Global economics and finances - impacts

[JimD]

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/11348809/World-deflationary-forces-have-swept-away-Switzerlands-defences.html

World deflationary forces have swept away Switzerland's defences
A month ago the Swiss authorities were still claiming that their currency floor was crucial to prevent a deflation trap. They were right

The Swiss National Bank has lost control. It is the latest in a list of venerable central banks to be overwhelmed by deflationary forces and global economic disorder.
The country is already in deflation. The Swiss franc ended Thursday 13pc higher after the SNB abandoned its three-year efforts to defend a currency floor of 1.20 to the euro....

“They have had to throw in the towel. They couldn’t hold the line anymore,” said David Owen, from Jefferies Fixed Income. “This is going to cause extreme pain for parts of the Swiss economy but the SNB are trapped.”
The franc has been level over the past year on a trade-weighted basis. Even before Thursday morning's events, the exchange rate was 25pc above its decade-long average. It is now 40pc higher. Just one month ago the SNB argued in its quarterly report that currency floor was imperative to stop Switzerland relapsing back into deflation......

said the collapse of the floor would cause havoc. "Words fail me. Today's SNB action is a tsunami; for the export industry and for tourism, and for the entire country," he said....

The eurozone’s slide into deflation in December – with 5Y/5Y swap contracts showing inflation expectations in freefall – is the last straw for the Swiss authorities.

Domino's anyone?

[Laurent]

White House: 2014's Global Warming Shows 'We Can't Wait'
http://www.huffingtonpost.com/2015/01/16/white-house-global-warming_n_6488400.html?utm_hp_ref=green&ir=Green

[JimD]

Milton Friedman on why the Euro was not a good idea.

Friedman observed that a currency union—which is essentially what the Euro is—makes sense for the United States, since:

Though composed of fifty states, its residents overwhelmingly speak the same language, listen to the same television programs, see the same movies, can and do move freely from one part of the country to another; goods and capital move freely from state to state; wages and prices are moderately flexible; and the national government raises in taxes and spends roughly twice as much as state and local governments. Fiscal policies differ from state to state, but the differences are minor compared to the common national policy.

The European Union was almost the opposite of the United States in all these respects:


It is composed of separate nations, whose residents speak different languages, have different customs, and have far greater loyalty and attachment to their own country than to the common market or to the idea of “Europe.” Despite being a free trade area, goods move less freely than in the United States, and so does capital. The European Commission based in Brussels, indeed, spends a small fraction of the total spent by governments in the member countries.

Sagely, Friedman observed that though the motivation for the Euro was primarily to achieve political union in Europe, it would have the opposite effect since it “would exacerbate political tensions by converting divergent shocks that could have been readily accommodated by exchange rate changes into divisive political issues”. That is indeed what is happening now, after the economic crisis that Godley earlier said was inevitable, and would be made worse by the Maastricht Treaty’s bizarre limits on European fiscal policy.

Godley argued that the capacity to devalue a currency (whether by government action under a fixed exchange rate regime, or by the markets in a floating one) was a potent economic tool which should only be abandoned if you get something equally powerful in return—such as a much stronger fiscal capability that would result if the EU had emulated the USA and established a European Treasury as well as a European Central Bank. Then trade deficits between Greece and Germany—like trade deficits between Alabama and California—would be counterbalanced by fiscal transfers from Brussels.

http://www.forbes.com/sites/stevekeen/2015/01/17/making-swiss-cheese-of-the-euro/

[Shared Humanity]

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/11348809/World-deflationary-forces-have-swept-away-Switzerlands-defences.html

World deflationary forces have swept away Switzerland's defences
A month ago the Swiss authorities were still claiming that their currency floor was crucial to prevent a deflation trap. They were right

The Swiss National Bank has lost control. It is the latest in a list of venerable central banks to be overwhelmed by deflationary forces and global economic disorder.
The country is already in deflation. The Swiss franc ended Thursday 13pc higher after the SNB abandoned its three-year efforts to defend a currency floor of 1.20 to the euro....

“They have had to throw in the towel. They couldn’t hold the line anymore,” said David Owen, from Jefferies Fixed Income. “This is going to cause extreme pain for parts of the Swiss economy but the SNB are trapped.”
The franc has been level over the past year on a trade-weighted basis. Even before Thursday morning's events, the exchange rate was 25pc above its decade-long average. It is now 40pc higher. Just one month ago the SNB argued in its quarterly report that currency floor was imperative to stop Switzerland relapsing back into deflation......

said the collapse of the floor would cause havoc. "Words fail me. Today's SNB action is a tsunami; for the export industry and for tourism, and for the entire country," he said....

The eurozone’s slide into deflation in December – with 5Y/5Y swap contracts showing inflation expectations in freefall – is the last straw for the Swiss authorities.

Domino's anyone?

When you flush the toilet everything goes circling around the bowl.

[JimD]

More on the Euro dilemma.

http://www.ft.com/intl/cms/s/0/6aaf3482-9f0e-11e4-ba25-00144feab7de.html#axzz3PGwfR9j0

[Laurent]

Should tackling climate change trump protecting nature?
http://www.theguardian.com/environment/blog/2015/jan/19/should-tackling-climate-change-trump-protecting-nature

[JimD]

Should tackling climate change trump protecting nature?
http://www.theguardian.com/environment/blog/2015/jan/19/should-tackling-climate-change-trump-protecting-nature

Ahh but that solar farm is not about preventing climate change.  It is about a version of BAU.  It is about continuing some version of our current civilizational structure and consumption patterns.  So it is not necessary and there is no dilemma.  Just misperceptions.

[JimD]

My memory is not good enough to remember which famous central banker said essentially "When it really counts is when you start lying."  But here is more living proof.

Denmark Just Followed Switzerland And Slashed Interest Rates As Europe Stagnates

Denmark just announced a surprise interest rate cut, pushing the country's main policy rates further into negative territory.

Both the deposit and lending rates were cut from -0.05% to -0.2%.

Like Switzerland, Denmark has been trying to keep up a currency peg against the euro, at around 7.46 Danish kroner to the euro.

Switzerland's central bank caused currency chaos last week, when it unexpectedly ended the peg and the Swiss franc soared in value. Since then, analysts have questioned whether Denmark will have to follow.

Societe Generale's FX man, Kit Juckes, thinks that's overblown (emphasis ours):

There has been significant speculation about the Danish currency peg to the euro following the SNB (Swiss National Bank) shock. We are doubtful that the Danish krone peg, which has existed for decades, is about to break....

Whho is next??

[JimD]

The economic prophet who foresaw the Lehman crisis with uncanny accuracy is even more worried about the world's financial system going into 2015.

Beggar-thy-neighbour devaluations are spreading to every region. All the major central banks are stoking asset bubbles deliberately to put off the day of reckoning. ..

"We are in a world that is dangerously unanchored," said William White, the Swiss-based chairman of the OECD's Review Committee. "We're seeing true currency wars and everybody is doing it, and I have no idea where this is going to end.".....He said the global elastic has been stretched even further than it was in 2008 on the eve of the Great Recession. The excesses have reached almost every corner of the globe, and combined public/private debt is 20pc of GDP higher today. "We are holding a tiger by the tail," he said.
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Switzerland 'capitulates' on franc as currency wars take next victim 15 Jan 2015
Bank of America warns of 'lethal' damage to China's financial system as deflation deepens 08 Jan 2015
He warned that QE in Europe is doomed to failure at this late stage and may instead draw the region into deeper difficulties. "Sovereign bond yields haven't been so low since the 'Black Plague':....

"QE is not going to help at all. Europe has far greater reliance than the US on small and medium-sized companies (SMEs) and they get their money from banks, not from the bond market," he said....

Mr White said QE is a disguised form of competitive devaluation. "The Japanese are now doing it as well but nobody can complain because the US started it," he said.
"There is a significant risk that this is going to end badly because the Bank of Japan is funding 40pc of all government spending. This could end in high inflation, perhaps even hyperinflation.
"The emerging markets got on the bandwagon by resisting upward pressure on their currencies and building up enormous foreign exchange reserves. The wrinkle this time is that corporations in these countries - especially in Asia and Latin America - have borrowed $6 trillion in US dollars, often through offshore centres. That is going to create a huge currency mismatch problem as US rates rise and the dollar goes back up."...

He deplores the rush to QE as an "unthinking fashion". Those who argue that the US and the UK are growing faster than Europe because they carried out QE early are confusing "correlation with causality". The Anglo-Saxon pioneers have yet to pay the price. "It ain't over until the fat lady sings. There are serious side-effects building up and we don't know what will happen when they try to reverse what they have done."

Tick tock tick tock.

http://www.telegraph.co.uk/finance/economics/11358316/Central-bank-prophet-fears-QE-warfare-pushing-world-financial-system-out-of-control.html

[JimD]

A long but excellent article.

