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Arabica Robusta

Another financial crisis looms if rich countries can't kick their addiction to cash inj... - 0 views

  • If its effects are at best debatable and at worst laying the ground for the next round of financial crises, why has there been so much QE? It is because it has been the only weapon that the rich country governments have been willing to deploy in order to generate an economic recovery.
  • QE has become the weapon of choice by these governments because it is the only way in which recovery – however slow and anaemic – could be generated without changing the economic model that has served the rich and powerful so well in the past three decades.
  • This model is propelled by a continuous generation of asset bubbles, fuelled by complex and opaque financial instruments created by highly leveraged banks and other financial institutions. It is a system in which short-term financial profits take precedence over long-term investments in productive capabilities, and over the quality of life of employees. If the rich countries had tried to generate recovery through any other means than QE, they would have to seriously challenge this model.
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  • Recovery driven by fiscal policy would have involved an increase in the shares of public investment and social welfare spending in national income, reducing the share going to the rich.
  • Recovery based on a "rebalancing" of the economy would have required policies that hurt the financial sector. The financial system would have to be re-engineered to channel more money into long-term investments that raise productivity. Exchange rates would have to be maintained at a competitive level on a permanent basis, rather than at an over-valued level that the financial sector favours.
  • There would have to be greater public investment in the training of scientists and engineers, and greater incentives for them to work in and with the industrial sector, thus shrinking the recruitment pool for the financial industry.
  • Given all this, it is not a big surprise that those who benefit from the status quo have persisted with QE. What is surprising is that they have actually strengthened the status quo, despite the mess they have caused. They have successfully pushed for cuts in government spending, shrinking the welfare state to the extent that even Margaret Thatcher could not manage. They have used the fear of unemployment in an environment of shrinking social safety nets to force workers to accept more unstable part-time jobs, less-secure contracts (zero-hour contracts being the most extreme example), and poorer working conditions.
  • Greece, Spain, and other eurozone periphery countries could explode any day, given their high unemployment and deepening strains of austerity. In the US, which is considered the home of quiescent workers, the call for living wages is becoming louder, as seen in the current strikes by fast-food restaurant workers.
  • All of these stirrings may amount to little, especially given the weakened state of trade unions, except in a few countries, and the failure of the parties on the left of centre to come up with a coherent alternative vision. But politics is unpredictable. Five years after the crisis, the real battle for the future of capitalism may be only just beginning.
Arabica Robusta

Beginning of the end of the neoliberal approach to development | Global development | t... - 0 views

  • So far, these demands have resulted in very modest agreements to change voting weights at the institution (and even these have not yet been ratified by the US). But we cannot help but conclude that IMF governance reform is now firmly on the agenda. Equally important, the current crisis has also marked a substantial curtailment in the geography of the institution's influence in the global south.
  • Just as the Asian crisis laid the groundwork for institutional developments that have deepened only in the current crisis, so do we expect the current crisis to catalyse further innovation along the lines already in place, and in directions not yet imagined, when the next period of instability emerges.
  • We should take note of what we see as the beginning of the end of the neoliberal approach to development. The process of discrediting that development model begins in the aftermath of the east Asian financial crisis of 1997–98.
Arabica Robusta

BRICS' new financial institutions could undermine US-EU global dominance | Al Jazeera A... - 0 views

  • During the 1997–98 Asian financial crisis, when middle-income countries were hard hit by big capital outflows, there was an effort by China, Japan, Taiwan and other countries to put together an Asian Monetary Fund to offer balance of payments support. Washington vetoed the idea, insisting that all assistance had to go through the International Monetary Fund. The result was a mess, including an unnecessarily deep regional recession, as the IMF failed to act as a lender of last resort and then attached all kinds of harmful and unnecessary conditions to its lending.
  • Western media coverage of these developments has been mostly dismissive, but that primarily reflects the concerns of Washington and its allies. They have had unchallenged sway over the decision-making institutions of global financial governance for 70 years, and the last thing they want to see is competition. But competition is exactly what the world needs here.
  • Just look at Ukraine, where the economy is shrinking by 5 percent this year and the IMF is imposing austerity that will prolong and possibly deepen the recession.
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  • Although most economists and most of the major media have ignored it, the IMF’s loss of influence over economic policy in most middle-income countries is one of the most important developments in the international financial system in the past half-century.
Arabica Robusta

