon induced fusion experiments published in Nature, which is considered to be the foremost scientific journal on the planet. It is always a pleasure to listen to him as he is a very amiable and modest fellow, but the work he described in the last 15 minutes of the interview may be mind blowing to many here, though I have been following it myself for the last 7 years as part of my tin foil hat persona. The suppression of this open source research and development may be the determinant battle between the Reptiles and the rest of us, and I cannot recommend strongly enough that you listen to the program in its entirety.
http://www.kpfa.org/archive/id/70471
Arnie Gundersen has a new post at: http://www.fairewinds.com/
He carefully explains US law regarding allowed individual exposure to radiation in the event of an incident such as happened at Fukushima. He gives a good analysis of how the current evacuation plans are based on unrealistic assumptions and are inadequate.
Sober reading for anybody near one of these plants.
Blogger Metanis said...
Another post deleted. I get the feeling you ladies would rather be alone.
-------------------------------------
Hi Metanis, are you sure you are not making some kind of mistake in posting. My last several posts have appeared, instantly, obviously without monitoring.
Cheers,
Robert
@Metanis and Robert
As Robert says, Blogger has been having very serious issues lately. At various times I've been unable to read comments, unable to post them, and seen them go through unmoderated.
Murphy's Law applies even to a Rothschild in a black helicopter wearing a tinfoil hat.
El G
Re over unity devices. The thought of anybody being able to own a 1KW+ effectively free energy device at say less than $1000 must be giving those invested in the current business model hernias.
As you say, the issue is whether they will be able to keep a lid on it. Looks like Celente was right after all.
http://tinyurl.com/4xxycol
Link to the Gabriel Device mentioned by Steven Jones
New post up.
The Future of Physical Gold, Part IV - Deflationary Canyons and Caves
.
el g said
"" We "doomers" see the collapse of high tech and high energy society as baked into the cake, due to peak finance, peak oil, and peak everything else.""
I agree the global economy, the way it's configured and the rules its based off of, is likely in for a massive collapse over the next 10 years, if not sooner(the faster and harder the better). This collapse will precipitate and lot of unnecessary bad behavior if not kept in check could go a lot of very ugly places.
Now, there is a distinction between the ability to have a functioning "society" and the crumbling of the old one around us. Indeed, the doomsday machine, known as the global economy, is going to collapse. Why people think this is bad is beyond me being that it is based off such an incompetent set of rules and flawed view of the world.
I'll even take it a little further and say, unless we fundamentally change the way decisions are made at societal and individual levels "civilization" will become increasingly dysfunctional and be coupled with increasing bouts a group and individual bad behavior along with other forms of decay.
Yes, a collapse is baked in the cake. How, we collectively respond is not. Running around after screaming "overshoot! There are too many people" in the midst massive social disfunction probably won't help said group behavior or path the way to any type of functioning society. You kind of stick yourself in a fatalistic corner of no escape. This is not to say human impact on the planet, population dynamics and the integrity of our physical systems should not be well understood. On the contrary, it is of the utmost importance.
Where I differ, and I don't know Corbett's views, is what is possible after words.
""We see the actual probability of a horrendous collapse of human population with corresponding horrors and misery as an inevitable outcome of our biological heritage,""
Self-awareness couple with our big brains is probably our most dangerous feature. It's also what makes us such a special species in the biosphere. We certainly may have an ugly population decline, but it is not for the reasons malthus explained or necessarily lack of materials. What we lack is a vision, a rational set of rules to operate society by (which includes a radically different way to interface with the earth) as well as something of the spiritual nature.
""First, they deny the most obvious facts, such as populations rise and fall on exponential growth and decline""
Oh God, here we go again. This statement is false. We know this because of data. No matter how many times or how many different ways you educate those with MDD(Malthusian derangement disorder) they will never except that population is not growing exponentially, or is on it's way to stop, regardless of physical restraints. For some reason they just block it out. Such a strange behavior.
"Semmelweis effect" is a metaphor for the reflex-like rejection of new knowledge because it contradicts entrenched norms, beliefs or paradigms. It refers to Ignaz Semmelweis, who discovered that childbed fever mortality rates could be reduced ten-fold if doctors would wash their hands with a chlorine solution between having contact with infected patients and non-infected patients. Doctors just would not accept this. They said it was unscientific. He ended up dying in a mental institute because nobody would listen to him. I understand the frustration;)
""First, they deny the most obvious facts, such as populations rise and fall on exponential growth and decline""
Oh God, here we go again.
Post a Comment