...
Price deflation is already affecting the U.S., and may lead it into another economic downturn.  Importing further deflation through the exchange rate, which now seems very likely through hot money transfers, just adds another inevitable means by which the U.S. ultimately suffers a general collapse in prices.  This will at long last match up with the long term decline in wages, which began as far back as the Reagan years.

“There is no such thing as a free lunch, ” Milton Friedman often would say.  You can’t suppress wage growth and encourage a transfer of middle class wealth to corporations and billionaires without ultimately causing an adjustment downward in prices through deflation.  This was not foreseen by Reagan or Thatcher, and the process has played out over decades, because the U.S. had tremendous wealth to destroy first through borrowing (especially in its housing stock) in order to keep up the illusion that living standards wouldn’t suffer as wages stagnated.  But that game has played out.  Price deflation, whether it started in China or Japan, is now spreading across the globe.  There will be intermittent flashes of recovery, especially in assets like equities which are sensitive to the amount of QE central banks are providing.  But the overarching trend is irrevocably set.

We will reach the end game of this process not only because consumer prices will finally make a broad set of goods and services purchasable.  There will be massive economic dislocation along the way, because the defenders of the current system – the creditors – will be experiencing crippling loan losses on their portfolios.  The number of banks in trouble and corporations heading to bankruptcy will skyrocket, and many middle class people will lose their jobs.  Sadly, this is the price we all must pay for such grandiose economic mismanagement.  There is another way to look at this.  ZIRP and NIRP tell us essentially that the price of money has collapsed to nearly nothing – it is being given away for free to the banks.  But if this is so, the price of credit must be reduced as well, meaning that the cost of borrowing should be going down too.  But it is not.  Interest rates on credit cards, for example, are still in the double digits in the U.S., even though card borrowing volume has stagnated for years.

This situation must in the long run remedy itself as well, which will be accomplished through large-scale defaults on loans by consumers and businesses.  These defaults will drag down some large and many small banks, and other financial players like insurance companies, equity funds, and hedge funds.  It will all be very, very ugly, but at the end, the global economic system will be reset to normality.  Those who will recognize this new normality to some degree will be people who were in the work force in the 1960’s and 1970’s.  For everyone else, it will appear like a brave new world, completely unlike the form of capitalism we have lived under following the Reagan and Thatcher “revolutions.”

It will be a world where living standards will have fallen, but what is left of the middle class will now be able to afford the staples of life, such as food, energy, and housing. Banks will be subject to price controls on interest rates, which they will readily accept because they will be so reluctant to lend money in the first place.  The absurdly wealthy will be reduced to being simply extremely wealthy, and government will find it necessary to subsidize poor people by granting them entitlements such as food stamps, and housing and energy allowances.
...

Another argument that global finances will not be in any kind of shape to be paying huge amounts of money to retool our civilizational structure over the next several years.

http://agonist.org/deflation-swamps-switzerland/

[JimD]

http://thenewinquiry.com/and-meanwhile/while-the-capitalists-are-winning-every-battle-between-the-two-classes-they-are-nonetheless-losing-the-war/

“While the capitalists are winning every battle between the two classes, they are nonetheless losing the war.”

Insofar as Thatcher spoke for the capitalist class, there is indeed no alternative: capitalism today cannot survive in the cramped confines of the nation state. However, there is an aspect of her declaration that also applies to the modern social forces of production created by capitalism. These social forces have never been national and have always compelled capital to take increasingly global forms.......

Globalization is not a policy of the capitalists, it is a process of formation of a single world market that is imposed on both worker and capitalist alike by development of the productive forces bound up with capital. Properly understood, neoliberalism is a policy where by the costs of this irresistable globalization is imposed on the working class by the capitalists.....

.......The very institution the Left relies on to fight the neoliberal impact of globalization is the one most fatally compromised by globalization itself.

[JimD]

http://www.stratfor.com/weekly/new-drivers-europes-geopolitics#axzz3PxWiORCF

...
Another version, hardly heard in the early days but far more credible today, is that the crisis is the result of Germany's irresponsibility. Germany, the fourth-largest economy in the world, exports the equivalent of about 50 percent of its gross domestic product because German consumers cannot support its oversized industrial output. The result is that Germany survives on an export surge. For Germany, the European Union — with its free-trade zone, the euro and regulations in Brussels — is a means for maintaining exports. The loans German banks made to countries such as Greece after 2009 were designed to maintain demand for its exports. The Germans knew the debts could not be repaid, but they wanted to kick the can down the road and avoid dealing with the fact that their export addiction could not be maintained.

.....

What will become the issue, and what is already becoming the issue, is free trade. That is the core of the European concept, and that is the next issue on the agenda as the German narrative loses credibility and the Greek narrative replaces it as the conventional wisdom.

It is not hard to imagine the disaster that would ensue if the United States were to export 50 percent of its GDP, and half of it went to Canada and Mexico. A free-trade zone in which the giant pivot is not a net importer can't work. And that is exactly the situation in Europe. Its pivot is Germany, but rather than serving as the engine of growth by being an importer, it became the world's fourth-largest national economy by exporting half its GDP. That can't possibly be sustainable.


There are then three drivers in Europe now. One is the desire to control borders — nominally to control Islamist terrorists but truthfully to limit the movement of all labor, Muslims included. Second, there is the empowerment of the nation-states in Europe by the European Central Bank, which is making its quantitative easing program run through national banks, which may only buy their own nation's debt. Third, there is the political base, which is dissolving under Europe's feet.

The question about Europe now is not whether it can retain its current form, but how radically that form will change. And the most daunting question is whether Europe, unable to maintain its union, will see a return of nationalism and its possible consequences. As I put it in Flashpoints:

The most important question in the world is whether conflict and war have actually been banished or whether this is merely an interlude, a seductive illusion. Europe is the single most prosperous region in the world. Its collective GDP is greater than that of the United States. It touches Asia, the Middle East and Africa. Another series of wars would change not only Europe, but the entire world.

To even speak of war in Europe would have been preposterous a few years ago, and to many, it is preposterous today. But Ukraine is very much a part of Europe, as was Yugoslavia. Europeans' confidence that all this is behind them, the sense of European exceptionalism, may well be correct. But as Europe's institutions disintegrate, it is not too early to ask what comes next. History rarely provides the answer you expect — and certainly not the answer you hope for.

[johnm33]

Here's Alexis Tsipras's open letter to the German people. https://hat4uk.wordpress.com/2015/01/30/alexis-tsipras-open-letter-to-the-german-people/
The only way out of our [UK,US,EU] predicament is to increase the amount of money in circulation in the real economy, and the simplest way would be to lend citizens money on the same terms as the banks 0.5% with the proviso that they use the money first to pay down any debts they have, it could be paid out either as a lump sum to those already in debt, or as a substitute for welfare for those not working, securing their immediate needs but freeing them to seek any work to enhance their income without penalties. In the US [ http://www.theusdebtclock.com/ ] $100,000 should do the trick. In the UK [ http://www.nationaldebtclock.co.uk/ ] £40,000 seems about right. In the  EU [eurozone] since they haven't yet wasted billions buying up non performing worthless 'assets'  from their idiotic bankers in an insane QE program, perhaps 25,000 Euros would do the trick. Though I think it should be set at a level that would secure the welfare of the poorest in Europe for about 3 years whilst the economies recover.

[SATire]

In the  EU [eurozone] since they haven't yet wasted billions buying up non performing worthless 'assets'  from their idiotic bankers in an insane QE program, perhaps 25,000 Euros would do the trick. Though I think it should be set at a level that would secure the welfare of the poorest in Europe for about 3 years whilst the economies recover.

The Eurozone "wasted" already 240 billions in worthless Greece "assets", all that debt is now owned by European tax payers and is to pay in the far future with close to zero interest rates - just in case it will be paid at all.

Within the next 30 days we will learn, if some countries will leave the Euro or perhaps even will leave the EU or if all the dancing elephants will stop that dancing in the China shop. And since we have learned the hard way to judge the doings and not the words we will have to wait even longer...

But one thing is clear: No sane private person will ever lend the Greek any money. But gifts could make some sense - "forced gifts" or charity or maybe also some bribery from Putin. Strange trend this socialist-nationalist alliance - last time we had such constellation (N-S)  in Germany it was good for the pride for a short time but terrible on the long run. Now the Greek are also in search for pride...

Edit: For some strange reasons the existing 240 billions divided by the 10 million Greek persons result in a number quite close to your 25.000 € per person. So we are done with that already? Unfortunately that money was not given to all the Greek people but to a few of them as usual in cleptocracies like the ones kicked out of government now.

[johnm33]

Most of the 'money' 'loaned' to greece was to save French German and others banks http://www.zerohedge.com/news/2015-01-30/why-are-central-banks-terrified-debt-restructuring
my suggestion of 25,000 euros credit would apply to all citizens of the Eurozone, and would simultaneously save the banks, without saddling the taxpayer with more debt, and prevent the coming political crisis, and this by merely extending to the poor the same terms of credit now reserved for the already fabulously wealthy. This would prove far more effective than QE where the 'money' will only extend the number of claims on a finite supply of genuine assets. Even better would be to add on a new tax to coal and oil use say 30% when it enters an economy and use this to declare a partial jubilee on this new debt somewhere down the road. 

