Quote of the day

Serge Halimi, editor of Le Monde Diplomatique, wrote:

Some revelations come as little surprise. It’s not really news that some politicians love money and like to spend time with those who have lots of it. Or that they sometimes behave like a caste that is above the law. Or that the tax system favours the affluent, and that the free circulation of capital enables them to stash their cash in tax havens.

The disclosure of individual transgressions should lead to scrutiny of the system that created them. But in recent decades, the world has been changing at such a pace that it has outstripped our analytical capacity. With each new event — the fall of the Berlin Wall, the emergence of the Brics (Brazil, Russia, India, China, South Africa), technological advances, financial crises, Arab revolutions, European decline — experts have fallen over themselves to announce the end of history or the birth of a new world order.

Beyond these premature birth and death notices, three main, more or less universal, tendencies have emerged which warrant initial exploration: the marked rise in social inequality, the disintegration of political democracy and the decline of national sovereignty. Every new scandal is like a pustule on a sickly body: it allows us to see each element of this trio re-emerge separately and operate together. The overall situation could be summed up thus: governments allow their political systems to drift towards oligarchy because they are so dependent on the mediation of an affluent minority (who invest, speculate, hire, fire and lend). If governments balk at this abandonment of the popular mandate, international pressure from concerted financial interest ensures they topple.

Oligarchy, Halimi suggests, is scarcely incompatible with a modern democracy. Both can coexist within a social system. This point, the uncomplicated compatibility of oligarchy and democracy, has slowly moved to the forefront since December, 1991, the moment at which Bush the Elder’s New World Order emerged in its purest form. Our modern oligarchs rule indirectly, by capturing a political elite which, although elected by the demos, depends on the former for resources and guidance. The oligarchs thus rule because of the political power generated by their enormous wealth.

The United States, of course, provides a special case of this general condition. Today it is the only global empire, an unmatched military colossus and a country which sits beyond the rule of law, according to its self-understanding. It also remains exceptionally wealthy and provides the world with its commonly used reserve currency. Sheldon Wolin depicted it as having an inverted totalitarian system, that is, as an ‘as if’ democracy embedded within an empire and a stagnant economy. Democracy in America today produces results that mostly affirm oligarchic demands, a system of markets strongly distorted by finance capital and the prerogative powers of the security-surveillance apparatus. A political commitment to economic austerity and massive wealth inequality, to the imprisonment of the poor as a means of social control and to imperial domination at home and abroad makes the United States a leader among the many countries committed to this kind of democracy. Democratic elections remain in effect. They are, however, ineffective mechanisms for holding the powerful accountable. They are, instead, noisy spectacles which generate a weak kind of political legitimacy for the governed and a politically effective legitimacy for the social system as a whole. This system legitimating originates in the common realization that little to nothing can be done to successfully resist the irresistible force which is society.

Americans ought to consider these points before they vote, whenever they listen to their political leaders and when they wonder how they can make it through the year.

Quote of the day

Bob Urie describes the politics of economic predation thusly:

For forty years the rich and connected, the ruling class, have used their representatives in government to take exactly what they wanted. Tax cuts, executive payouts and stock dividends were paid instead of promised pension contributions. Social institutions such as schools have been turned into cash cows for connected capitalists who have no intention of educating our children. Environmental standards have been gutted in return for promised jobs that never materialized. And while the ruling class has taken what it wanted without apology, the chattering class — liberals and progressives, has acted as if it’s at a debate club meeting.

Ironically, bond “king’ Bill Gross of PIMCO makes a (Keynesian) point that many clever economists looking at the issue have not grasped — the West’s bet that financial returns leveraged on the ‘real’ economy — actual goods and services, could rise forever, are coming unwound. With finance capitalism having impoverished the customers needed to keep itself going, available rates of return on investment in the real economy don’t justify making that investment. This is why corporations that have taken an increasing proportion of GDP in recent decades are sitting on piles of cash. In the aggregate, they’ve taken it from their customers who can no longer afford to buy their products. It’s also why the Fed’s QE (quantitative easing) remains a pathetic scam—keeping interest rates low when there is no loan demand (because borrowers have no faith in earning a return in the real economy) only drives financial speculation.

