ECB President Draghi Declares War on Europe’s Social Safety Nets

I’m late to the remarkable interview given by ECB president Mario Draghi to the Wall Street Journal. I find the choice of venue curious, since the Financial Times has become the venue for top European politicians and technocrats to communicate with English speaking finance professionals.

But Draghi’s drunk-on-austerity-Kool-Aid message was a perfect fit for the Wall Street Journal. While he wasn’t as colorful as Andrew Mellon’s famous “Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate,” Draghi is still a true heir in believing that his prescription, per Melllon, will result in “High costs of living and high living will come down.” The “high living” that Draghi is particularly opposed to is Europe’s social safety nets.

The bizarre part about that is it is those very programs that kept Europe from being in even worse shape than it is now. I recall in early 2009 that American economic officials were hectoring Europeans, particularly Germans, for not doing enough in the way of economic stimulus. European readers argued that that reflected abject ignorance. Germany provides generous support to idled workers, and that spending was automatic. Germany performed far better than its US critics anticipated.

Not surprisingly, the Journal did not question the notion that democratic governments should take orders from an unelected finance official. But Draghi tried to make his views sound a tad more legitimate by blaming the planned ritual sacrifice as a demand of the market gods.

From the Wall Street Journal:

European Central Bank President Mario Draghi warned beleaguered euro-zone countries that there is no escape from tough austerity measures and that the Continent’s traditional social contract is obsolete…

He said Europe’s vaunted social model—which places a premium on job security and generous safety nets—is “already gone,” citing high youth unemployment; in Spain, it tops 50%. He urged overhauls to boost job creation for young people…

He argued instead that continuing economic shocks would force countries into structural changes in labor markets and other aspects of the economy, to return to long-term prosperity…

“There is no feasible trade-off” between economic overhauls and fiscal belt-tightening, Mr. Draghi said…

Can he really not see what happened in Ireland and Latvia, and what is taking place in Greece? Did he somehow not notice that Greece falls short of its growth targets every time the screws are turned tighter? This is like watching a medieval doctor apply more leeches to a patient that has already passed out from blood loss. There is no prosperity happy ending in this story, save for a very few at the top. And the process is not “belt tightening” but open warfare on basic social structures.

And we have the predictable threat:

“Backtracking on fiscal targets would elicit an immediate reaction by the market,” pushing interest-rate spreads higher, he said.

Um, what has led bond yields to fall is the LTRO, which has taken the concern of bank failures off the table and allows (actually, encourages) banks to take their “trash” collateral and use it to secure LTRO financing. That means banks can engage in a carry trade: buy periphery debt and use it to obtain cheaper LTRO lending. For Draghi to insinuate that the tightening of spreads has anything to do with fiscal targets is dishonest. It has everything to do with the ECB (for the moment, anyhow) supporting the banks and the markets. Investors believe they can rely on the Draghi put.

If the market reaction really were about fiscal sustainability, we’d still here nervous talk about Italy. Its bond yields are still in excess of 5%, and since its growth rate is nowhere near that level, so its debt to GDP ratio will continue to rise. But as long as the ECB stands ready to throw liquidity at any emergency, the markets will remain complacent.

The Journal did include some sane remarks, albeit well into long article:

“He’s just sugar coating the message,” said Simon Johnson, former chief economist at the International Monetary Fund.

“A lot of this structural reform talk is illusory at best in the short run…but it’s a better story than saying you’re going to have a terrible 10 years,” he said.

10? Remember, it’s been more than 20 in Japan. 10 could turn out to be a very good result indeed.

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  1. YankeeFrank

    “There is no prosperity happy ending in this story, save for a very few at the top.”

    Isn’t that the point? Neoliberal fools like Draghi, if they get their wish, may likely wind up getting draghi’d out into the street and toasted to provide warmth for the hungry desperate masses.

    Truthfully, seeing how this is all going, I’m kind of impatient for the real austerity to begin, so our budding Obamavilles and Draghivilles can become there own metropolitan areas, and so the people of the west will wake the hell up and realize what is being done to them. But I guess the slow drip is much more clever. Romney/Santorum in 2012!!!

    1. j.grmwd

      The slow drip is much more insidious. In the institutional set-up of the Euro, European neo-liberals had the perfect tool to squeeze the welfare state to death slowly. But being ideologues, they just can’t resist overplaying their hand.

    2. C

      And you think Romney/Santorum 2012 will be a solution to this? Or would be any different.

      Obama’s economic policies are no different than Romney’s would be (or Santorum if he actually had any). Both will follow the path of “Austerity” (which is really just gains for some at the expense of others). The only difference is that Obama will act like he is against it but ultimately do it anyway (see the cuts packed into the recent extension of the payroll tax cut) while Romney will embrace it as an act of nobility.

      Similarly, neeither Romney nor Obama will actually hold corrupt officials on Wall St. accountable for their crimes. Even as both tout the “rule of law”.

      Face it, economically there is no meaningful daylight between the R’s and D’s, not in terms of actions, only in terms of presentation.

      1. j.grmwd

        I think the point is that, whereas the democrats slowly but surely allow the living conditions of the working class to erode, Santorum might be crazy enough to blow up the system completely. In the first case, the working class end up like frogs boiled to death, never realizing they could have jumped out of the pot whenever they wanted to. In the second case, maybe the working class will fight back.

        1. JTFaraday

          The culture warriors on both sides of the great divide have made “Santorum” virtually synonymous with “sex.”