[crandles]

Most of the 'money' 'loaned' to greece was to save French German and others banks http://www.zerohedge.com/news/2015-01-30/why-are-central-banks-terrified-debt-restructuring
my suggestion of 25,000 euros credit would apply to all citizens of the Eurozone, and would simultaneously save the banks, without saddling the taxpayer with more debt,

Creating an extra 25000 euro loan to each member of the population doesn't create more debt ?

[SATire]

Most of the 'money' 'loaned' to greece was to save French German and others banks http://www.zerohedge.com/news/2015-01-30/why-are-central-banks-terrified-debt-restructuring
my suggestion of 25,000 euros credit would apply to all citizens of the Eurozone, and would simultaneously save the banks, without saddling the taxpayer with more debt,

Creating an extra 25000 euro loan to each member of the population doesn't create more debt ?

CRandles, I think John was talking about some kind of "quantitative easing" for the privates - so that money would just be "printed" by ECB. So that would be the same transfer of "real money" from savers/pensions to debtors like the QE thing. Since the things to buy will not come from nothing the net effect will be zero. But some numbers like GDP could rise, if you are interested in that. The risk is, that people could be mislead to increase consumption instead of doing investments that make sense. So it would worsen the AGW problem and bost any kind of crashes again. Silly thing I think.

I would suggest to invest in wind and PV e.g. especially in Greece - so people there could do something that makes sense and other people could be convinced to spend the money for that. In general there is no way to go but austerity, deflation or any other kind of de-growth to get sustainable one day.

[crandles]

The only way out of our [UK,US,EU] predicament is to increase the amount of money in circulation in the real economy, and the simplest way would be to lend citizens money on the same terms as the banks 0.5% with the proviso that they use the money first to pay down any debts they have, it could be paid out either as a lump sum to those already in debt, or as a substitute for welfare for those not working, securing their immediate needs but freeing them to seek any work to enhance their income without penalties.

I am not sure whether for citizens with no debt, this means they have to repay the 25000 euro central bank loan. If it does, then I don't see it as having much effect other than changing who money is owed to. If not, then it is creating extra debt in the economy.

It would mean that central banks hold the personal loans including such loans that are none performing rather than banks holding them.

In other words it definitely is saddling tax payers with cost of banks bad debts.

I don't think it is a 'way out' at all.

Loan instead of welfare benefit - might have some effect on making people avoid taking riskier employment positions. I think we should encourage people to take risks like starting their own business. It is banks taking risks where they don't suffer the consequences because taxpayer picks up the bill that should be discouraged.

[JimD]

The Germans knew exactly what they were doing.  They took and are still taking advantage of the structure of the Euro and the Common Market to get rich.  They do not and never did want a real unified Europe or they would be pursuing policies which would lead to a United States of Europe which would operate similar to how I have described above.

I think the Euro is doomed and when it goes much of the benefits of the Common Market have to go as well.  Germans more than most perhaps, but all the European countries are very focused on their 'own' people, their 'own' culture and have real limits on how positively they perceive people of other European Countries. We are reaching those limits.  Right now it is the lowlife Southern Europeans, their Muslim citizens who do not belong in Europe, and soon it there will be even more issues with the Eastern Europeans.  NATO support for an illegal regime in Ukraine which is stocked with real modern day Nazi's cannot end well for anyone.  Screwing with Russia for no good reason other than it serves the interests of the US empire is beyond foolish.  NATO is in the process of setting up command centers in all the former East Block countries of the Warsaw Pact.  Are you kidding?  Do the Europeans want war?  The US pretty much does as having a giant military/political mess in Europe will make us untold amounts of money and shift wealth from our secondary colonial partners in Europe to us.  A win win situation for us. 

These are the kinds of effects which result from our slowly accelerating collapse.  Crumbling finances, everyone resorting to taking care of themselves, growing hatred of others, the growing attractiveness of the use of the military and so on.

Human nature rears its ugly head? 

One thing I just do not understand is how people can see this stuff going on and take the attitudes about it they do and then NOT see what this tells you about how humans act.  We ARE going to keep doing things the way we always have.  BAU in all its ugly glory.  Our only option which 'might' lead to a different result than usual is to break from our past and deliberately NOT follow our basic nature.  That is we resort to taking rational action and deliberately turn from BAU.  But we will not.  Everyone wants to protect their honey pot and live their fantasies of being rich and that there is a limitless future.  Armies with good generals know that sometimes you must retreat if you want to have a future.  Maybe someday all these dreams which everyone is afraid to let go of for now will come to pass.  But just charging into the guns is what they did in the trenches of WWI and you see where it got them.  I still think we have somewhere in us the possibility to act courageously.  I just can not seem to find it.

[johnm33]

The idea of the loan facility would be so that anyone with expensive debt could pay that down, whether it's a 6% mortgage, a 36% credit card or a 2000% payday loan. One way or another this would all end up shoring up the banks. No-one would be forced to take on debt they didn't want.
 In the UK people on benefit are extremely reluctant to sign off / get a job, they have no reserves and it can take 6-8 weeks to start the flow of benefits again. If they do any work, and they are allowed to do up to 16hrs., any income results in 90+% effective tax rate being applied, which supresses the incentive to work. Plus if they do voluntary work or attend classes they are deemed 'unavailable' for work and loose their benefits. So i was mainly thinking about how to improve their situation, I have no idea how the system works in Eu/US.
 The way money is usually created [for the central bank] is by the government issuing bonds which the banks accept in return for creating credit in the gov. account. So the gov. then owes the banks the money. What I'm suggesting is that the central bank creates credit in the account of citizens, against their promise to repay, cutting out the banks and the gov., except that the citizen could then move his credit into the bank of his/her choice. Of course not everyone will fulfill their obligation but compared to the losses [from buying worthless securities in QE] to save incompetent bankers, these losses would be trivial, and each debt would still be assigned to the borrower and not the taxpayer.
The whole point of the new debt would be to make it possible for old debt to be repaid, saving the banks the economies and the taxpayer from taking the losses, which grow bigger with every conventional action by the ECB and the various NCBs. My understanding is that what the bankers have put in place instead is the right to treat all depositors as creditors and low level creditors at that, so when tshtf they are guaranteed a scalping.
 Greece cannot pay it's debts and debts that cannot be paid will not be paid, and since it was perfectly obvious that this was the case in 2010 the Greeks could perfectly reasonably declare the debts odious , indeed they approach this gently in the Tsipras letter in my first link above. When the fire sale of Greek assets begins in earnest they are not going to accept that peacefully, nor allow the new owners much pleasure in their acquisitions. Then the rot spreads to Italy? Spain? Portugal? France? where then will be the markets for German manufactured goods? 
  But of course JimDs right it's bau all the way down.

[SATire]

Greece cannot pay it's debts and debts that cannot be paid will not be paid, and since it was perfectly obvious that this was the case in 2010 the Greeks could perfectly reasonably declare the debts odious , indeed they approach this gently in the Tsipras letter in my first link above. When the fire sale of Greek assets begins in earnest they are not going to accept that peacefully, nor allow the new owners much pleasure in their acquisitions. Then the rot spreads to Italy? Spain? Portugal? France? where then will be the markets for German manufactured goods? 
  But of course JimDs right it's bau all the way down.

Johnm33 - there will be no fire sales. All the bonds are owned by the other governments and thus the tax payer of the other countries. The former Greek loans are already Germans/Netherlands/France/... loans. The only thing the taxpayer has is the promise, that after 2020 Greek people will start to pay that back that loan about without any interest rate. So a default today will not hit any bank - it will only hit trust since that would be another broken promise.


JimD - if the German people would have been asked if they wanted the Euro they would have voted "no". For the good reason that German people paid a lot since the introduction. We are told every day here in Germany that we profit from the € - but the people did not. It is not really clear who did profit. Probably the small countries with some tax tricks and at least in the first years the Southern countries had an incredible growth while Germany was the "sick old man in Europe".

And today export still soars - but since the money is the same the working people can not profit from the hard money, so they have to work more and more and get less than in former days. And the extra money from export left the country for other targets (American houses, Southern bonds, internet bubbles, tiger states and such once good investment ideas...). No - the work was in vain and now the average German person is poorer than e.g. the average Italian so AfD cries for Germany to leave the Euro...

Someone is really fooling all of us.

But anyway to get sustainable we have to learn austerity. Merkel is doing a good job to prepare our ageing society for that. The budget is balanced now and we can start to reduce the debt to meet the 60% again and to prepare for the final conversion of our share of the Greek debt to become German debt. What the other countries do is there thing - there is no "dictate" in Europe since a majority and sometimes even all votes are necessary for any decision taken. So please try to ignore such kind of "dictator propaganda" if you read that.