Greek Debt Crisis » CounterPunch: Tells the Facts, Names the Names - 0 views

  • Two months after the February 28 interim agreement between Greece and the EU ‘troika’—the IMF, European Commission, and European Central Bank—in which both sides agreed to continue negotiating—little has changed. In fact, led by its de facto spokesperson, hardline German finance minister, Walter Schaubel, the Troika’s position has continued to harden since February 28.
  • These measures are particularly annoying to the northern Europe finance ministers and their bankers, since other European governments have introduced, or have plans to introduce, many of the very same ‘labor market reforms’ in their countries. Deepening labor market reforms everywhere throughout the Eurozone is a prime objective of business interests and their center-right politicians and governments.
  • It has been estimated that more than US$250 billion in assets would be eventually affected by a default, and no one knows the connections linking these assets—i.e. what are the possible contagion effects. The memory of the Lehman Brothers default in 2008 is obviously stronger in the USA than it is today in Europe—hence the Furman public warning. Privately, US officials are even more concerned than Furman, according to the business press.
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  • The spider web of financial connections in today’s global financial system is still not well understood. Estimating the potential psychology of investor responses is almost impossible.
  • Despite all this, arrogant German, Dutch, and other technocrats and bankers intent on retaining the old order of austerity and debt payments in Greece continue blindly to insist on more of the same, when it is clear that the Greek people and, hopefully its government, will refuse to continue with ‘business as usual’.
Arabica Robusta

Piketty and the Crisis of Neoclassical Economics | John Bellamy Foster | Monthly Review - 0 views

  • But Piketty advances such an argument without breaking completely with the architecture of neoclassical economics. His theory thus suffers from the same kind of internal incoherence and incompleteness as that of Keynes, whose break with neoclassical economics was also partial. Deeply concerned with issues of inequality, just as Keynes was with unemployment, Piketty demonstrates the empirical inapplicability over the course of capitalist development of the main conclusions of neoclassical marginal productivity theory. His work has thus served to highlight the near-complete unraveling of orthodox economics—even while staying analytically within the fold.28
  • This overall incoherence, as we shall see, ultimately overwhelms Piketty’s argument. He is unable to explain why capitalist economies tend to grow so slowly as to generate such a divergence between wealth and income (and between capital and labor). Hence, while his analysis sees slow growth or relative stagnation as endemic to this system, he neither explains this nor is concerned directly with it. Significantly, he replaces more traditional notions of capital as a social and physical phenomenon with one that equates it with all wealth.29
  • Nor does he address the relations of power—principally class power—that lie behind the inequality that he delineates. His analysis is confined largely to distribution rather than production. He neither follows nor (by his own admission) understands Marx, though at times clearly draws inspiration from him.31
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  • But even with these and other deficiencies, Piketty, nevertheless, brings a certain degree of reality—even a sense of “class warfare” (if only implicitly)—back to bourgeois economics. The result is to heighten the crisis of neoclassical theory. Moreover, he argues—even though he dismisses the idea as “utopian”—for the imposition of a tax on wealth.33 Piketty thus represents a partial revolt within the inner chambers of the economics establishment.
  • Edward Wolff has pioneered the study of wealth data in the United States. In his most recent paper, he finds that the average (mean) net worth of the wealthiest 1 percent in 2010 was $16.4 million. By contrast the average for the least wealthy 40 percent was $–10,600 (that is, it was negative!).39
  • Piketty has no notion of capital as an exploitative social relationship.
  • However, beginning in the mid–1970s, capital made a remarkable comeback, and the ratio began to climb, and is now approaching the level that existed at the start of the First World War. Public capital has been privatized and political regimes throughout the world have been very well disposed toward the interests of wealth-holders.43
  • He shows that throughout the eighteenth and nineteenth centuries, and right up until the First World War, wealth in most rich nations equaled six to seven years of national income.
  • If the rate of return on capital r is greater than the growth rate of the economy g, then capital’s share of income will rise. Piketty shows that over very long periods of time, r has in fact been greater than g; in fact, this is the normal state of affairs in capitalist economies.
  • He finds that there is a direct and significant correlation between the size of the endowment and the rate of return on it. Between 1980 and 2010, institutions with endowments of less than $100 million received a return of 6.2 percent, while those with riches of $1 billion and over got 8.8 percent. At the top of the heap were Harvard, Princeton, and Yale, which “earned” an average return of 10.2 percent.49 Needless to say, when those already extraordinarily rich can obtain a higher return on their money than everyone else, their separation from the rest becomes that much greater.
  • Reality could not be more different than what neoclassical theory leads one to expect. In the United States, real weekly earnings for all workers have actually declined since the 1970s and are now more than 10 percent below their level of four decades ago. This reflects both the stagnation of wages and the growth of part-time employment.50 Even when considering real median family income that includes many two-earner households there has been a decrease of around 9 percent from 1999 to 2012.51
  • But how does this relate to issues of class struggle and class power? What are the consequences of these realities in terms of control of corporations, the economy, the state, the culture, and the media? Piketty, though making a few tantalizing allusions, tells us next to nothing about this.
  • “The neglect of power in mainstream economics,” as the heterodox Austrian economist Kurt Rothschild wrote in 2002, “has its main roots…in deliberate strategies to remove power questions to a subordinate position for inner-theoretic reasons,” such as the search for mathematical models with a high degree of mathematical certainty.
  • It goes without saying that Piketty’s acceptability to neoclassical economics is dependent on his avoidance of the question of inequality and power.
  • Just as class power tends to concentrate, so does the power of the increasingly giant, oligopolistic firms which, in economic parlance, reap monopoly power, associated with barriers to entry into their industries and their ability to impose a greater price markup on prime production costs (primarily labor costs).
  • Writing for the Wall Street Journal, Peter Thiel, co-founder of PayPal, declared that “Capitalism is premised on the accumulation of capital, but under perfect competition, all profits get competed away…. Only one thing can allow a business to transcend the daily brute struggle for survival: monopoly profits…. Monopoly is the condition for every successful business.” Indeed, this might even stand as the credo of today’s generalized monopoly capital.64
  • For Piketty himself there is no organic relation between the two main tendencies that he draws in Capital in the Twenty-First Century—the tendency for the rate of return on wealth to exceed the growth of income and the tendency toward slow growth. Nor is his analysis historical in a meaningful sense, which requires scrutiny of the changing nature of social-class relations. Increasing income and wealth inequality are not developments that he relates to mature capitalism and monopoly capital, but are simply treated as endemic to the system during most of its history.
  • Here it is useful to recall that for Keynes the danger was not only one of secular stagnation but also the domination of the rentier. He thus called for the “euthanasia of the rentier, and consequently the euthanasia of the cumulative oppressive power of the capitalist to exploit the [artificial] scarcity-value of capital.”69 In today’s financialized capitalism, we face, as Piketty recognizes, what Keynes most feared: the triumph of the rentier.70 The “euthanasia of the cumulative oppressive power of the capitalist” is needed now more than ever. This cannot be accomplished by minor reforms, however—hence Piketty’s advocacy of what he calls a “useful utopia,” a massive tax on wealth.71
  • It is significant that imperialism plays no role in Piketty’s analysis, neither in explaining the growth of wealth and wealth inequalities, nor even in the analysis of past growth, or prognostication of future growth. On the contrary the book is informed by a perception according to which capitalist growth in one region…is never at the expense of the people of another region, and tends to spread from one region to another, bringing about a general improvement in the human condition.
  • Significant in this respect is that he chose as the epigraph of his book a line from the Declaration of the Rights of Man and Citizen from the French Revolution: “Social Distinctions can be based only on common utility.”75
  • One could hardly pick a statement more opposed to the system in which we live, which seeks not the common but the individual utility.
Arabica Robusta