Paging Michał Kalecki!

Quote of the day

Paul Craig Roberts and Nomi Prins see the Libor interest rate manipulation scandal a bit differently:

According to news reports, UK banks fixed the London interbank borrowing rate (Libor) with the complicity of the Bank of England (UK central bank) at a low rate in order to obtain a cheap borrowing cost. The way this scandal is playing out is that the banks benefitted from borrowing at these low rates. Whereas this is true, it also strikes us as simplistic and as a diversion from the deeper, darker scandal. Banks are not the only beneficiaries of lower Libor rates. Debtors (and investors) whose floating or variable rate loans are pegged in some way to Libor also benefit. One could argue that by fixing the rate low, the banks were cheating themselves out of interest income, because the effect of the low Libor rate is to lower the interest rate on customer loans, such as variable rate mortgages that banks possess in their portfolios. But the banks did not fix the Libor rate with their customers in mind. Instead, the fixed Libor rate enabled them to improve their balance sheets, as well as help to perpetuate the regime of low interest rates. The last thing the banks want is a rise in interest rates that would drive down the values of their holdings and reveal large losses masked by rigged interest rates.

Briefly put, the Libor scandal is the result of a smoke and mirrors operation meant to secure the smoke and mirrors world of high level banking.

Greece under the yoke

English: Various Euro bills.

Reuters reported that:

Greece must surrender control of its budget policy to outside institutions if it cannot implement reforms attached to euro zone rescue measures, the German economy minister was quoted as saying on Sunday.

The fact that the German Economic Minister made this already credible statement indicates that Greece lacks control over its budget. The issue at hand is whether the European Union would exercise direct or indirect control over the Greek budget, not whether Greece would control its own budget.

Berlusconi to walk like a Grecian pol?

Berlusconi, bloodied, but not yet out

It appear so:

Italy’s stock and bond markets endured a volatile session on Monday as Silvio Berlusconi was reported to have denied reports that he intended to resign as prime minister.

Fabrizio Cicchitto, head of the parliamentary group of Mr Berlusconi’s People of Liberty party, said in a statement that the prime minister had told him that “rumours of his resignation were baseless”.

Ansa news agency also quoted Mr Berlusconi as telling people close to him that the reports were not true. A page on Facebook under the name of the prime minister quoted him as dismissing the rumours.

Franco Bechis, deputy editor of Libero, a pro-Berlusconi newspaper, had said earlier on Monday that Mr Berlusconi would resign on Monday night or Tuesday. Mr Bechis later said on Twitter that the prime minister had decided after talking to his family in Milan to call a vote of confidence in his government on the basis of its mandate to pass reforms requested by the European Union.

A financial source close to the prime minister told the Financial Times that Mr Berlusconi intended to step down later on Monday.

The reasons for Berlusconi’s latest humiliation?

European efforts to solve a growing sovereign debt crisis have failed to quell market unease on the Continent, and the skepticism over Greece points to continued volatility this week.

Among fresh warning signs, Italy’s cost of borrowing has jumped to the highest rate since the country adopted the euro.

And:

The yield on 10-year Italian notes has surpassed that on Spanish debt by nearly a full percentage point, reaching 6.51 percent on Monday after leaders at a meeting last week of the Group of 20 nations failed to come up with details on how to stop the European crisis from spreading. The rising yield is troubling because once the interest rates on the debt of Greece and Portugal surpassed 7 percent they shot up far higher, requiring those countries to turn to outside sources of financing. Rates on their debt remain in double digits.

At the end of last month, Italy issued 3 billion euros worth of bonds at an interest rate of more than 6 percent, about 1.5 percentage points higher than it had had to pay as recently as the summer. The extra bond yields are adding as much as 3 billion euros (about $4.1 billion ) annually in additional interest payments, estimates Tobias Blattner, a former economist at the European Central Bank who is an economist at Daiwa Securities in London.

Analysts are concerned that if interest rates on Italian debt keep rising, the country may no longer be able to afford to borrow on the open markets and instead would have to turn to official lenders like the European Union or the International Monetary Fund.

The latest rate “is a warning,” said Mark McCormick, currency strategist at Brown Brothers Harriman. “Seven percent would be a point of no return.”

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.