[JimD]

SATire

I'm quite sure that if a vote was put forward in most of the Northern EU countries that it would go against the Euro at this point.  Or maybe not if the weaker countries were removed.  But that was certainly not the case when it was implemented.

As to who gets the profits your country is just following the lead of where the US went long ago.  Labor has lost or is losing what little power it had to get a fair share of the wealth.  We are in much worse shape than you are along the same lines.  The oligarchs run the show and have created tax advantages for themselves and put their bad debts on the working class taxpayers. 

We do have to learn to live with austerity.  But not the kind being sold by the financial powers that be.  That kind of austerity is designed to do exactly what it is doing to US, German and Greek workers.  It takes from their fair share and moves it to the very wealthy.  Those first in need of austerity are the rentier class.  We are in a class war with the rich and they are winning.

But it will be a Pyrrhic victory for them as their wealth is going to melt away in the coming collapse anyway.  All of the BAU mirages are not possible as they ultimately depend on increasing wealth and civilizational complexity.  Neither of those is in the cards.  Our global economies will eventually no longer be able to steal from the future and growth will stop and our ability to grow complexity will stall out and then decline.  With that decline will go any chance of making the BAU scenarios happen.  The austerity which will grow out of that situation will greatly level the field and they will come back much closer to the mean.

[johnm33]

Crandles I think you have a very different view of how banking/gov. works to mine. So two scenarios, in both the gov. decides it needs 1Billion of cash to spend.
1, it orders 1,000,701,000[£/$/euro in 100s] from the printers, gives the printer the 701,000 for their trouble and has the  1Billion cash free and clear.
 2, it requests 1Billion of credit from the bank, the bank presents it with a bill for 1,000,000 for printing costs charges fees of 5,000,000 for establishing the credit in the retail banking system, requests payment of interest [due every six months] at say 5% so 25,000,000 [which will have to be paid for eternity because whilst any particular tranche of debt can be paid back, the cash to pay it back will be borrowed, again, from the banks] and the gov. has its 1billion [well 969million] to spend, although it already owes more than that to the banks. This is what necessitates growth!
 We [EU/US/UK] use the second system I'm suggesting that for just once the EU use the first and distribute the cash on an egalitarian basis, not as a gift but as an optional loan.
Satire, I was thinking of islands, ports, utilities, oil/gas exploration rights in the fire sale not bonds.

[SATire]

I'm quite sure that if a vote was put forward in most of the Northern EU countries that it would go against the Euro at this point.  Or maybe not if the weaker countries were removed.  But that was certainly not the case when it was implemented.

JimD - your observation is not correct. We have seen different trends for acceptance of European integration in Germany (large in the beginning and smaller confidence since the debt/trust crisis since 2010). But for the currency Euro the acceptance was low in the beginning and then it increased as people got used to it. Only recently (ECB now plans to buy bonds and such) trust is getting lower again.

I agree to your observation, that we a bit followed that US-type of market liberalization - but much less than in US. E.g. TTIP is on ice now and probably will not be accepted, since it would prohibit any increase of regulation standards/consumer protection/ecology protection. All that would be a step back to the dirty sixties which must be avoided by any means. But you are right that we have seen significant transfers from lower & middle class in Germany both towards southern Europe people (this trend did stop a bit since 2010) and towards upper class people.

For your other points (e.g. wealth transfer from EU to US, colony ideas and such) I can not see any observations. That looks to me like some radical left propaganda/ideology without hard facts. Wall street people gained a lot but also lost a lot (e.g. John Taylor) - not the most of that money was from EU but from US or elsewhere. My main problem with this left ideology is that it is most unsustainable - that is proceeding BAU in our social economy and must be stopped and replaced by an low-consumption austerity politics as soon and as wide-spread as possible to reduce AGW. Of course that austerity should concentrate on the rich people first - a point that still is not started to be addressed e.g. in Greece... Maybe Syriza will start at least that one thing now - if not, Greece will be terribly screwed again.

[crandles]

Crandles I think you have a very different view of how banking/gov. works to mine. So two scenarios, in both the gov. decides it needs 1Billion of cash to spend.
1, it orders 1,000,701,000[£/$/euro in 100s] from the printers, gives the printer the 701,000 for their trouble and has the  1Billion cash free and clear.
 2, it requests 1Billion of credit from the bank, the bank presents it with a bill for 1,000,000 for printing costs charges fees of 5,000,000 for establishing the credit in the retail banking system, requests payment of interest [due every six months] at say 5% so 25,000,000 [which will have to be paid for eternity because whilst any particular tranche of debt can be paid back, the cash to pay it back will be borrowed, again, from the banks] and the gov. has its 1billion [well 969million] to spend, although it already owes more than that to the banks. This is what necessitates growth!
 We [EU/US/UK] use the second system I'm suggesting that for just once the EU use the first and distribute the cash on an egalitarian basis, not as a gift but as an optional loan.
Satire, I was thinking of islands, ports, utilities, oil/gas exploration rights in the fire sale not bonds.

If governments could do 1), why don't they do so and repay the national debt and get rid of the interest payments that form a part of their deficits?

1) just isn't an option legally or no-one would buy government bonds.

[JimD]

SATire

I did not say Europe was where the US is but following the same path.  And that progression continues.

You truly mistake me if you think I am a liberal of some sort.  I could care less about political ideologies as I think that all people who think that way are stupid whether they are on the right or left.  The reason that I attack right wing political and economic ideology more than liberal ones is that our Western political and economic systems are solidly under the control of the right.  I am a pragmatist.  Such is the basis of all my arguments.  Accept reality and limit your choices to what has a chance of succeeding and try and pick the best option...no matter how painful it might be.  This is why I argue so strongly against the black and green BAU approaches.  They have such a low probability of success they need to be discarded. 

The money moved to Greece was largely used to prop up the banking system (which was significantly owned by Northern European banks) and the money reflowed to those and the ultra wealthy of many countries.  It did not flow to the Greek people who then wasted it.  There is a huge problem with German perceptions of what has happened and it is very inaccurate.  The oligopoly of Greece has made out just fine and has probably increased its wealth.  The people have been stripped of most of their wealth.  The European banking system has worked very hard over the last 2 years to firewall itself from the Greek banks in order to be able to hold a very hard position on this debt.  But they know the only people who are going to have to pay anything are the bulk of the population which has no means.  So any payments will push them deeper into poverty.  When do you stop?  When there are children starving in the streets?  When the only option for their women is prostitution?  When no German dares to go to Greece for fear of losing his life?

Germany is the primary culprit in this as their banking and financial leaders could not have been ignorant of what was going to happen.  Germany treats Greece as a colony not as a part of the European Union.  If you want the EU to work you must operate it like the US operates with its financial structures between our states and federal government.  If you can't do that you need to take it apart as it will fail anyway.

It is mathematically impossible for Greece to pay the debt.  Not even in 20 years.  Greece is insolvent.  Greece is bankrupt. German insistence that this debt be paid no matter what can only be viewed as a hostile act at a sovereign level.  Germans are telling the Greeks that in perpetuity you will live impoverished lives and will essentially be debt slaves to the German people. 

The money is gone into the pockets of the bankers and the rich.  It is lost and the debt has been hung on the necks of poor people who cannot pay it.  Accept reality, cut your losses and walk away.  To do otherwise quite clearly will lead to a worse outcome just like following BAU will lead to a worse outcome.

[SATire]

JimD - I agree with you that we have to stop all kind of BAU (e.g. black, green or the socialists red).

I disagree to a lot of the points you are talking about German-Greek relationship.

First - it is an EU-Greek relationship and Germany is only one of a lot of countries and all decisions in EU are made at least by majority.

Second - the debt of Greece was taken and spend by the Greek government and not by banks or such. Naturally the bonds where bought by private people, pension funds and other and given to banks as "security" to get credits - normal thing.
All private savers where already "haircut" by 50% and lost that money.

3. To rescue the European bank system and to avoid Greek bankruptcy and "infection" of other countries the bonds where bought by a European fund - and thus actually by the other countries. Similarly that was done in Ireland and Portugal. This "rescue" came across with control. And this control was in the best interest of the people since it was to fight tax fraud, nepotism and other problems resulting in low tax income and the political motivated high spendings without any sense (e.g. hospitals employing 12 gardeners while having 0 garden - just because they were in a special party...).   

Those are just simple facts and none of this facts were dictated by Germany. All decision were made by all countries including Greece.

But you are right - it would perhaps have been better to let Greece go bankrupt those days in 2011. That clever Papandreou had made a bet with wall street in such a way, that Wall street would have paid a large amount of that losses anyway (edit adding the sources for that (in German): http://www.faz.net/aktuell/finanzen/anleihen-zinsen/griechische-staatsanleihen-furcht-vor-einer-verkaufswelle-15870.html
http://www.deutsche-mittelstands-nachrichten.de/2011/11/30248/ ). But for some reasons not so clear to me that did not happen... So now the debt (which was in fact spent by the Greek government once) happens to become the debt of the other countries and must be paid by the workers elsewhere. And it is not only Germany but all other countries wanting the Greek people to pay that back one day (with close to 0 interest rate and starting slowly after 2020) - especially countries like Portugal and Ireland could not understand a "special treatment". So some fairness must be considered and also the motivation of governments to make any debt must be reduced (e.g. to get sustainable once). The "will" to pay one day would be sufficient for most people to maintain solidarity with the Greek people - but there is no need for solidarity with the rich ship owners, cleptrocray and nepotism. Those things must be corrected by the Greek people now without the help of the "Troika". 