Debtocracy | Watch Free Documentary Online - 0 views

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    Broad and critical analysis of financial crisis and EU (especially Greece).
Arabica Robusta

Albert Hirschman, Alan Greenspan, and the Problem of Intellectual Capture » T... - 0 views

  • I like the Financial Times (FT) for two main reasons: it gives me all I need to know that day in about seven pages every morning, and the fact that its ‘sound.’ By ‘sound’ I mean that, unlike the Murdoch press, I can rely on the FT to tell me the truth since consistently lying to the global investor class is a losing business model. But one should remember that for the FT, as it is for the rest of us, it’s still the truth as they see it.
  • while political capture gets a lot of the post-crisis press, rightly– with my favorite recent slip being Spencer Bachus (R-Al) cracker that “in Washington, the view is that the banks are to be regulated, and my view is that Washington and the regulators are there to serve the banks”– it’s intellectual capture that, in my opinion, really does the damage (hence my last blog piece on Cowboys and Indians). Indeed, once you start to look for this, you begin to see its effects everywhere.
  • Hirschman pointed out that conservative arguments come in three distinct theses. First is the “Perversity thesis” where any well meaning reform produces its opposite outcome: ‘welfare makes you poor’ – that sort of thing. The second is the “Jeopardy thesis” where reforms put at risk more than they can ever deliver–­ the fear of extending the suffrage is typical. Third is the “Futility thesis” where reforms are simply pointless – fill in any and all opposition to global warming.
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  • Noting that, “his warning…is distorted by the pro-market ideology that blinded him,” Lex notes that, “the former chairman…is on more solid ground when he praises the contribution of finance to economic growth, ” going on to recycle Greenspan’s argument that as countries get richer their share of banking as a percentage of GDP increases because more trade leads to more finance, and reciprocally, more finance leads to more trade.
  • Some truths, it seems, are particularly hard to shake, even after the crisis. The idea that finance must somehow, by circular logic or not, add to growth, is deeply entrenched. But like the Icelandic consensus, it needs to be challenged because it lies at the heart of all reform attempts. These ‘consensus truths’ are the most dangerous of all because we take them for granted and in repeating them we make them true. This is why intellectual capture is the hardest problem to deal with in finance, because unlike political capture, it has no regulatory solution.
Arabica Robusta

