"New Austerity" Threatening Global Recovery?

Via Pension Pulse.

Earlier
this week, George Soros said German
fiscal policy endangers the European currency union:

“The
German policy is a danger for Europe, it could destroy the European
project,” Soros was quoted as saying. “If the Germans do not change
their policy, their exit from the currency union would be helpful for
the rest of Europe,” he added, according to the report.

Soros
also said that one “can’t rule out a collapse of the euro,” Die Zeit
said.

Collapse of the euro? Obviously Soros is short
euros, but he's not the only one concerned about Europe's fiscal
policies. In counterpunch's weekend edition, Michael Hudson writes, Europe's Fiscal
Dystopia: the "New Austerity" Road:

Europe
is committing fiscal suicide – and will have little trouble finding
allies at this weekend’s G-20 meetings in Toronto. Despite the
deepening Great Recession threatening to bring on outright depression,
European Central Bank (ECB) president Jean-Claude Trichet and prime
ministers from Britain’s David Cameron to Greece’s George Papandreou
(president of the Socialist International) and Canada’s host,
Conservative Premier Stephen Harper, are calling for cutbacks in public
spending.

The United States is playing an
ambiguous role. The Obama Administration is all for slashing Social
Security and pensions, euphemized as “balancing the budget.” Wall
Street is demanding “realistic” write-downs of state and local pensions
in keeping with the “ability to pay” (that is, to pay without taxing
real estate, finance or the upper income brackets). These local
pensions have been left unfunded so that communities can cut real
estate taxes, enabling site-rental values to be pledged to the banks of
interest. Without a debt write-down (by mortgage bankers or
bondholders), there is no way that any mathematical model can come up
with a means of paying these pensions. To enable workers to live
“freely” after their working days are over would require either (1)
that bondholders not be paid (“unthinkable”) or (2) that property taxes
be raised, forcing even more homes into negative equity and leading to
even more walkaways and bank losses on their junk mortgages. Given the
fact that the banks are writing national economic policy these days,
it doesn’t look good for people expecting a leisure society to
materialize any time soon.

The problem for U.S. officials is that Europe’s sudden
passion for slashing public pensions and other social spending will
shrink European economies, slowing U.S. export growth. U.S. officials
are urging Europe not to wage its fiscal war against labor quite yet.
Best to coordinate with the United States after a modicum of recovery.

Saturday and Sunday will see the six-month mark
in a carefully orchestrated financial war against the “real” economy.
The buildup began here in the United States. On February 18, President
Obama stacked his White House Deficit Commission (formally the National
Commission on Fiscal Responsibility and Reform) with the same brand of
neoliberal ideologues who comprised the notorious 1982 Greenspan
Commission on Social Security “reform.”

The
pro-financial, anti-labor and anti-government restructurings since 1980
have given the word “reform” a bad name. The commission is headed by
former Republican Wyoming Senator Alan Simpson (who explained
derisively that Social Security is for the “lesser people”) and Clinton
neoliberal Erskine Bowles, who led the fight for the Balanced Budget
Act of 1997. Also on the committee are bluedog Democrat Max Baucus of
Montana (the pro-Wall Street Finance Committee chairman). The result is
an Obama anti-change dream: bipartisan advocacy for balanced budgets,
which means in practice to stop running budget deficits – the deficits
that Keynes explained were necessary to fuel economic recovery by
providing liquidity and purchasing power.

A balanced budget in an economic downturn means
shrinkage for the private sector. Coming as the Western economies move
into a debt deflation, the policy means shrinking markets for goods and
services – all to support banking claims on the “real”
economy.

The exercise in managing public
perceptions to imagine that all this is a good thing was escalated in
April with the manufactured Greek crisis. Newspapers throughout the
world breathlessly discovered that Greece was not taxing the wealthy
classes. They joined in a chorus to demand that workers be taxed more
to make up for the tax shift off wealth. It was their version of the
Obama Plan (that is, old-time Rubinomics).