But to get back to topic: Austerity is the thing to learn. Reduced consumption and long term investments in things that make sense must be done - in Greek, in Europe and everywhere else. Every spending of money for consumption or "creation" of money for silly purposes like "increased GDP" are steps in the proceeding BAU direction and thus just wrong.

[JimD]

SATire

Some private investors did receive a haircut as you say, but the banks were bailed out.  The people in the other European countries which now hold those bonds you speak of will take the loss when they cannot be paid.  But the bankers, the Troika, the ECB and so on always knew the conditions on these loans were not going to be met.  The idea is to extract as much wealth as they can and then put the losses on the public. 

The bankers get rich when they bet right and the public pays when they bet wrong.  It is like a hidden tax. 

When I say the Germans are the most responsible for this situation I do not mean totally.  But they are the economic powerhouse of the EU and their huge export surplus creates this situation.  While the EU is ostensibly a democracy the German vote is much more than equal as you know.  When the big loans were given to the Greeks the German bankers could not have failed to realize that the Greeks could not really pay them back.  But the loans needed to be made to keep the export machine rolling.  This all worked very well as long as the economic ponzi scheme of highly leveraged derivatives, credit swaps, highly inflated housing values and all that stuff did not blow up.  But it did. 

Greece must default.  If it is not allowed to then the EU (and Germany especially) need to stop this nonsense and treat Greece like the US would treat Mississippi.  You are either a union of states or separate countries.  You can not be both.  In either case the money is lost and will not be repaid.

Austerity means more than one thing.  Economic austerity as defined by the IMF, ECB, and the Federal Reserve  has little to do with the type of austerity needed to deal with collapse and climate change.  I agree with your interpretation of what it means, but the bankers do not.

[jai mitchell]

SATire

Economic austerity as defined by the IMF, ECB, and the Federal Reserve  has little to do with the type of austerity command markets needed to deal with collapse and climate change.  I agree with your interpretation of what it means, but the bankers do not.

your excellent writing needed a slight edit. . .

[johnm33]

JimD "But the loans needed to be made to keep the export machine rolling." more likely to save Deutsche Bank and Credit Agricole from imploding, and nothing has changed!
Crandles "If governments could do 1), why don't they do so and repay the national debt and get rid of the interest payments that form a part of their deficits?"  my point exactly.
JKGalbraith "The process by which banks create money is so simple that the mind is repelled"

[crandles]

JimD "But the loans needed to be made to keep the export machine rolling." more likely to save Deutsche Bank and Credit Agricole from imploding, and nothing has changed!
Crandles "If governments could do 1), why don't they do so and repay the national debt and get rid of the interest payments that form a part of their deficits?"  my point exactly.
JKGalbraith "The process by which banks create money is so simple that the mind is repelled"

You seemed to be suggesting creating money out of nothing. I am saying you just can't do it without creating major problems:

Money only works as a medium of exchange if people trust the system. Central to that trust is that no-one ever just creates money but instead there is always an equal liability created. If people thought that money was going to be created without a liability, smart people would be madly scrambling to get out of owning money and into owning assets like gold that could be used in a barter economy. It would cause a move to a barter economy really quickly.

I am saying it is madness to do what you propose, unless you want to cause a very rapid collapse.

[JimD]

SATire

A little bit of history not much remembered any more.

On February 27, 1953 the London Debt Agreement was signed.  The signatories of this agreement were the various powers who fought each other in WWII.

This agreement forgave 50% of Germany's pre and post WWII debt.  This agreement was made because it was recognized that rebuilding the German economy was not going to go well if they were forced to pay those debts as they could not afford both the investment needed to build their economy and debt payments.  This agreement contributed greatly to Germany's post war economic miracle.

There was clearly no emotional or moral compulsion which led to this action by the Allied powers.  Germany did not "deserve" such treatment.  You can bet that people like my father and mother who both served in WWII were not consulted on such an action.  Nor was the public of many other countries.

But it was the right thing to do for a host of very pragmatic reasons.

[JimD]

A very good read and a much better description of what I think is going on in the world of international finance than I can write myself  (I would take some exception to a few of the points but on the whole I think it is dead on point).

It is class warfare and most of us are on the losing side.

Greece, the US and the Neo-Liberal Coup

.....Put differently, the economic suffering of so many is largely gratuitous, economic predation carried out under the pretense of material constraints. As with Argentina in the early 2000s, Greece has an ‘internal’ kleptocracy with ‘external’ alliance to international bankers through the economic lever of external debt. While the U.S. leadership could have conjured the funds ‘out of thin air’ to put the unemployed in the U.S. to work and chose not to, Greece’s membership in the E.U. precludes this potential solution. As was largely the case with the mortgage relief and Federal Reserve asset buying programs in the U.S., subsequent European loans to Greece went to rebuild European bank coffers on the backs of the Greek people.......

.....Whether the commitment to stay with the E.U. project is sincere or tactical, the currency union precludes much constructive action other than internal reorganization of the Greek economy. Internal reorganization, reigning in the kleptocracy and making it pay its way and using the gains in public resources to fund social spending, runs head on into the policies of extraction being inflicted on Greece by the Troika. What is framed by Western liberals as bad economics, ‘austerity,’ can otherwise be seen through the experience of the last half-century of austerity policies enacted by the I.M.F. (International Monetary Fund) to assure that banks are paid no matter the social catastrophe that results.......

.....This conflation of private with public debt is a primary component of neo-liberal extraction. And the ‘privatization’ of Greek ‘assets’ now being repudiated by Syriza was used to loot Argentina by this international kleptocracy as a core I.M.F. policy. This is to suggest that the Troika’s austerity programs for Greece have little to do with theoretical economics and everything to do with Western imperial ambitions. The policies may have ‘logic’ as economic theory, but the logic emerged from several centuries of imperial practice...........

....The point in uniting the victims of an engineered Great Depression in Greece with the plight of Argentinians in the early 2000s to that of the growing poor underclass in the U.S. is that the problems are social— class warfare, not a function of material limitations. Each of these circumstances represents a struggle for social resources; the differences are over economic distribution, not ‘natural’ limitations. ....

....The thinly veiled racist drivel coming from the European North claiming that Greece’s problem are the product of a ‘national character’ finds its twin in American elite views of the economic problems besetting the growing poor underclass in the U.S. Mitt Romney’s ‘makers versus takers’ frame is the received wisdom in banker and corporate executive ghettoes across the U.S. An effort is being pushed to audit Greek debt to understand how, and for what purposes, it was undertaken. As social services in Greece were being cut arms from German and French arms manufacturers continued to be purchased on the Greek people’s dime. When an audit of Argentina’s debt was conducted some 70% of it was found to be fraudulent, private debt undertaken by private interests for their own benefit that was turned into public debt to rob the Argentinian people......

http://www.counterpunch.org/2015/01/30/greece-the-us-and-the-neo-liberal-coup/

[JimD]

Like it says in the article.  If you tried to do this to a country with a substantial military the tanks would be rolling.  The EU has gone insane...

Greece is a wayward colony and brutal suppression is the medicine of choice. 

http://www.nakedcapitalism.com/2015/02/ecb-greece-drop-dead.html

Even by the standards of bank thuggishness, the move by the ECB against Greece last night was a stunner. Americans have become used to banks taking houses under dubious pretexts when both the investors and borrowers would do better with a writedown. But to see the ECB try take a country is another matter entirely. As one seasoned pro said, “If anyone had tried something like this against a country with a decent sized military, the tanks would be rolling.”

The ECB’s bombshell was to put Greece at risk of an intensification of its ongoing bank run in order to pressure it to agree to a deal with the Troika under an impossibly tight timetable, even shorter than the February 28 pre-existing deadline that Greece Finance Minister Yanis Varoufakis had planned to extend until June. As we’ve discussed at length previously, a longer negotiation timetable would be necessary to meet Greece’s objective of restructuring of the relationship with the Troika. Greece wanted that to be based on the recognition that Greece could never pay off its debts and that it was in both side’s interest to let Greece implement more growth-oriented policies. But the message from the enforcers at the ECB was unambiguous: Greece has no rights and needs to accept its debtcropper status.

The ECB has thus also effectively said that it would rather have fascists like Golden Dawn running Greece, which is what will eventually occur if it succeeds in breaking Syriza. It also just handed France’s Marine Le Pen, head of the nationalistic, anti-Eurozone Front National fantastic fodder for her campaign...

[SATire]

SATire

A little bit of history not much remembered any more.