Exposing the Big Lie at the heart of this economic catastrophe | openDemocracy - 0 views

  • Whole sections of the 'west' are in recession or near zero growth. This was not caused by some kind of mass activity by working people. It wasn't caused by governments in one or several countries spending too much. What has caused the recession in the first instance is that the financial sector ran up huge debts, far, far in excess of public debts and deficits, as it went in for some wild speculative behaviour - a good deal of which involved them selling debts to each other!
  • So, the speculative bubble which burst in 2010, was in essence an attempt by financial capitalists to find more and more profitable opportunities. In the anarchic lunacy which is called 'good business', more and more of them borrowed money to buy debts which they thought would be profitable for them.
  • What has happened this time round in the boom bust cycle is that the capitalists have a huge great brake on the system: their own debts. However, as you know, the big lie - no The Big Lie - that has been put about for the last two years is that the big brake is government debts, ie the money and the interest payments that are paid out for our benefit on education, health, welfare - and, though I don't agree with it - defence, because theoretically it's there to defend us. 
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  • Meanwhile, the global take home pay for workers continues to go down in real terms (ie in relation to people's bills) and go down in relation to the amount of money we can call profits. So simply put, the vast majority of people have less money to buy the goods that the capitalists would make and try to sell, if they could. The main pressure downwards on pay comes from government initiated pay freezes, unemployment, part-time, short-term employment and lack of union organisation to resist this pressure.
  • In my dream world, Labour would be saying all this. They would be spelling it out with diagrams, films, and leaflets. They would be showing that a tiny group of people held and are still holding the world to ransom on account of their speculative lunacy and greed. They would be showing that each time Osborne and all the press pals say that it's the deficit that's the problem they would say, Oh no it isn't, it's the private debt. Every time Iain Duncan Smith and his press pals point the finger at this or that 'benefit cheat' or 'welfare dependent underclass', Labour would point the finger at the vast debts seizing up the system causing much more damage than a few people working a small time racket. They would point the finger at the vast millions people earn who manage these debts and who are of no productive use whatsoever. They are parasites. And they would talk about the greed-dependent overclass who got us into this fix. 
Arabica Robusta

New Statesman - Thirty years since Mexico's default, Greece must break this sadistic de... - 0 views

  • Mexico owed over $50 billion, 90% to foreign private creditors - primarily US, Japanese and British banks. These banks had gone on a lending binge during the 1970s using the profits oil exporting countries had deposited with them from the oil spike. American overspending, notably on the Vietnam War, was recycled as debt to the rest of the world and, to help this, controls on international movements of money were dismantled.
  • Four of the fifteen largest lenders to Latin America by 1982 were British banks: Lloyds, Midland, Barclays, and Natwest. American lenders included Citicorp, Bank of America, and Chase Manhattan.
  • At the end of the 1970s the US Federal Reserve sprung the trap, massively hiking interest rates in order to save their banks from inflation. The costs for this move were pushed onto Third World countries like Mexico. Two years later, the inevitable happened.
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  • In 1982 the IMF lent Mexico $4 billion, which went straight back out of the country to pay western banks - a perfect mirror of what is happening with so-called bail-outs to Greece and other Eurozone countries today.
  • Former Colombian Finance Minister Jose Antonio Ocampo calls the bail-out responses "an excellent way to deal with the US banking crisis, and an awful way to deal with the Latin American debt crisis".
  • Then as now, bailout money was used to repay reckless banks, whilst austerity has served only to shrink economies and increase the relative size of the debt.
  • The future of Europe’s economy, indeed the world economy, will be decided by a battle between the financial masters on the one side, and the peoples of the most indebted states in Europe on the other - Greece first. We either retake control of our economy from the banks, or we deepen an economic experiment which has had an incalculable cost in terms of the lives and livelihoods of millions of people.
Arabica Robusta

How BRICS Became Co-Dependent Upon Eco-Financial Imperialism » CounterPunch: ... - 0 views

  • Contrary to rumour, the Brazil-Russia-India-China-South Africa alliance confirmed it would avoid challenging the unfair, chaotic world financial system at the Fortaleza summit on July 15.
Arabica Robusta