On
June 3, the World Bank reiterated the New Austerity doctrine, as if it
were a new discovery: The way to prosperity is via austerity. “Rich
counties can help developing economies grow faster by rapidly cutting
government spending or raising taxes.” The New Fiscal Conservatism aims
to corral all countries to scale back social spending in order to
“stabilize” economies by a balanced budget. This is to be achieved by
impoverishing labor, slashing wages, reducing social spending and
rolling back the clock to the good old class war as it flourished
before the Progressive Era.

The rationale is
the discredited “crowding out” theory:

Budget deficits mean more borrowing, which bids
up interest rates. Lower interest rates are supposed to help countries –
or would, if borrowing was for productive capital formation. But this
is not how financial markets operate in today’s world. Lower interest
rates simply make it cheaper and easier for corporate raiders or
speculators to capitalize a given flow of earnings at a higher multiple,
loading the economy down with even more debt!

Alan Greenspan parroted the World Bank announcement
almost word for word in a June 18 Wall Street Journal op-ed.
Running deficits is supposed to increase interest rates. It looks like
the stage is being set for a big interest-rate jump – and corresponding
stock and bond market crash as the “suckers’ rally” comes to an abrupt
end in months to come.

The idea is to create an artificial financial crisis,
to come in and “save” it by imposing on Europe and North America a
“Greek-style” cutbacks in social security and pensions. For the United
States, state and local pensions in particular are to be cut back by
“emergency” measures to “free” government budgets.

All this is an inversion of the social philosophy that
most voters hold. This is the political problem inherent in the
neoliberal worldview. It is diametrically opposed to the original
liberalism of Adam Smith and his successors. The idea of a free market
in the 19th century was one free from predatory rentier
financial and property claims. Today, an Ayn-Rand-style “free market” is
a market free for predators. The world is being treated to a travesty
of liberalism and free markets.

This shows
the usual ignorance of how interest rates are really set – a blind
spot which is a precondition for being approved for the post of central
banker these days. Ignored is the fact that central banks determine
interest rates by creating credit. Under the ECB rules, central banks
cannot do this. Yet that is precisely what central banks were created
to do. European governments are obliged to borrow from commercial
banks.

This financial stranglehold threatens
either to break up Europe or to plunge it into the same kind of poverty
that the EU is imposing on the Baltics. Latvia is the prime example.
Despite a plunge of over 20 per cent in its GDP, its central bankers
are running a budget surplus, in the hope of lowering wage rates.
Public-sector wages have been driven down by over 30 per cent, and the
government expresses the hope for yet further cuts – spreading to the
private sector. Spending on hospitals, ambulance care and schooling has
been drastically cut back.

What is missing from this argument? The cost of labor
can be lowered by a classical restoration of progressive taxes and a
tax shift back onto property – land and rentier income. Instead, the
cost of living is to be raised, by shifting the tax burden further onto
labor and off real estate and finance. The idea is for the economic
surplus to be pledged for debt service.

In
England, Ambrose Evans-Pritchard has described a “euro mutiny” against
regressive fiscal policy. But it is more than that. Beyond merely
shrinking the economy, the neoliberal aim is to change the shape of the
trajectory along which Western civilization has been moving for the
past two centuries. It is nothing less than to roll back Social
Security and pensions for labor, health care, education and other
public spending, to dismantle the social welfare state, the Progressive
Era and even classical liberalism.

So we are
witnessing a policy long in the planning, now being unleashed in a
full-court press. The rentier interests, the vested interests
that a century of Progressive Era, New Deal and kindred reforms sought
to subordinate to the economy at large, are fighting back. And they are
in control, with their own representatives in power – ironically, as
Social Democrats and Labor party leaders, from President Obama here to
President Papandreou in Greece and President Jose Luis Rodriguez
Zapatero in Spain.

Having bided their time for
the past few years the global predatory class is now making its move
to “free” economies from the social philosophy long thought to have
been irreversibly built into the economic system: Social Security and
old-age pensions so that labor didn’t have to be paid higher wages to
save for its own retirement; public education and health care to raise
labor productivity; basic infrastructure spending to lower the costs of
doing business; anti-monopoly price regulation to prevent prices from
rising above the necessary costs of production; and central banking to
stabilize economies by monetizing government deficits rather than
forcing the economy to rely on commercial bank credit under conditions
where property and income are collateralized to pay the
interest-bearing debts, culminating in forfeitures as the logical
culmination of the Miracle of Compound Interest.