On February 27, 1953 the London Debt Agreement was signed.  The signatories of this agreement were the various powers who fought each other in WWII.

This agreement forgave 50% of Germany's pre and post WWII debt.  This agreement was made because it was recognized that rebuilding the German economy was not going to go well if they were forced to pay those debts as they could not afford both the investment needed to build their economy and debt payments.  This agreement contributed greatly to Germany's post war economic miracle.

There was clearly no emotional or moral compulsion which led to this action by the Allied powers.  Germany did not "deserve" such treatment.  You can bet that people like my father and mother who both served in WWII were not consulted on such an action.  Nor was the public of many other countries.

But it was the right thing to do for a host of very pragmatic reasons.

JimD - this fact is in the newspaper here every day with a lot of discussions.

Indeed, there are some similarities today: A bit similar to the way Germany was treated we treated Greece some years ago: 50% of the debt was cut and the interest rate was reduced (1.5%) and the payback was delayed far into the future.

But there are also differences: Germany achieved that special treatment mainly due to 2 reasons: Because it accepted the debt from "Deutsche Reich" (which was a different country than the smaller western Germany) and because it was very careful to be recognized as a reliable defaulter. The word "fault" is for a very good reason in "defaulter" - in German that is actually the same word for "debt" and "fault". If you do not take that simple fact seriously nobody else will take you seriously anymore. Never ever again.

Finaly in 1953 Germany took advantage of first effects of cold war and by sending diplomtic people from foreign ministry instead of finances - diplomatic words are crucial in such discussions. Greece tried something similar playing with "orthodox brotherhood" with Russia - but that was just another diplomatic desaster of the last 10 days.

Most importantly Greece is not acting as it could be a reliable defaulter any time soon - even their own poeple are now running to the banks to take the money. Nobody will ever give Greece any money as debt - only as present as described above. And in the same time Greece is looking for pride it is destroying all the basis for its own reliability. And the track-record of the former governments (ND and PASOK) of cheating every partner, braking every promise, increasing the load for the small people but letting go the rich untouched (information from finance office: "there are no people in Greece earning more than 100,000€/year" - lol! What about all the nice houses and nice boats? How was all that stuff paid?). No - without any little bit of reliability it makes no sense to get to a new agreement. One first could stay with at least one of the old agreements... You see - I do not have much hope for the future. Of course - nobody here really expects the money back from Greece. But at least we need to see, that people are working to get their society reliable as a seed for a common future. 

[SATire]

SATire

Some private investors did receive a haircut as you say, but the banks were bailed out.  The people in the other European countries which now hold those bonds you speak of will take the loss when they cannot be paid.  But the bankers, the Troika, the ECB and so on always knew the conditions on these loans were not going to be met.  The idea is to extract as much wealth as they can and then put the losses on the public. 

The bankers get rich when they bet right and the public pays when they bet wrong.  It is like a hidden tax. 

That is so true! Wall street saved >500 billions because EU did the "Greece rescue" as it was done. Without that the 500 billion CDS would have turned to real losses.

Our problem is, that we can not control the banks anymore. The bank are acting from abroad and we can not stop them. So our only chance to control the debt problem is to control the governments. One of the 2 parties (the borrower or the bank) must be under control. In former days the were putting the bankers to prison and the king was rid of his debt ;-)
Today we play vice-versa for some good and a lot of other not so good reasons.

Greece must default.  If it is not allowed to then the EU (and Germany especially) need to stop this nonsense and treat Greece like the US would treat Mississippi.  You are either a union of states or separate countries.  You can not be both.  In either case the money is lost and will not be repaid.

I wish you were right. But it is not the case: EU is a contract between independent countries. The Euro is a multiple broken contract between independent countries. There is no will in EU to have same taxes and such in all countries - so it makes no sense to compensate for subsidies.

Inside Germany we have this kind of transfer of money from rich countries (e.g. Baden-Würtemberg) to poor countries (e.g. Berlin or Nordrhein-Westfalen). That is generally accepted by the people because the laws are similar. But if the laws are not similar - how can you suggest to transfer money from one country with taxation to another country, which is poor because they do not tax their rich people at all? Every country would adjust the tax to zero and would hope for others to pay...

Austerity means more than one thing.  Economic austerity as defined by the IMF, ECB, and the Federal Reserve  has little to do with the type of austerity needed to deal with collapse and climate change.  I agree with your interpretation of what it means, but the bankers do not.

Right - the banks must feel the austerity at first. E.g. all "rescued banks" could be owned by the people instead of the share-holders now. Next step could be to disposses the rich.
Federal reserve is just a tool - they can actually do nothing. But politics must do that and is responsible for everything. So the austerity is allways defined by the government. This "Troika" was only implemented to check the numbers (because the numbers were allways wrong in Greece - they had no    book keeping) and to teach taxation and such (e.g. there was no land register in Greece - how to tax the rich owners?). But all decisions are allways done by the governments of the countries. Even all contracts are made between the countries - because only the governments of the different countries are democratically elected. And by no means Greek elections can effect the responsibility of the German government or vice-versa...

[werther]

Thoughts on economy in a world of diminishing returns 6 february 2015

Four reasons why the European Commission hands out a 1.3% mean growth perspective for the EU in 2015:
•   Oil prices have declined faster than before.
•   The euro currency has depreciated noticeably.
•   The European Central Bank (ECB) has announced quantitative easing.
•   The EC has presented its investment plan for Europe.

In a time when deflation seems to get a fierce grip on European economy, this seems a bit over-optimistic to a self-made economy watcher like me. Maybe it is my own limited perception, based on a presently offside social position. But I took some measures and think my head is still clear.
From that clearness, I’ll present my take on those four reasons.

Oil price is a very volatile proxy for any economic analysis. If one doesn’t look any further than the simple graph on past and present crude oil prices, sure, things might look a lot brighter than, say, half a year ago. By its reasoning, the EC suddenly seems to acknowledge that much of the economic performance is dependent on commodity prices and, especially, those for energy in general. That is remarkable, because mainstream economists usually do not view (or won’t admit, which is quite different…) the price of energy as special within those of the whole set of commodities. In their eyes, energy, and oil, is just another commodity, prone to the vagarities of the global market.
World-wide crude oil production, however, has peaked in the period 2005-2010. It is now hovering on a production plateau for several years. The price reflected that, given strong demand from the rapidly expanding Chinese economy. Price was a strong incentive for oil companies to busily engage in new prospects and further development of fields that were not considered interesting in the past. That the oil produced through this new investment explosion was very expensive, didn’t matter much in the eyes of investors, looking for fresh yields on their capital.
Costly energy production draws resources from other discretionary expenses in a society. That being the case, it isn’t strange at first sight why the EC would suggest a short term positive effect on the economy when energy costs diminish. What is omitted here, is that energy production costs has been fuelled by adding debt. A whole sector of world economy has been indebted into record territory. It is on the verge of financial collapse when the pronounced oil price-dip continues. Even when this collapse doesn’t materialize in the coming year, it’s downward drag will be felt within the economy on the middle-long term. The first point made by the EC thus reflects very, very short term wishful thinking.

The Euro currency value has come down against most other important currencies. True. In standard economics, based on historical experience, that low price promotes an advantage when exporting goods. In a worldview restrained by the notion of fighting to be the leanest and meanest, this sounds convincing. But it isn’t. Well, maybe the outlook serves a hedgefund, or a private equity investor. They might make a few bucks by grazing the planet and recklessly exploiting opportunities that still pop up in a world of diminishing returns. But the view doesn’t apply for the largest part of society. Some scraps might trickle down, creating short term jobs on which most people won’t be able to fit a long-term living. I fear that the EC, by forwarding this reason, reflects mainly its ties to big finance and industry.

It is even a bit ironical that the EC bases its growth perspective on the announced QE by the ECB. Yes, when competing for attention, it is best to try to turn weakness into an advantage. But here it seems that the EC pitches its voice under stress to hide that the attempt can also be seen as a last resort. An almost desperate attempt to monetarise the Eurozone out of a looming vrille into economic contraction. Even when and if QE works, risks are large that a considerable part of the effort will slosh away from the European manufacturing backbone. At best, consider the operation to be able to counter the mid-term depressing effects of commodity price volatility, diminishing returns on investment and over-indebtedness. I know that Keynesian economists do not consider there’s a dangerous threshold above which debt gets critical. But even Keynesians, just like their counterparts in the Chicago- and Vienna school of economic theory are mainstream in not considering the unique character of energy underlying economic performance. And that is exactly the one crucial property that is revealing itself to our view now. At least, if you watch unbiased.