A Reversion to a Dickensian Variety of Capitalism » TripleCrisis - 0 views

  • First, and possibly the most well-known: the attack on organised labour and the resulting drastic reduction in workers’ bargaining power. This occurred not just through the instrument of unemployment (or fear of it) used to discipline workers, but through regulation and legal changes as well as changing institutions. This is now an almost universal feature, except in societies such as in Latin America where recent political changes have generated some reversal.
  • Second, financial deregulation and significant increases in the lobbying and political power of financial agents. This has led to the massive expansion and then implosion of deregulated finance, with the crisis affecting the real economy in terrible ways. It has also contributed to deindustrialisation and the rentier economy.
  • Third, the triumph of private gain over social good and the aggressive delegitimisation of public provision. Quite apart from the adverse effects on the long term (in terms of inadequate public investment for the future or for meeting current social needs) this has terrible effects on society, creating not just injustice but small-minded and petty individualism as a dominant social characteristic.
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  • Was Thatcherism then all that new? No – it was essentially a reversion to an older, Dickensian (if not even Hobbesian) variety of capitalism, bringing back into significance those more unpleasant features of the capitalist system that were supposed to have been abandoned in the forward progress of human history.
Arabica Robusta

After Greece: Can the Left Change Europe? » CounterPunch: Tells the Facts, Na... - 0 views

  • The public consciousness is, at last, aware of the issues of financial regulation, wealth distribution and the means of production. But questions relating to religion regularly push these into the background (1).
  • Nikos Filis, editor of Avgi, a newspaper with, as main shareholder, the radical left coalition Syriza (2), came to a different conclusion: “The attack may orientate Europe’s future: either towards Le Pen and the far right, or towards a more reasoned approach to the problem. Because security needs cannot be met by the police alone.”
  • “If Syriza had been less intransigent on standing for the rights of immigrants, we would already have 50% of the votes. But this choice is one of the few points on which we all agree.”
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  • They scarcely existed five years ago but now they look like credible candidates to exercise power; and they may be able to relegate their countries’ socialist parties — which share responsibility for the general financial disaster since 2008 — to a supporting role, just as Britain’s Labour Party supplanted the Liberal Party, and France’s Socialist Party supplanted the Radical Party (3). Those changes were permanent.
  • In Athens, that nowhere is all too clear. But austerity’s cruelty, with social and health consequences extending to hunger, cold and increases in infectious diseases and suicides, does not necessarily mean a change of policy (4). Austerity’s architects are well paid to have nerves of steel.
  • Syriza has calculated precisely that free electricity, public transport, emergency food for the poorest and vaccines for children could be financed through more aggressive anti-corruption and anti-fraud measures. The outgoing conservative government admitted that these deprived the public coffers of at least €10bn a year.
  • These measures are not up for negotiation with other parties or the country’s creditors, Milios insists: “They are questions of national sovereignty; they won’t add anything to our deficit. We are therefore intending to implement this policy whatever the outcome of debt renegotiations.”
  • In these circumstances, the European conference on debt that Tsipras called for two years ago in this publication (6) could become a realistic prospect. Ireland’s finance minister backs the idea, and it has a historical precedent in the 1953 conference that cancelled Germany’s war debts, including what it owed to Greece. Syriza hopes the conference it is calling for will provide “the alternative solution which will bury austerity for good.”
  • Merkel has threatened Greece with expulsion from the euro if its government breaks the budgetary or financial disciplines to which Germany is so attached. The Greeks want both to loosen austerity policies and to remain in the single currency. Those wishes are shared by Syriza (8), because a small, exhausted country cannot fight on all fronts at once. “We’ve been the troika’s guinea pigs. We don’t want to become the guinea pigs for a euro exit,” says Valia Kaimaki, a journalist with links to Syriza. “Let a bigger country, such as Spain or France, go first.”
  • Moulopoulos believes that “without European support, it will not be possible to do anything at all.” That is why Syriza accords importance to support from forces beyond the radical left and the Greens, in particular the Socialists. Yet the Greeks have had experience of the surrenders made by social democracy since Andreas Papandreou forced his party to make a major shift towards neoliberalism 30 years ago. “If he had stayed on the left, there would have been no Syriza,” says Moulopoulos. “In Germany too, when Oskar Lafontaine resigned from the government [in 1999], he expressed regret that social democracy had become incapable of even the most insignificant reforms. Globalisation and neoliberalism with a human face completely destroyed it.”
  • Electoral victory for Syriza, or for Podemos in Spain, could demonstrate, contrary to what Hollande or Matteo Renzi in Italy say, the viability of a European politics that rejected austerity. That would challenge more than the German right.
  • Now the threat is much greater. “If we don’t change Europe, the far right will do it for us,” Tsipras has warned. It has become even more urgent to be bold.
  • The task for the left in Greece and Spain, on which much depends, is hard enough without adding onto their shoulders the heavy responsibility of defending Europe’s democratic destiny, and averting a “clash of civilisations”. But that is what is at stake.
Arabica Robusta