This is the Junk Economics
that financial lobbyists are trying to sell to voters: “Prosperity
requires austerity.” “An independent central bank is the hallmark of
democracy.” “Governments are just like families: they have to balance
the budget.” “It is all the result of aging populations, not debt
overload.” These are the oxymorons to which the world will be treated
during the coming week in Toronto.

It is the
rhetoric of fiscal and financial class war. The problem is that there
is not enough economic surplus available to pay the financial sector on
its bad loans while also paying pensions and social security.
Something has to give. The commission is to provide a cover story for a
revived Rubinomics, this time aimed not at the former Soviet Union but
here at home. Its aim is to scale back Social Security while reviving
George Bush’s aborted privatization plan to send FICA paycheck
withholding into the stock market – that is, into the hands of money
managers to stick into an array of junk financial packages designed to
skim off labor’s savings.

So Obama is
hypocritical in warning Europe not to go too far too fast to shrink its
economy and squeeze out a rising army of the unemployed. His idea at
home is to do the same thing. The strategy is to panic voters about the
federal debt – panic them enough to oppose spending on the social
programs designed to help them. The fiscal crisis is being blamed on
demographic mathematics of an aging population – not on the
exponentially soaring debt overhead, junk loans and massive financial
fraud that the government is bailing out.

What really is causing the financial and fiscal
squeeze, of course, is the fact that that government funding is now
needed to compensate the financial sector for what promises to be year
after year of losses as loans go bad in economies that are all loaned up
and sinking into negative equity.

When
politicians let the financial sector run the show, their natural
preference is to turn the economy into a grab bag. And they usually
come out ahead. That’s what the words “foreclosure,” “forfeiture” and
“liquidate” mean – along with “sound money,” “business confidence” and
the usual consequences, “debt deflation” and “debt peonage.”

Somebody must take a loss on the economy’s bad loans –
and bankers want the economy to take the loss, to “save the financial
system.” From the financial sector’s vantage point, the economy is to
be managed to preserve bank liquidity, rather than the financial system
run to serve the economy. Government social spending (on everything
apart from bank bailouts and financial subsidies), disposable personal
income are to be cut back to keep the debt overhead from being written
down. Corporate cash flow is to be used to pay creditors, not employ
more labor and make long-term capital investment.

The economy is to be sacrificed to subsidize the
fantasy that debts can be paid, if only banks can be “made whole” to
begin lending again – that is, to resume loading the economy down with
even more debt, causing yet more intrusive debt deflation.

This is not the familiar old 19th-century class war of
industrial employers against labor, although that is part of what is
happening. It is above all a war of the financial sector against the
“real” economy: industry as well as labor.

The
underlying reality is indeed that pensions cannot be paid – at least,
not paid out of financial gains. For the past fifty years the Western
economies have indulged the fantasy of paying retirees out of purely
financial gains (M-M’ as Marxists would put it), not out of an
expanding economy (M-C-M’, employing labor to produce more output). The
myth was that finance would take the form of productive loans to
increase capital formation and hiring. The reality is that finance
takes the form of debt – and gambling. Its gains were therefore made
from the economy at large. They were extractive, not productive. Wealth
at the rentier top of the economic pyramid shrank the base
below. So something has to give. The question is, what form will the
“give” take? And who will do the giving – and be the recipients?

The Greek government has been unwilling to tax the
rich. So labor must make up the fiscal gap, by permitting its socialist
government to cut back pensions, health care, education and other
social spending – all to bail out the financial sector from an
exponential growth that is impossible to realize in practice. The
economy is being sacrificed to an impossible dream. Yet instead of
blaming the problem on the exponential growth in bank claims that cannot
be paid, bank lobbyists – and the G-20 politicians dependent on their
campaign funding – are promoting the myth that the problem is
demographic: an aging population expecting Social Security and employer
pensions. Instead of paying these, governments are being told to use
their taxing and credit-creating power to bail out the financial
sector’s claims for payment.

