German taxpayers still have an opportunity to just say no
We know the U.S. is a big and liquid (though not really very transparent) market. We know that the rest of the world — led by Europe’s myriad issues, and China’s bursting housing bubble — is teetering on the edge of a precipice, and without a miracle will fall (perhaps sooner, rather than later). But we also know that America is inextricably interconnected to this mess. If Europe (or China or both) disintegrates, triggering (another) global default cascade, America will be stung by its European banking exposures, its exposures to global energy markets and global trade flows. Simply, there cannot be financial decoupling, not in this hyper-connected, hyper-leveraged world.
All of this suggests a global crash or proto-crash will be followed by a huge global money printing operation, probably spearheaded by the Fed. Don’t let the Europeans fool anyone, either — Germany will not let the Euro crumble for fear of money printing. When push comes to shove they will print and fiscally consolidate to save their pet project (though perhaps demanding gold as collateral, and perhaps kicking out some delinquents). China will spew trillions of stimulus money into more and deeper malinvestment (why have ten ghost cities when you can have fifty? Good news for aggregate demand!).
At François Hollande’s “growth” policies, Greece, the ECB, the Fed, Paul Krugman....
Michael Hudson argues that Mr. Krugman is a conservative in disguise.
We have all thought it. We have all muttered it under our breaths (and some of us have even written about it on blogs) but the Keynesian Krusader's borrow-and-spend-our-way-to-growth dogma was bazooka'd by former Senator Alan Simpson yesterday. "I say why don't you read our report and then get back to me", Simpson says of Krugman in a must-watch interview on Bloomberg TV, adding that "Paul Krugman is a great economist, but he ain't the best in the world. This is nuts...I love to read his stuff because it borders on hysteria" Critically, he adds on the growing demographic crisis "This is not 20 years ago, it isn't 10. It is now. You have 10,000 a day coming into the system. The demographics are there. It is all different -- it is not the same". The former Senator goes on to discuss whether US will become the next Europe, how lawmakers will sell cutbacks to the American public, whether policymakers keeping rates low are contributing to the problem, and finally on Simpson-Bowles 2.0. - "The people of America are telling their elected people how it is. Erskin and I go all over the country and tell them we do not do BS or mush, but pull up a chair and we will tell you where the country is, and they are thirsting for that."
From the 2008 financial crisis to Bernie Madoff, federal regulators have consistency proven too incompetent or too in-the-pocket to actually catch big disasters before they happen. Their interests, like all government employees, are politically based. State bureaucracies seek more funding no matter performance because their success is impossible to determine without having to account for profit. There is never an objective way to determine if the public sector uses its resources effectively. The news of JP Morgan’s loss has reignited the discussion over whether the financial sector is regulated enough. The answer is that regulation and the moral hazard-ridden business environment it produces is the sole reason why a bank’s loss is a hot topic of discussion to begin with. Without the Fed, the FDIC, and the government’s nasty history of bailing out its top campaign contributors, JP Morgan would be just another bank beholden to market forces. Instead it, along with most of Wall Street, has become, to use former Kansas City Fed President Thomas Hoenig’s label, a virtual “public utility.” Take away the implied safety net and “too big to fail” disappears. It’s as simple that.
As either taxpayers or long-term JPM investors, we should be more grateful than sorry about the JPM CIO Ina Drew.
Explaining why and how the global monetary system is failing, why it is too late to stop, what will come next, and why the crisis is only financial – not commercial.
Anyone who worked in finance in the decade before Glass-Steagall was repealed knows that prior to Gramm-Leach-Bliley the megabanks just took their hyper-leveraged activities offshore (primarily to London where no such regulations existed). The big problem (at least in my mind) with Glass-Steagall is that it didn’t prevent the financial-industrial complex from gaining the power to loophole and lobby Glass-Steagall out of existence, and incorporate a new regime of hyper-leverage, convoluted shadow banking intermediation, and a multi-quadrillion-dollar derivatives web (and more importantly a taxpayer-funded safety net for when it all goes wrong: heads I win, tails you lose). I fear that the only answer to the dastardly combination of hyper-risk and huge bailouts is to let the junkies eat dirt the next time the system comes crashing down. You can’t keep bailing out hyper-fragile systems and expect them to just fix themselves. The answer to stupidity is not the moral hazard of bailouts, it is the educational lesson of failure. You screw up, you take more care next time. If you’re bailed out, you just don’t care. Corzine affirms it; Iksil affrims it; Adoboli affirms it. And there will be more names. Which chump is next?
By mainstream media accounts, the presidential election in France and parliamentary elections in Greece on May 6 were overwhelming verdicts against “austerity” measures being implemented in Europe. There is only one problem. It is a lie. First off, austerity was never really tried. Not really. In France for example, according to Eurostat, annual expenditures have actually increased from €1.095 trillion to €1.118 trillion in 2011. In fact spending has increased every single year for the past decade. The debt there increased too from €1.932 trillion €1.987 trillion last year, just as it did every year before. Real “austere”. The French spent more, and they borrowed more. The deficit in France did decrease by about €34 billion in 2011, but that was largely because of a €56.6 billion surge in tax revenues. Again, there were no spending cuts. Zero. Yet incoming socialist president François Hollande claimed after his victory over Nicolas Sarkozy that he would bring an end to this mythical austerity: “We will bring back Europe on a track for jobs, growth and the future… We’re no longer doomed to austerity.” This is just a willful, purposeful distortion. What the heck is he talking about? Certainly not France.
The entire bogus recovery is again being driven by subprime auto loans being doled out by Ally Financial (85% owned by the U.S. government) and the other criminal Wall Street banks. The Federal Reserve and our government leaders will continue to steer the country on the same course of encouraging rampant speculation, deterring savings and investment, rewarding outrageous criminal behavior, purposefully generating inflation, and lying to the average American. It will work until we reach a tipping point. Dr. Krugman thinks another $4 trillion of debt and a debt to GDP ratio of 130% should get our economy back on track. When this charade is revealed to be the greatest fraud and theft in the history of mankind, Ben and Paul better have a backup plan, because there are going to be a few angry men looking for them.
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Europe’s doomed experiment with the politics of austerity went down in flames over the weekend as voters across the region veered sharply to the left in savaging incumbents. Elections in six European nations on Sunday promised to end any pretense of fiscal sanity. However, it remains to be seen how quickly and drastically the new leaders will act to further unbalance their nations’ books, ostensibly in the name of economic growth.
Bloomberg viewers estimate that Ron Paul was the winner of the clash of the Pauls. But that is very much beside the point. This wasn’t really a debate. Other than the fascinating moment where Krugman denied defending the economic policies of Diocletian, very little new was said, and the two combatants mainly talked past each other. The real debate happened early last decade.