What all is getting expelled...and once expelled is invisible | openDemocracy - 0 views

  • Parts of our economies, societies, and states in Europe are being stripped bare by an extreme form of predatory capitalism.[1] And this stripping can coexist with growth in much of our economies. The majority of workers and economic operations keep functioning, even if at reduced levels.
  • The unemployed who lose everything—jobs, homes, medical insurance—easily fall off the edge of what is defined as 'the economy' and counted as such. So do small shop and factory owners who lose everything and commit suicide. And so do the weakened and ill newly poor who can no longer access basic medical services. All are stripped from what gets measured as 'the economy.'
  • The reality at ground level is more akin to an economic version of ‘ethnic cleansing’ in which specific kinds of negatives are dealt with by simply eliminating them from view. Thus in early January 2013, the European Central Bank announced that Greece’s economy was on the path back to growth, and Moody’s upgraded Greek debt by a point; the country’s rating is still low, but such shifts matter to investors, always desperate to find destinations for their capital. It meant that Greece was again becoming safe territory, and largely meant the buying up at very cheap prices of what had been valuable parts of the national economy. We saw a similar process in South Korea and Thailand during the so-called Asian financial crisis.[2] Greece’s 30% of workers who had lost their jobs, countless broken firms and neighbourhoods were left out of the picture. This economic cleansing works, but it does so on the backs of all those who have been expelled.
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  • I argue that we cannot assume that Greece, Spain, and Portugal are unique cases. We need to examine whether they are. What takes an extreme form in Greece, and to some extent in Portugal and Spain, may well also be present elsewhere in Europe and beyond. This would alert us to a deeper structural condition in this phase of advanced capitalism, which took off in the 1980s and became entrenched in the 1990s
  • much of this sharp shift I am seeking to capture is still invisible to the statistician. It is also often invisible to the passerby—the impoverished middle classes may still be living in their same nice houses, with their losses hidden behind neat facades. Increasingly these households have sold most of their valuables to afford payments, have started to sell their basics, including furniture, and are doubling up with grown-up children. Modest increases in employment growth are not enough to eliminate this shrinking. These are radical eliminations of types of workers, types of economies, and types of places that are no longer needed or worth the costs.
Arabica Robusta

Destroying the Greek Economy in Order to Save It | Al Jazeera America - 0 views

  • But blackmail is actually an understatement of what the troika is doing to Greece. It has become increasingly clear that it is trying to harm the Greek economy in order to increase pressure on the new Greek government to agree to its demands.
  • The first sign that this was the European authorities’ strategy came on Feb. 4 — just 10 days after the Syriza government was elected — when the ECB cut off the main source of financing for Greek banks. This move was clearly made in bad faith, since there was no bureaucratic or other reason to do this; it was more than three weeks before the deadline for the decision. Predictably, the cutoff spurred a huge outflow of capital from the Greek banking system, destabilizing the economy and sending financial markets plummeting. More intimidation followed, including a slightly veiled threat that emergency liquidity assistance, Greece’s last credit lifeline from the ECB, could also be cut. The European authorities appeared to be hoping that a shock-and-awe assault on the Greek economy would force the new government to immediately capitulate.
  • Remaining issues were to be negotiated by April 20, so that the final installment of IMF money — some 7.2 billion euros — could be released. One might assume that the Feb. 20 agreement would allow these negotiations to take place without European officials causing further immediate and unnecessary damage to the Greek economy. One would be wrong: A gun to the head of Syriza was not enough for these “benefactors.” They wanted fingers in a vise too. And they got it. The ECB refused to renew the Greek banks’ access to its main, cheapest source of credit that they had before the Jan. 25 elections. And it refused to lift the cap on the amount that Greek banks could lend to the Greek government — something that it did not do to the previous government. As a result, a serious cash flow problem has struck both the government and the banks. Because of the ECB’s credit squeeze, the government could soon find itself in a situation that the 2012 government faced when it delayed payments to hospitals and other contractors in order to make debt payments, and it could even face default at the end of April.
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  • It could hardly be more obvious that this is not about money or fiscal sustainability, but about politics. This is a government that European authorities didn’t want, and they wish to show who is boss. And they really don’t want this government to succeed, which would encourage Spanish voters to opt for a democratic alternative — Podemos — later this year.
  • If carried too far, European officials’ actions could inadvertently force Greece out of the euro — a dangerous strategy for all concerned. They should stop undermining the economic recovery that Greece will need if it is to achieve fiscal sustainability. 
Arabica Robusta