Latvia has been
held out as the poster child for what the EU is recommending for Greece
and the other southern EU countries in trouble: Slashing public
spending on education and health has reduced public-sector wages by 30
per cent, and they are still falling. Property prices have fallen by 70
percent – and homeowners and their extended family of co-signers are
liable for the negative equity, plunging them into a life of debt
peonage if they do not take the hint and emigrate.

The bizarre pretense for government budget cutbacks in
the face of a post-bubble economic downturn is that the supposed aim is
to rebuild “confidence.” It is as if fiscal self-destruction can
instill confidence rather than prompting investors to flee the euro.
The logic seems to be the familiar old class war, rolling back the
clock to the hard-line tax philosophy of a bygone era – rolling back
Social Security and public pensions, rolling back public spending on
education and other basic needs, and above all, increasing unemployment
to drive down wage levels. This was made explicit by Latvia’s central
bank – which EU central bankers hold up as a “model” of economic
shrinkage for other countries to follow.

It
is a self-destructive logic. Exacerbating the economic downturn will
reduce tax revenues, making budget deficits even worse in a declining
spiral. Latvia’s experience shows that the response to economic
shrinkage is emigration of skilled labor and capital flight. Europe’s
policy of planned economic shrinkage in fact controverts the prime
assumption of political and economic textbooks: the axiom that voters
act in their self-interest, and that economies choose to grow, not to
destroy themselves. Today, European democracies – and even the Social
Democratic, Socialist and labour Parties – are running for office on a
fiscal and financial policy platform that opposes the interests of most
voters, and even industry.

The explanation,
of course, is that today’s economic planning is not being done
by elected representatives. Planning authority has been relinquished
to the hands of “independent” central banks, which in turn act as the
lobbyists for commercial banks selling their product – debt. From the
central bank’s vantage point, the “economic problem” is how to keep
commercial banks and other financial institutions solvent in a
post-bubble economy. How can they get paid for debts that are beyond
the ability of many people to pay, in an environment of rising
defaults?

The answer is that creditors can get
paid only at the economy’s expense. The remaining economic surplus
must go to them, not to capital investment, employment or social
spending.

This is
the problem with the financial view. It is short-term – and predatory.
Given a choice between operating the banks to promote the economy, or
running the economy to benefit the banks, bankers always will choose
the latter alternative. And so will the politicians they support.

Governments need huge sums to bail out the banks
from their bad loans. But they cannot borrow more, because of the debt
squeeze. So the bad-debt loss must be passed onto labor and industry.
The cover story is that government bailouts will permit the banks to
start lending again, to reflate the Bubble Economy’s Ponzi-borrowing.
But there is already too much negative equity and there is no leeway
left to restart the bubble. Economies are all “loaned up.” Real estate
rents, corporate cash flow and public taxing power cannot support
further borrowing – no matter how wealth the government gives to banks.
Asset prices have plunged into negative equity territory. Debt
deflation is shrinking markets, corporate profits and cash flow. The
Miracle of Compound Interest dynamic has culminated in defaults,
reflecting the inability of debtors to sustain the exponential rise in
carrying charges that “financial solvency” requires.

If the financial sector can
be rescued only by cutting back social spending on Social Security,
health care and education, bolstered by more privatization sell-offs,
is it worth the price? To sacrifice the economy in this way would
violate most peoples’ social values of equity and fairness rooted deep
in Enlightenment philosophy.

That is the
political problem: How can bankers persuade voters to approve this
under a democratic system? It is necessary to orchestrate and manage
their perceptions. Their poverty must be portrayed as desirable – as a
step toward future prosperity.

