Quote of the day

Paul Krugman, once again:

Financial markets are cheering the deal that emerged from Brussels early Thursday morning. Indeed, relative to what could have happened — an acrimonious failure to agree on anything — the fact that European leaders agreed on something, however vague the details and however inadequate it may prove, is a positive development.

But it’s worth stepping back to look at the larger picture, namely the abject failure of an economic doctrine — a doctrine that has inflicted huge damage both in Europe and in the United States.

The doctrine in question amounts to the assertion that, in the aftermath of a financial crisis, banks must be bailed out but the general public must pay the price. So a crisis brought on by deregulation becomes a reason to move even further to the right; a time of mass unemployment, instead of spurring public efforts to create jobs, becomes an era of austerity, in which government spending and social programs are slashed.

This doctrine was sold both with claims that there was no alternative — that both bailouts and spending cuts were necessary to satisfy financial markets — and with claims that fiscal austerity would actually create jobs. The idea was that spending cuts would make consumers and businesses more confident. And this confidence would supposedly stimulate private spending, more than offsetting the depressing effects of government cutbacks.

Shit will hit the fan very soon

Quote Of the day

Mark Weisbrot, a co-Director of the Center for Economic Policy Research, recently took to task the United States and the European Commission, the European Central Bank (ECB), and the International Monetary Fund (IMF). The United States is the key member of the IMF and is thus responsible for its actions. Weisbrot criticized them because “They were trying to force the Greek parliament to adopt measures that would further shrink the Greek economy and therefore make both their economic situation and their debt problem worse, while inflicting more pain on the Greek electorate.” But it is not just the Greek economy which is in crisis. “The threat from the Troika,” Weisbrot argued, “was putting the whole European financial system at risk, since it raised the prospect of a chaotic, unilateral Greek default.”

What we are seeing here, then, is a triumph of ideology and interest over reason and solidarity.

Weisbrot drew an obvious conclusion from his analysis:

The “European debt crisis” is misnamed; it is not so much a debt crisis as a crisis of policy failure. There are always alternatives to a decade without growth, trillions of dollars of lost output, and millions of unemployed that the European authorities are offering to the people of Spain, Portugal, Ireland, Greece and now Italy. All that is lacking is the political will and competence to change course.

Quote of the day

Eurozone

The Eurozone

Mike Whitney discusses the Eurozone crisis:

Funding fears, political gridlock and plunging stocks have pulled the eurozone deeper into crisis. On Friday, the gauges of market stress continued to widen signalling [sic] more turbulence in the days ahead. Libor — the rate at which London-based banks borrow from each other — increased for the eleventh straight day, while the Libor-OIS spread, (which indicates the reluctance of banks to lend to each other) soared to levels not seen since Lehman Brothers blew up in 2008. And the VIX — better known as the “fear gauge” — has been surging for more than a week.

What does it all mean?

It means the eurozone is in the throes of a vicious credit crunch, but its leaders are frozen in the headlights. That’s a recipe for disaster.

Quote of the day

Le Soir quotes Jacques Delors as saying (see also this):

“Open your eyes: the euro and Europe are on the brink. And not to fall, the choice seems simple: either member states accept the closer economic cooperation that I have always claimed, or they transfer more powers to the Union.”

On the brink of what? Mike Whitney will tell us:

It means the [European financial] system is under great stress and beginning to slow down. It means investors have lost faith in the ability of policymakers to fix the system. It means there’s a panic underway and people are moving into cash. It means the eurozone is headed for a crackup. It means we are on the brink of another financial crisis.

Greeks against austerity

A photo taken from the June 28, 2011 demostration:

June 28, 2011 Athens Demonstration

Reactionary economics is a kind of war-making

Michael Hudson provides a brief case study of this kind of war craft while describing the Greek crisis:

The fight for Europe’s future is being waged in Athens and other Greek cities to resist financial demands that are the 21st century’s version of an outright military attack. The threat of bank overlordship is not the kind of economy-killing policy that affords opportunities for heroism in armed battle, to be sure. Destructive financial policies are more like an exercise in the banality of evil — in this case, the pro-creditor assumptions of the European Central Bank (ECB), EU and IMF (egged on by the U.S. Treasury).

As Vladimir Putin pointed out some years ago, the neoliberal reforms put in Boris Yeltsin’s hands by the Harvard Boys in the 1990s caused Russia to suffer lower birth rates, shortening life spans and emigration — the greatest loss in population growth since World War II. Capital flight is another consequence of financial austerity. The ECB’s proposed “solution” to Greece’s debt problem is thus self-defeating. It only buys time for the ECB to take on yet more Greek government debt, leaving all EU taxpayers to get the bill. It is to avoid this shift of bank losses onto taxpayers that Angela Merkel in Germany has insisted that private bondholders must absorb some of the loss resulting from their bad investments.

Popular protest in Greece

The bankers are trying to get a windfall by using the debt hammer to achieve what warfare did in times past. They are demanding privatization of public assets (on credit, with tax deductibility for interest so as to leave more cash flow to pay the bankers). This transfer of land, public utilities and interest as financial booty and tribute to creditor economies is what makes financial austerity like war in its effect.

I am sure it is difficult to produce a Hollywood epic of Greek farmers struggling to survive a blow that begins and ends with a stroke of a pen.

I also do not believe it wrong to identify this kind of elite economic activity as a kind of primitive or original accumulation. I believe it is uncontroversial to assert that the European Bankers and their allies in the United States want to restructure the Greek economy in order to exclude some in Greece from the material benefits they have had in the past and to accumulate capital by exploiting the political, legal and economic conditions in Greece, Europe and the world at large. This manner of capital accumulation may rightly be characterized as a kind of looting, that is, as an expropriation meant, in part, to change the character of economic exploitation in Greece. It is an instance of primitive or original accumulation because it will likely end with a new economic regime in Greece, a regime that will reflect the political capacities and economic requirements of some finance capitalists.

Hudson gives this advice to the Greek people who have been excluded from the elite bargaining over Greece’s future:

The most effective tactic is to demand a national referendum on whether to accept the ECB’s terms for austerity, tax increases, public spending cutbacks and selloffs. This is how Iceland’s president stopped his country’s Social Democratic leadership from committing the economy to ruinous (and legally unnecessary) payments to Gordon Brown’s Labour Party demands and those of the Dutch for the Icesave and even the Kaupthing bailouts.

Use of the direct democratic mechanism is the best feasible and effective path to block this attack on Greece and its people. Revolution is the only rational alternative to the victims of this looting effort if the institutions of a modern democracy were to fail to secure the rights and well-being of the Greek people. Resignation and suffering combine to provide the irrational alternative.