Pambazuka - The state, private sector and market failures - 0 views

  • In 2008, Clinton denied responsibility for refusing to regulate derivatives. He changed his mind in 2010, then blaming his advisors, among whom were Treasury Secretaries Robert Rubin and Larry Summers and the Chair of his Council of Economic Advisors, Joe Stiglitz. Larry Summers went on to become President of Harvard University. Joseph Stiglitz went on to be Chief economist of the World Bank and then professor at Columbia University. Summers showed little remorse for his role in the deregulation era. Joe Stiglitz, in contrast, became the best known critic of deregulation.
  • at what point did Stiglitz, in his role as a senior Clinton policy advisor, become convinced of the severe damage that would result from deregulation? ... As one important example, the general tenor of the 1996 Economic Report of the President, written under Stiglit’s supervision as Chair of the Council of Economic Advisors, is unmistakably in support of lowering regulatory standards, including in telecommunications and electricity. This Report even singles out for favourable mention the deregulation of the electric power industry in California — that is, the measure that, by the summer of 2002, brought California to the brink of economic disaster, in the wake of still more Enron-guided machinations.”
  • Professor Stiglitz’s great contribution has been to challenge both these assumptions. As he has shown, asymmetric information is a pervasive feature of how real-world markets operate. The free market is an ideological myth. In the real world, imperfect information makes for imperfect markets.
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  • Before discussing its limits, I will summarize Professor Stiglitz’s response to the problem he calls “market failure.” Professor Stiglitz attributes “market failure” to “lack of transparency.” He has several recommendations on how to check market failure. The first is that government needs to bridge the gap between social returns and private returns, both to encourage socially necessary investment as in agriculture and to discourage socially undesirable investment as in real estate speculation. Second, the government may set up specialized development banks. In support, he cites the negative example of America’s private banks and their “dismal performance” alongside the positive example of Brazil’s development bank, a bank twice the size of the World Bank, and its “extraordinary success” in leading that country’s economic transformation. Finally, Professor Stiglitz cautions against liberalizing financial and capital markets as advised by the Washington Consensus.
  • I am not an economist, but I have been forced to learn its basics to defend myself in the academy and the world. Like you, I live in a world where policy discourse has been dominated – I should say colonized – by economists whose vision is limited to the economy. Professor Stiglitz derides this as “free market fundamentalism” and I agree with him. Like fundamentalist generals who think that the conduct, outcome and consequence of war is determined by what happens on the battlefield, the thought of fundamentalist economists not only revolves around the market but is also limited by it. Just as war is too important an activity to be left to generals, the material welfare of peoples is also too important to be left to economists alone.
  • The Eurozone was created as a single currency for Europe but without constituting Europe as a democratic polity. The result was that monetary policy was formulated outside the framework of democracy. The states in Europe have done to their own people what the Washington Consensus did to African peoples in the 1980s. Unelected governments rule Europe; the EU ruling phalanx is not accountable to anyone.
  • Here is my point: The antidote to the market was never the state but democracy. Not the state but a democratic political order has contained the worst fallout from capitalism over the last few centuries. The real custodian of a democratic order was never the state but society. The question we are facing today is not just that of market failure but of an all-round political failure: the financialization of capitalism is leading to the collapse of the democratic order. The problem was best defined by the Occupy Wall Street movement in the US: it is the 99% against the 1%.
  • It would be a shame if this audience is to walk away from Professor Stiglitz’s lecture with a message that the problem is just one of “market failure” and the solution is a robust state that regulates markets and provides development finance. Is the lesson of the Structural Adjustment era simply that we need strong states to defend ourselves from the Washington Consensus? Or does the experience of the SAP era also raise a second question: What happens if developing countries are forced to push open their markets before they have stable, democratic institutions to protect their citizens? Should we be surprised that the result is something worse than crony capitalism, worse than private corruption, whereby those in the state use their positions to privatize social resources and stifle societal opposition?
Arabica Robusta