A half-century
of failed IMF austerity plans imposed on hapless Third World debtors
should have dispelled forever the idea that the way to prosperity is
via austerity. The ground has been paved for this attitude by a
generation of purging the academic curriculum of knowledge that there
ever was an alternative economic philosophy to that sponsored by the
rentier Counter-Enlightenment. Classical value and price theory
reflected John Locke’s labor theory of property: A person’s wealth
should be what he or she creates with their own labor and enterprise,
not by insider dealing or special privilege.

This
is why I say that Europe is dying. If its trajectory is not changed,
the EU must succumb to a financial coup d’êtat rolling back
the past three centuries of Enlightenment social philosophy. The
question is whether a break-up is now the only way to recover its
social democratic ideals from the banks that have taken over its
central planning organs.

I am
more optimistic than Michael on Europe. There will be short-term pain,
workers will be squeezed, but longer-term, if Europe survives this
crisis, these reforms will put it back on solid footing for many years
to come. This doesn't mean the Euro can't go lower (I think it will),
but I feel that doomsayers are premature pronouncing Europe's death.

Of
course, if the G20 only focuses on austerity measures and ignores
growth and how to tackle long-term structural problems like high
unemployment, then the world economy will slip into a protracted
deflationary death spiral.

Finally, take the time to watch
Bloomberg's interview with Rod Smyth, chief investment strategist at
Riverfront Investment Group and Richard Regan of Protradingcourse.com (click here to watch).
Below, RT's Anissa Naouai interviews Ella Kokotsis to get her take on
what we can expect from this weekend's meeting.

Comments

[jeff montanye]

hudson's main point was not yes or no on government debt (apparently a real hot button issue for many here --  hope they were screaming at reagan and the bushes as they ran it up in the expansion part of the deflationary cycle).  

the point is do the banks get to have unlimited access to the people's treasury (if it is not the people's whose is it?) to try to keep up with the impossible compound interest they wrote in their bad loans or don't they?  this is the point.  address it.  much of the increasing government debt very recently flows from exactly this cause, not, say, cash for clunkers or the (generally marginally productive) infrastructure improvements of the "stimulus".

[Mitchman]

Tell the truth Leo.  Did Tim Geithner ghost write this stuff?

[jeff montanye]

did you even read it?   how could you possibly imagine geithner or anyone in obama's administration could have written it?   it is diametrically opposed to the direction that they are going and that the carbon copy treasury department of the bush administration went before them.  

the vast bulk of the comments on this thread continue to beat their tired old hobby horses while not addressing in any substance the points of the piece (true of leo too).  the concept of tbtf is not most importantly a social justice issue (though it is that).  it is an economic one.  it is a dead end that, in the attempt to tax the rest of the economy to continue to bail out the banks' (broadly defined) bad debts, will bring down the economy at large.  attempting fiscal surpluses in a deflationary depression is counter to sense.  it is like the deficits run by reagan and the bushes in the expansion (and the greek socialists, this is not partisan).  it will force a downward spiral that will still not solve the problem.  

educate yourselves.  examine the experience of the nordic banks in their banking crisis versus that of the japanese (and now the americans and europeans).  it is the ultimate perversion of democracy (and market capitalism) by vested interests and it will destroy all of us if it is not countered and changed.  the too big to fail must fail.  but don't use the word as it scares people.  say be restructured.  but this is the point and not another.

[Mitchman]

You are correct, of course and I was being snarky.  My apologies.

[ViewfromUnderth...]

more power to you JM...bonuses after they've marked to market, not before

[chindit13]

And don't frontload the "expected profits" on a multi-year instrument just to get the bonus ASAP.

[Sudden Debt]

Europe is actually doing the right thing. Don't spend what you don't have. Cut expenses to pay down debt and don't make it worse.

The American style spending will put a hughe debt burden on the backs of future American generations if it doesn't do the same.

And as we all know that a QE2 is just arround the corner, it will all soon be to late.

If you want something you need to work for it. Not all can be for free because some hippies think it's the utopian way of life. There is always somebody paying for it and if there aren't you are printing money and that also costs EVERYBODY money because our money is worth less.

Europe is now already 2 times as big as America. 540 million people live there. And if America doesn't cut it's spending it will lose it's economic 1ste place to Europe sooner then you think.