Last reason: the investment plan. Ah, new EC chairman Juncker’s plan. I haven’t looked into this, so probably I should watch out not to be biased myself. But a quick search on the internet reveals for instance this link to a EC published pdf:

http://ec.europa.eu/priorities/jobs-growth-investment/plan/docs/invest_in_europe_en.pdf

On p4 you’ll see a graph indicating that in the next three years 21 billion Euro will be versed into the European economy. Okay, not further commenting on the vague notion that there might be “possible other public and private contributions” to enhance investment ( imagine I would enter a bank to apply for risk capital to start my own business promoting that source…), the graph features a multiplier x15! I’m not a trained economist. I don’t grip a snippet when it comes to math. But I do usually have a sense for plain common understanding. I think suggesting 315 bn Euros to be invested by 2017 is wishful thinking. The basic 21 bn initially to be depensed is like handing a cheese sandwich to a starveling.

Of course, the technocrats in Brussels and Frankfurt, national officials and a lot of compliant media tout this as bold and optimistic measures to engage the future. There is a case to be made to understand that anything less would be too depressive for the general public. The test however is to prepare society for a time where individualism, consumerism and materialism are not the best characteristics to base it on. If the best tone isn’t found, disappointment will be enormous…

Werther

[JimD]

SATire

Many non-Americans and especially Europeans often comment about the blindness of the American public on many matters.  Especially any matters that might adversely impact our perceptions of ourselves or where a change of approach (however much common sense would demand the change) would threaten our dominant economic/strategic position.  I have listened to this stuff for 40 years.  And I largely agree with most of it.

But I seek to understand why we have the faults we do and why we do the things we do.

I see in the German attitude about this situation exactly the same type of close minded bias as is commonly complained about of Americans.  The position of the German's in this matter makes no sense and their arguments in support of it make no sense.  And they defy the reality of the situation.  Just like Americans are their own worst enemies that can also be said of others.

This situation is going to blow up in your faces.  It will be a self inflicted wound and the damage to the EU and Europe in general will be significant.  You will not end up in a better place. 

If dealing with this situation is not possible how can there be any thought of dealing with the far more important and difficult problems we face due to climate change, population growth and exceeding the Earth's carrying capacity.

[JimD]

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/11391211/Devaluation-by-China-is-the-next-great-risk-for-a-deflationary-world.html

........David Woo, from Bank of America, says Beijing may be forced to join the currency wars to defend itself, even though this variant of the "Prisoner's Dilemma" leaves everybody worse off. "We view a meaningful yuan devaluation as a major tail-risk for the global economy," said.

If this were to happen, it would send a deflationary impulse worldwide. China spent $5 trillion on fixed investment last year, more than Europe and America combined, increasing its overcapacity in everything from shipping to steels, chemicals and solar panels, to even more unmanageable levels.
A yuan devaluation would dump this on everybody else. It would come at a moment when Europe is already in deflation at -0.6pc, and when Britain and the US are fast exhausting their inflation buffers as well.

Such a shock would be extremely hard to combat. Interest rates are already zero across the developed world. Five-year bond yields are negative in six European countries. The 10-year Bund has dropped to 0.31. These are no longer just 14th century lows. They are unprecedented..............

[JimD]

Heads we win, tails you lose.

http://www.nakedcapitalism.com/2015/02/bracing-another-storm-emerging-markets.html

[JimD]

SATire this is primarily for you.

This link explains the problems in Europe extremely well.  Everyone in Europe needs to sit down and read this...and reconsider what they are doing.

I recommend jumping right to the article and reading it in full, but here are some tidbits to get you to do that.

In summary, I think there are several points that those of us who want “Europe” to survive should be making.....

...This is just basic finance theory. Yanis Varoufakis should really take the lead in designing an entirely new form of sovereign debt restructuring, not just for Greece but for the many countries, in Europe and elsewhere, that will soon follow it into default.....

..And this is a point that’s often missed in the popular debate. Over and over we hear — often, ironically, from those most committed to the idea of a Europe that transcends national boundaries — that Spain must bear responsibility for its actions and must repay what it owes to Germany. But there is no “Spain” and there is no “Germany” in this story....

(and no Greece of course)

...3. It was not the German people who lent money to the Spanish people. (insert Greece here) The policies implemented by Berlin that resulted in the huge swing in Germany’s current account from deficit in the 1990s to surplus in the 2000s were imposed at a cost to German workers, and have been at least partly responsible for Germany’s extremely low productivity growth — most of Germany’s growth before the crisis can be explained by the change in its current account — rather than by rising productivity.

Moreover because German capital flows to Spain ensured that Spanish inflation exceeded German inflation, lending rates that may have been “reasonable” in Germany were extremely low in Spain, perhaps even negative in real terms. With German, Spanish, and other banks offering nearly unlimited amounts of extremely cheap credit to all takers in Spain, the fact that some of these borrowers were terribly irresponsible was not a Spanish “choice.” I am hesitant to introduce what may seem like class warfare, but if you separate those who benefitted the most from European policies before the crisis from those who befitted the least, and are now expected to pay the bulk of the adjustment costs, rather than posit a conflict between Germans and Spaniards, it might be far more accurate to posit a conflict between the business and financial elite on one side (along with EU officials) and workers and middle class savers on the other. This is a conflict among economic groups, in other words, and not a national conflict, although it is increasingly hard to prevent it from becoming a national conflict....

....Until now, an awful lot of Europeans have understood the crisis primarily in terms of differences in national character, economic virtue, and as a moral struggle between prudence and irresponsibility. This interpretation is intuitively appealing but it is almost wholly incorrect, and because the cost of saving Europe is debt forgiveness, and Europe must decide if this is a cost worth paying (I think it is), to the extent that the European crisis is seen as a struggle between the prudent countries and the irresponsible countries, it is extremely unlikely that Europeans will be willing to pay the cost.....

European nationalists have successfully convinced us, against all logic, that the European crisis is a conflict among nations, and not among economic sectors. ......

This is absurd. The European debt crisis is not a conflict among nations. All economic systems— and certainly an entity as large and diverse as Europe— generate volatility whose balance sheet impacts are mediated through different political and economic institutions, among which usually are domestic monetary policy and the currency regime. With the creation of the euro as the common currency among a group of European countries, monetary policy and the currency regime could no longer play their traditional roles in absorbing economic volatility. As a result, for much of the euro’s first decade, a series of deep imbalances developed among various sectors of the European economy. Because Europe’s existing economic and political institutions had largely evolved around the national sovereignty of individual countries, and also because the inflation and monetary histories of individual countries varied tremendously before the creation of the euro, it was probably almost inevitable that these imbalances would manifest themselves in the form of trade and capital flow imbalances between countries.(1)

We have a great deal of experience in modern history with the kinds of imbalances from which Europe suffered and continues to suffer, and from the historical precedents three things are clear. First, the imbalances that led eventually to the current crisis had their roots in hidden transfers between different economic sectors within Europe, and not between countries. It is only because of deep institutional differences among the member countries that these imbalances manifested themselves largely in the form of trade imbalances between the different countries in Europe. These hidden transfers artificially forced up the savings rates in some countries and, for reasons that I have discussed elsewhere, it is a matter of necessity, well understood in economics (although too often forgotten by economists), that artificially high savings rates in one part of an economic system must result in higher productive or non-productive investment (in advanced countries usually the latter) or artificially low savings in another part of that system.

Second, deep distortions in savings and investment historically have almost always led to an unsustainable increase in debt, and Europe was no exception. For many years European debt has risen faster than European debt-servicing capacity, but the gap between the two has not been recognized and written down, and instead manifests itself in the form of excessively high and rising debt burdens whose costs have eventually to be assigned.

Third, and most worryingly, it has always been easy for extremists and nationalists to exploit the grievances of the various economic groups to distort the meaning of the crisis. One way is to transform it into a class conflict and another way is to transform it into a conflict among member states. Resolving a debt crisis involves nothing more than assigning the losses. In the current crisis these costs have to be assigned to different economic sectors within Europe, but to the extent that the assignation of costs can be characterized as exercises in national cost allocation, it is easy to turn an economic conflict into a national conflict.....

...If it were the latter case, however, it would be an astonishing coincidence that so many countries decided to embark on consumption sprees at exactly the same time. It would be even more remarkable, had they done so, that they could have all sucked money out of a reluctant Germany while driving interest rates down. It is very hard to believe, in other words, that the enormous shift in the internal European balance of payments was driven by anything other than a domestic shift in the German economy that suddenly saw total savings soar relative to total investment. I have discussed many times before what happened in Germany that resulted in the savings distortion that convinces me that the flows originated in Germany, as it has many others....

... I think it is pretty clear, and obvious to almost everyone, that Greece simply cannot repay its external obligations, and one way or another it is going to receive substantial debt forgiveness. There isn’t even much pretence at this point. .......

Even if the question of who is to “blame”, Greece or Germany, were an important one, the answer would not change the debt dynamics. It would take the equivalent of Ceausescu’s brutal austerity policies in Romania, which were imposed during the 1980s in order for the country fully to repay its external debt, to resolve the Greek debt burden without a write-down. Given that Ceausescu’s policies led directly to the 1989 revolution, which culminated in both Ceausescu and his wife being executed by firing squad, the reluctance in Athens to imitate Romania in the 1980s is probably not surprising.