Pambazuka - Global currency wars and US imperialism - 0 views

  • What is very curious in the present state of affairs is that, unfortunately, no other country other than China retains those rights. No other major partner (of the G20) has fully retained those rights, although some of the emerging countries such as India and Brazil have done something to that effect. Instead, they have generally accepted the dictates of the US.
  • It is important to understand that this is the central problem. The problem is the global integrated monetary and financial system, ruled as it is by the dollar, that is ruled by the exclusive prerogative of the US Treasury and Federal Reserve, of the US state. This is not acceptable. That is the problem. The problem is not the exchange rate of the Yuan or that of the Rupee or any other currency. Absolutely not.
  • First, for those who assume that the system is not so bad, and who accept that the US dollar should continue to be effectively the major, if not absolutely the exclusive international currency, the idea would be to restore the system as it was before the 2008 financial breakdown along with, perhaps, some minor regulatory reforms (most of which are essentially more cosmetic and rhetorical than real). This is exactly what the Stieglitz Commission and the Stieglitz report aim at. It accepts that the US dollar should remain the almost exclusive international currency (with some minor concessions). But it also accepts the right of the US government to manage the currency exclusively and on its own. As for everyone else, they have to adjust to the US dictates. This is, of course, not acceptable, especially for the South. If the Europeans, the British, the Japanese accept it that is their business. But I don't see why the Asians, the Latin Americans, the Africans should accept it. And it is not accepted, certainly not by China and some of the emerging states - India and Brazil in particular. Although it is not accepted morally by African states, in practice they have completely accepted to submit to its consequences - they have done nothing to respond to the challenge. So, that is the Stieglitz style solution. And it has completely failed. Nobody pays attention to the Stieglitz report, which has been dropped in the waste-basket, and nobody really cares about it. It has not convinced the partners, especially from the South. Even the North does not give any consideration to the recommendations of Stieglitz.
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  • Among those rules needed, a relation to gold cannot be avoided. That is to say, the system cannot be stabilised if there is not a fixed stabiliser. The new international currency unit has to be defined as equivalent to a precise quantity of gold. The gold exchange standard is needed, but not the gold standard as it has been in the Bretton Woods period, that is from 1945 until 1971, when the convertibility of the dollar into gold was suppressed by unilateral decision of the US. During these 30 or so years, in effect it was correct to say that the dollar was as good as gold. But since the 1970s, this is no longer the case.
    • Arabica Robusta
       
      Why is the "ideal system" underpinned by a fetish connection to gold?  Note that the gold standard was accompanied by feverish attempts to colonize gold producing areas such as South Africa and Peru.
  • Thus, there is only the third alternative. We - that is, the countries of the South, emerging as well as the others - should seek to establish arrangements between ourselves
Arabica Robusta

Poor Empiricism: The "Middle Income" Trap » TripleCrisis - 0 views

  • The first is that, beyond a point export-driven growth has a way of running into internally generated constraints.  Second, that among the factors that can undermine a country’s growth prospects, even at relatively higher income levels, is excessive liberalisation, especially financial liberalisation. Possibly most countries, whether poor, rich or in some ‘middle income’ range, find their growth has stalled for reasons such as these.
  • The IMF’s latest regional outlook on Asia for example suggests that these economies need to pay attention to “institutions” and infrastructure and exploit the “ample room for easing stringent regulations in product and, in some cases, labor markets.” Institutional strength is seen as reflected in higher political stability, better bureaucratic capability, fewer conflicts and less corruption. Whether weakness in this are is the result of underdevelopment or a cause of it is open to discussion.
Arabica Robusta

What is Modern Monetary Theory, or "MMT"? « naked capitalism - 0 views

  • Under the gold standard, and largely because of the gold standard, the capitalist world endured eight different deflationary slumps severe enough to be called “depressions.” Since the gold standard was abolished, there have been none – and, as we shall see, this is anything but coincidental.
  • The essential insight of Modern Monetary Theory (or “MMT”) is that sovereign, currency-issuing countries are only constrained by real limits. They are not constrained, and cannot be constrained, by purely financial limits because, as issuers of their respective fiat-currencies, they can never “run out of money.” This doesn’t mean that governments can spend without limit, or overspend without causing inflation, or that government should spend any sum unwisely. What it emphatically does mean is that no such sovereign government can be forced to tolerate mass unemployment because of the state of its finances – no matter what that state happens to be.
  • what had really happened was epoch-making and paradigm-shattering. It was also, for the rest of the 1970s, polymorphously destabilizing. Because no one had a plan for, or knew, what all of this was going to mean for the reserve currency status of the U.S. dollar. Certainly not Richard Nixon, who was by then embroiled in the early stages of the Watergate scandal. But no one else was in charge of this either. In the moment, other countries and their central banks followed Washington’s line. They wanted to forestall any kind of panic too. But, inevitably, as the real consequences of the new monetary regime kicked in, and as unforeseen and unintended knock-on effects began to be felt, this changed.
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  • Conventional, so-called “neo-classical” economics pays little or no attention to monetary dynamics, treating money as just a “veil” over the activity of utility-maximizing individual “agents”. And, as hard as this is for non-economists to believe, the models which these ‘mainstream’ economists make do not even try to account for money, banking or debt.
  • What needs to be said is this: Keynesian economics worked before, and the improved version – now generally called “post-Keynesian” – will work again, to deliver what the market-fundamentalism of the past three decades has patently and persistently failed to deliver *anywhere in the world*. Namely – a prosperity which is shared by everyone. The principal purpose of Modern Monetary Theory is to explain, in detail, why this this worked in the past and how it can be made to work again.
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