[TBT or not TBT]

"Europe is now already 2 times as big as America. 540 million people live there. "

There are a lot of them living in that geographical region, but you shouldn't want to be  'em.   Demography is going to hell in two ways.  Age up, cultural homogeniety down.   The replacement population doesn't show much promise of creating wealth, and it's pissing off the natives that expected to get back what they put in to the government ponzis.   They'll wise up too late though, if they wise up at all. 

The above article points up the false direction the populism is likely to take first:  get pissed at bankers and globalism and service- and benefits-cutting politcians.   They were raised on soft marxist justifications for the welfare state, from K through post-doc, and in every media outlet.

The existential issue, the issue that, you know, their civilisation is headed out of existence for an entirely different reason, will probably come to the fore too late.   To win a civil war, it helps to have youth on your side.  The immigrant population has that.  The natives have ever less of it.

Their plan to cut government, cut benefits, raise retirement ages, bust unions, liberalise employment regulations, etc, will be too little too late because the demographics aren't there.

The case of Japan doesn't provide a good case study for how Europe will go because Europe has no solidarity, not even within each nation-state.   Europe went multiculti, and the "Europe" we knew and liked to visit will die from it.

[DoChenRollingBearing]

Your take on Europe matches my visits there, my conversations with Europeans here, and what I read. 

I am no expert on Europe (just ask Muir!), but anyone who has been to Europe regularly over the past 25 years knows there are few "native" babies and that their immigrant problems are at least as bad as ours, worse in some cases (France).

If I had to call it, I would say Europe "goes" first.  Then Japan and the USA next. 

I do not see any really good hiding places.

[moneymutt]

don't spend what you don't have, hmmm...one person's debt is another person credit/wealth....so if we default, someone loses wealth, if we pay, we lose wealth....who has debt, who has wealth...some would say many with wealth are spending something they don't have...

[anony]

There is no "europe" as a country. It is a continent.  There is Germany, France, Spain, Greece, Italy, Portugal, etc. all with different languages, cultures, and financial acumen, production (or not).

To speak of 'Europe having 540,000,000' is to blithely ignore the power the people have to revolt in each of those countries as is frequently demonstrated in France and Greece.  Try and mount even a fraction of the people in the United States for an assault on the throne and see how far you get.  

Europe is far more divided than the United States.  Ironically, it's greatest advantage is its disunity.  We could learn a lot from those countries on that continent. How much easier it would be to attack, protest, burn cars, stop traffic, assassinate, and other anarchic tactics to make known the anger people here have with their utterly corrupt officials, elected and not,  in 20 different governments in what now comprises the united states.

Agree that qe2 is going to be bigger (and better) hopefully  for long enough to jack up prices in assets thru hyperinflation for one last chance to sell everything at the highest possible prices and head for the outback for awhile, and watch from the hinterlands as interest rates head for the 20%+ range, and things truly implode to begin all over again at dirt cheap rates. 

Maybe Volcker will even live long enough to give us another chance as he did in the late 70s-early 80s to clean up.   

[BumpSkool]

yeah - -"don't spend what you don't have" and don't pay bonuses when you have well below zero

[williambanzai7]

Banker salaries should be taxed down to minimum wage.

[Sudden Debt]

What good would that do?

Governments need to start rebuilding the Western industries and pull back from China. Create JOBS for everybody.

Wasn't that also one of the first promises from Obama? Did he ever mention it again? NO, because that is where the challenge lies.

[dcb]

By shipping jobs to a totalitarian dictorship you weaken the workers power at home. then you can bring the jobs back later when you have destroyed the worker movement.

[Papasmurf]

Banker salaries should be taxed down to minimum wage.

• reply
• flag as junk (0) 

by Sudden Debt
on Sat, 06/26/2010 - 14:39
#435520

What good would that do?

It would restore the pay scale to the economic worth of the job function.

[sgt_doom]

Exactly!

Anyone familiar with actual economics, not the drivel they keep repeating realizes the meaning and definition of REAL supply and demand.