But to say Greece simply cannot repay isn’t the end of the story....

http://www.nakedcapitalism.com/2015/02/michael-pettis-syriza-french-indemnity-1871-73.html

[JimD]

http://www.counterpunch.org/2015/01/15/40-years-of-economic-policy-in-one-chart/

Is America in the throes of a class war?

Look at the chart and decide for yourself. It’s all there in black and white, and you don’t need to be an economist to figure it out.

But, please, take some time to study the chart, because there’s more here than meets the eye. ...

[wili]

"Is America in the throes of a class war?"

We're pretty clearly at or near the end of a class war, and, as Buffet put it, the super-rich .1% won, and the rest of us lost.

Which is pretty much what the author concludes: "Now, 40 years later, they own the whole f*cking shooting match, lock, stock and barrel."

[werther]

Interesting, JimD.
Eyeballing the graph, I notice a possibly ironical coincidence for the day June 17, 1972.

[JimD]

Interesting, JimD.
Eyeballing the graph, I notice a possibly ironical coincidence for the day June 17, 1972.

LOL Excellent!

[JimD]

http://www.telegraph.co.uk/finance/economics/11407256/Germany-faces-impossible-choice-as-Greek-austerity-revolt-spreads.html

The political centre across southern Europe is disintegrating. Establishment parties of centre-left and centre-right - La Casta, as they say in Spain - have successively immolated themselves enforcing EMU debt-deflation.

The EU elites themselves have run their currency experiment into the ground by imposing synchronized monetary, fiscal, and banking contraction on the southern half of EMU, in defiance of known economic science and the lessons of the 1930s. It is they who pushed the eurozone into deflation, and thereby pushed the debtor states further into compound-interest traps.

It is they who deployed the EMU policy machinery to uphold the interests of creditors, refusing to acknowledge that the root cause of Europe's crisis was a flood excess capital flows into vulnerable economies. It is they who prevented a US-style recovery from the financial crisis, and they should not be surprised that such historic errors are coming back to haunt.

The leaders of Spain and Italy know that their own populists at home will seize on any concessions to Syriza over austerity or debt relief as proof that Brussels yields only to defiance. They have a very strong incentive to make Greece suffer, even if it means a cataclysmic rupture and a Greek ejection from the euro.
Yet to act on this political impulse risks destroying the European Project. Europe's Left would nurture a black legend for a hundred years if the first radical socialist government of modern times was crushed and forced into bankruptcy by Frankfurt bankers - acting at the legal boundaries of their authority, or beyond - choosing to switch off liquidity support for the Greek financial system.
• Greece's rock-star finance minister Yanis Varoufakis defies ECB's drachma threats
It would throw the Balkans into turmoil and probably shatter the security structure of the Eastern Mediterranean. It is easy to imagine a chain of events where an embittered Greece pulled out of Nato and turned to Russia, paralysing EU foreign policy in a self-feeding cycle of animosity that would ultimately force Greece out of the union altogether.
The charisma of the EU - using the Greek meaning - would drain away if such traumatic events were allowed to unfold, and all because a country of 11m people wanted to cut its primary budget surplus to 1.5pc from 4.5pc of GDP, and shake a discredited Troika off its back, for that is what it comes down to.
One is tempted to cite Jacques Delors' famous comment that "Europe is like a riding bicycle: you stop pedalling and you fall off" but that hardly captures the drama of what amounts to civil war in a union built on a self-conscious ideology of solidarity.
"The euro is fragile. It is like a house of cards. If you pull away the Greek card, they all come down,” warned Greece's finance minister Yanis Varoufakis.
“Do we really want Europe to break apart? Anybody who is tempted to think it possible to amputate Greece strategically from Europe should be careful. It is very dangerous. Who would be hit after us? Portugal?" he said.

It is unfair to pick on Portugal but its public and private debts are 380pc of GDP - the highest in Europe and higher than those of Greece - making is acutely vulnerable to toxic effects of deflation on debt dynamics.
• Devaluation by China is the next great risk for a deflationary world

Portugal's net international investment position (NIIP) - the best underlying indicator of solvency - has reached minus 112pc of GDP. Public debt has jumped from 111pc to 125pc of GDP in three years. The fiscal deficit is still 5pc. The country's ranking in global competitiveness is close to that of Greece.
"The situation in Portugal is very different," says Paulo Portas, the deputy premier. Sadly it is not. Once you violate the sanctity of monetary union and reduce EMU to a fixed-exchange system, the illusion that Portugal is out of the woods may not last long. Markets will test it.

[JimD]

Deflation contagion.

Switzerland, Sweden, Denmark, China...

Teeter totter...

Smells like 1930.

http://www.telegraph.co.uk/finance/economics/11408950/Sweden-cuts-rates-below-zero-as-global-currency-wars-spread.html

Sweden has cut interest rates below zero and launched quantitative easing to fight deflation, becoming the latest Scandinavian state to join Europe’s escalating currency wars.....

Janet Henry from HSBC said the measures are clearly a “beggar-thy neighbour” manoeuvre to weaken the krone, the latest such action in a global currency war that does little to tackle the deeper problem of deficient world demand.

The move comes as neighbouring Denmark takes ever more drastic steps to stop a flood of money overwhelming its exchange rate peg to the euro and tightening the deflationary noose.

The Danes have cut rates four times to minus 0.75pc in a month to combat fall-out from the European Central Bank’s forthcoming QE. They have even taken the unprecedented step of halting all issuance of government bonds....

The fall-out from QE in Europe has already smashed Switzerland’s currency defences, triggering a 14pc surge in the franc against the euro and threatening to erase the last safety buffer for struggling Swiss exporters.

Exchange rate mayhem in Europe is matched by a parallel saga in Asia, where Japan’s vast monetary stimulus and barely disguised efforts to drive down the yen are causing heartburn in China.

The Chinese yuan is linked to the US dollar through a “dirty float”. Yet the dollar is rising relentlessly against other Asian currencies as the prospect of monetary tightening by the Federal Reserve lures a flood of capital into the US, a replay of the strains that led to the East Asia crisis in 1998.
This is compounding China’s problems at a delicate time when the economy is already facing a property crunch. The country’s factory gate deflation has deepened to minus 4.3pc.

China’s yuan has jumped 50pc against the yen since early 2012. There are growing fears that China may be forced to drive down the yuan to protect its export base and avert a possible hard-landing. This would transmit a deflationary shock worldwide, given the sheer scale of China’s excess capacity....

[Laurent]

Sub-Saharan African countries are failing to plan for climate change
http://www.theguardian.com/environment/2015/feb/13/no-sub-saharan-african-countries-planning-for-climate-change

A failure to promote honest and transparent communication of climate information can therefore only result in a further push-back from local decision makers, continuing to put vital infrastructure and long-term development in Sub-Saharan Africa at risk of future climate change.

[Laurent]

Why Divest Harvard Is Sitting-in Outside Harvard President Faust's Office
http://www.huffingtonpost.com/annie-schugart/why-divest-harvard-is-sit_b_6670496.html?utm_hp_ref=green&ir=Green

Fossil fuel divestment campaign grows as protesters target UK banks
http://www.theguardian.com/environment/2015/feb/13/fossil-fuel-divestment-campaign-grows-as-protesters-target-uk-banks

I recommand people around the world to move their account to a more ethical bank. In France there is nothing like that yet. We have an association that is in the process of becoming a bank (hard) http://www.lanef.com/. In Germany there is the GLS bank https://www.gls.de and in Belgium : https://www.triodos.be/.
I am in the postal bank right now, it is not the worse but if you are in "Société gébnérale", "BNP"... you may want to change.

[SATire]

SATire this is primarily for you.

This link explains the problems in Europe extremely well.  Everyone in Europe needs to sit down and read this...and reconsider what they are doing.

...

http://www.nakedcapitalism.com/2015/02/michael-pettis-syriza-french-indemnity-1871-73.html

JimD - I am sitting and reading. However, I am just coming back from a business trip to California where I have seen both larger suffering than in Greece and greater wealth than in Italy, I am a bit tired about this kind of anglo-american perspective:

Greece today has not to pay any interest and does not have to pay back the debt - so why should they default as Wall-Street and London want to tell us? The only reason could be needs for new credits... They want us to feed the beast once again. They want us to guarantee the banks the profits for new credits at no risks. And the low wealth high tax countries in the north once again should do this - because that money is easy money while taxing the wealthy is not desired. No - this game is to simple. We need to start to tax the wealthy - with the same 50% (rate of tax and social insurances) as the less wealthy but high tax northern countries.

And now Greece asked Europe to play the chicken game. Germany used to be the chicken frequently enough. But to play against Europe is a different thing. Risk is high that the one or the other country will not be the chicken - and one will be enough to die since the unanimity rule and in some countries the contract must be approved by the parliaments. So either Greece will be the chicken or no one and Europe will see the first divorce. In the latter case we will see a different Europe in future. But by now way it makes any sense to follow that Wall-street ideas again and play the debt-spiral further with virtual growth leading nowhere...