The minimum wage today, in the USA, should be between $20.00 to $25.00 per hour.

Since it has been kept artificially down, by those supply-siders, it skews what used to be an economy (and the USA no longer has either an economy nor a media -- period!) to favor wealth transfer to the upper 1 percent.

[Breaker]

"It would restore the pay scale to the economic worth of the job function."

Does that mean Obama, congress critters, and alphabet soup agency employees will have to pay for the privilege of being in office?

[Howard_Beale]

Works for me. Pay to serve your country with no corporate funding. A new breed of cat .

[ZackAttack]

Jobs doing *what*, though?

Do we need more Pizza Huts, tanning salons, wicker & rattan stores or investment banks?

Is there any manufactured good that doesn't already suffer from massive overcapacity? If there was, do you imagine the PacRim nations would so readily surrender the advantages of labor arbitrage?

[DoChenRollingBearing]

Bearings are in short supply, at least from Korea and Japan.

[DudleyDoRight]

Tariffs.  Competitive advantage should not be based on sweatshop labor rates and willingness to destroy the environment.

[DosZap]

Dudley,

Agreed, also, WE MUST start making shit here again!!!!

If a country has no mfg base, their fooked.And we are............

[New_Meat]

Smoot-Hawley, however packaged, will please those here wishing to kick the whole structure over sooner rather than later. - Ned

[sethstorm]

The problem is that the GOP doesn't want to do that.  If it allows their political enemy to survive, they won't do it. 

Including their "get tough but ignore that the Mexicans are doing their lawncare" position.

[Rogerwilco]

dupe post deleted

[Rogerwilco]

The answer to the problem is lower taxes and higher interest rates. We need a depression in governments world wide concurrent with increased investment and consumption by the private sector. Instead, fools like Summers think the solution lies with increased federal intervention funded by higher taxes and ZIRP. How's it working out so far Larry?

[DoChenRollingBearing]

Agree 100% rogerwilco.

Would add: that .gov stop spending so much.

[TBT or not TBT]

The government is well meaning though.  They're here to help.   Really.

[Muir]

"Of course, if the G20 only focuses on austerity measures and ignores growth and how to tackle long-term structural problems like high unemployment, then the world economy will slip into a protracted deflationary death spiral."

___

Oh, YES, I could only HOPE!!

Starve the beast.

__

[Kelly]

Protracted deflationary death spiral bitchez!

[Gully Foyle]

Kelly

"Protracted deflationary death spiral"

Great band name.

[TBT or not TBT]

DeathKeynes Rulz!

[Mercury]

To sacrifice the economy in this way would violate most peoples’ social values of equity and fairness rooted deep in Enlightenment philosophy.

Well then perhaps most peoples' social values of equity and fairness are a little unrealistic wouldn't you say?  Exactly how low do you think the ratio of people pulling the cart to people in the cart can go? Your position seems to boil down to "even more cowbell."

[Adam Neira]

The poor Greeks are trying to kill each other. Such internal trauma in such a beautiful place. Where's their Messiah to save them ?

[TBT or not TBT]

Yeah, this is simpler than 20 paragraphs of hand waiving arguments.   People and groups of people (families, companies, tribes, trades people) operate on incentives.   Less government means less taxes and less restrictions for everyone, not just the unnamed bankers and elites this guy is waving his pitchfork at.

[jeff montanye]

no.  you don't understand the points being made.  there is not enough cash flow from the assets underlying the debt pyramid that the banks constructed in the last three decades to service that debt.  the tbtf are demanding, essentially, infinite subsidy to avoid debt restructuring.  to avoid the wipe out of shareholder equity and bondholder claims that the market capitalism so many here give such lip service demands be done.  this is the issue and not another.  the ones "pulling the cart" are everyone else except the finance sector.  they demand unique subsidies, unwritten in law, not part of the democratic process, and, this is important, the ultimate prostitution of any semblance of free market capitalism.  look at what is right before your eyes.  if you must have it from a more right wing perspective than counterpunch, read john hussman.  but do understand this as it is the central issue of our times.

[A Nanny Moose]

Exactly. Nothing more than an attempt to prop up prices, which amounts to little more than a back door bailout of those who made poor investment decisions. That they come to the trough of the very people who's rules created the environment for malinvestment, and expect them to resolve this issue the sad part. Fool them once....

[sgt_doom]

+100,000.

Nothing more need be said....

[Mercury]

Yes jeff ...there is not enough cash flow from the assets underlying the debt pyramid...

One plot line unfolding in Europe is the discovery that there are limits to how expansive a welfare state can become.  The other is the aftermath of a large and pervasive credit bubble, similar to what is happening in the U.S.  Actually the third plot line is the demise of the Euro currency experiment but that doesn't seem to be that controversial. But the perpetuation of TBTF and a bloated welfare state have become the same story at this point.

Obviously the bankers and the financial institutions (in both Europe and the U.S.) that are at least partially responsible for the credit bubble would like the field tilted in their favor.  Shocking.  Since governments have been using and continue to use financial institutions to implement social policies they are attached at the hip here and the banks use that to lever nervous and innumerate politicians.  So far governments have done next to nothing to address TBTF and full debt realization/restructuring because they are afraid that the resulting pain will  translate into political pain and significantly reduce the viability of their big government fiefdoms and kingdoms.

Both financial institution and welfare state restructuring need to and eventually will happen but mostly we've seen only band-aids, funny money, unicorns and rainbows (formerly known as hope and change) thrown at the problem to keep the gas in the bag for one more week/month/year.

TBTF banks, a large welfare state and a large unassimilated immigrant population are relatively new problems in the U.S. but they have been part of many European Countries to a greater or lesser extent for much longer.  One would think that the U.S. would want to switch tracks instead of throttle full ahead now that the giant train wreck of Europe is clear on the horizon. 

Drivin' that train   High on cocaine...

[blindman]

http://www.youtube.com/watch?v=84cL-7vOsWk

.

"no way to slow down".

[DosZap]

Merc,

Agreed w/ most of your thoughts except this one.......

 "large unassimilated immigrant population are relatively new problems in the U.S."

Been going on for longer than I am old...and that's pretty old.

We have/had, at least 15-20 million illegals here JUST from Mexico!!!..

That doesn't count the other ethnic groups streaming across w/them...( tons of Muslims also......).

[dcb]

Yes, this is the crux, and true.

the banks (once mre of many times) made the bad business decision to lend to people they shouldn't. Now they are demanding protection form the business mistakes they made. To sheild them once more from their mistakes everyone else (except) the rich must pay.

In fact must go into debt slavery. Te end result o this will be very violent, when people wake up and decide to take back their governments from the bankers.

[Brutlstrudl]

doesn't have to be violent. Iceland said  no to the banks.  Of course  the media iss not covering that anymore

[New_Meat]

@dcb--not soley a business "mistake."  Janet Reno and ACORN have skin in this game--the banks were compelled to make those loans (Alt-A, subprime, etc.) to meet CRA "goals", then laundered through Fannie/Freddie and voila, out the mortgages come with a shiny new AAA so that they could be packaged, sliced, diced, folded, spindled, mutilated and out they come as MBSs.

I think that, in addition to taking back from bankstas, we'll need to take back the government from the government.

- Ned

P.S. Bawney Fwank used to be my congresscritter, until he was gerrymandered away.

[DosZap]

New M,

BING-FKN-GO,

Clinton, these turds started this whole mess...................
All the Banks did was co-operate, or pay the price.
When your frigging blackmailed by the Feds, HELLO?.

If you owned a Bank, what would you have done?.. allow them to shut you down?.

(I am not talking all the CDS/Bonds/Mixed derivative shit, GS/JPM, etc), I am talking local banks..............

The WH, and the Congress BEAR the majority of this debacle...........pot calling kettle black.

[chindit13]

Bingo!

[Howard_Beale]

Leo, dear man, WHAT GLOBAL RECOVERY?  Hate to burst your bubble but there never was one. Just suckers believing the debt could go on and on and on and on.