          The sex/gender wars that are so loved by the mainstream media– and the relatively financially secure pundit class in all mediaspheres– will drown out the material issues of the laboring classes as they have since the sixties. This sort of scrum could easily extend into a Santorum presidency. Just look at how fixated some people were on Bush’s alleged religiosity along with the evangelical sideshow he carted to town with him.

          It could even be in the plutocracy’s interests to run Santorum over Romney. Whatever in the world were Romney and Obama going to have to argue about?

          A Romney-Obama match just seems to risk the possibility that “the rest of us” might cohere around a discussion of their mutual, if somewhat distinct, patterns of economic predation. This was already sort of happening when Romney was on the upswing and even Newt Gingrich was trying to make time on his career as a private equity robber baron and job destroyer.

          Can’t have that.

          1. different clue

            That’s why millions of DDs ( Disgruntled Democrats) should invade the Republican primaries to vote for Romney.
            If they (“we”) can get Romney nominated, then a Romney-Obama contest will demonstrate to the non-stupid among us that Obama and Romney really have very little to argue about. DDs would view a Romney Administration with distaste, but not with the sort of dread which a Santorum Administration or a Gingrich Administration or a Palin Administration would inspire. A Romney candidacy would therefor set millions of DDs free-in-their-own-minds to abandon Obama and vote Third Party or Write Someone In or leave the President line blank on their ballots.

            The most humiliating rebuke I could think of to candidate Obama would be for millions of DDs to all write in
            the name “Hillary Clinton”. And a Romney nomination on the R side would make it possible.

        2. different clue

          The frogs can’t jump out of the pot whenever they want if the pot has a wire screen tied to the top. The frogs would have to gnaw their way through the screen first. At least the last desperate hope of some is that a Santorum or whatever Administration would upset the frogs into trying to gnaw their way through the screen on top of the boiling pot.

    3. LeonovaBalletRusse

      YF, or the .01% for *fossil fuel* for the masses, given *peak oil*. A massive *auto da fe* to keep the people warm?

  2. El Guapo

    The Neoliberals aren’t stupid or deluded. They know exactly what will result from all the “austerity” being prescribed; and its exactly the outcome they want.
    Draghi isn’t misguided. He is evil.

    1. Seth

      Of course he’s evil. “Austerity” is just another name for class warfare. The fact that The Wall Street Journal endorses it is telling.

        1. LeonovaBalletRusse

          Observer, the WSJ is but a trickle-down Agent for the .01%–every MSM outlet is enlisted in the .99% Agency for the .01% Global Reich.

  3. SteveA

    I’d like to hear Draghi discuss Pierre Laval’s disastrous ‘deflation without devaluation’ strategy of the late 1930s, and why he believes the result will be any different this time.

  4. mmckinl

    Draghi is doing exactly what he is paid to do. Protect the banks at the expense of everyone else. As the world finds itself beyond peak oil the politicians and plutocracy will protect their own interests.

    They know full well that austerity cause economic slowdown. They need this slowdown to reduce demand for oil. They will manage their economies so as to not trigger another oil crisis. They need a little more time to suck as much wealth from the people and the weak sovereigns as they can.

    Looking around the world the troubles root cause is the prices of food and fuel. This is what triggered the unrest in the MENA countries. The rise in oil prices in the US and Europe are sucking all the profit out of the system. Problem is there is no solution … none.

    All this was forecast in 2010 by the US military here:

    “”U.S. military warns of oil production shortage by 2015″”

    “”By 2012, surplus oil production capacity could entirely disappear, and as early as 2015, the shortfall in output could reach nearly 10 million barrels per day, While it is difficult to predict precisely what economic, political, and strategic effects such a shortfall might produce, it surely would reduce the prospects for growth in both the developing and developed worlds. “”

    Guess what … It’s 2012 … and guess what … there is no spare capacity … It’s only going to get worse …

    1. different clue

      No solutions? None? Actually there are some but they would require the functional “extermination” of the global overclass and its front governments first. Because that class and those governments are what stand in the way of those solutions.

      For example, if America restored our missing train/trolley/streetcar system to what it was in 1915, before the Bonfire of the Trains and Trolleys; how much less fuel would be needed for people to move around with in much of their daily worklives? The restoration of such a system, updated and re-engineered for present day conditions, would savagely reduce revenue streams to the car and bus industries, the oil industry, the tire industry, etc. That’s why those industries would have to have their political power crushed and broken before restoration of rail travel could be reimposed and rolled out over their dead bodies. We can’t have nice things until we crush the domestic enemy first, and “crushing the domestic enemy first” may be the problem which has no solution.

      Vast-majority public attitude and popular sentiment may pose the other incurable obstacle. Even in the context of millions of individual drivers driving their millions of individual cars, if we forcibly lowered speed limits below the speed at which air resistance swiftly erodes mileage per gallon, we could make the oil we have last much longer . . . longer enough for people to bring themselves to accept mass-transit and other solutions. Here is a little online article about that. It is titled The Age Of Speed: How To Reduce Global Fuel Consumption By 75%.
      But how many people would stand to live this way in the current public-mood environment and cultural-values matrix?
      So that may be the other problem with no solution. How to inspire a survival-enhancing Cultural Reformation among people who would need to trade off lower-lifestyle-excitement for higher-survival-prospects?

        1. different clue

          Well, I thought that’s what “solutions” meant to begin with. Dignified austerity for all with enough visible wealth-destruction for the upper classes that they are also seen to take visible part in the austerity. The preservation of organized civilization and its accumulated knowledge. Obviously if one thinks the problem is how to preserve personal cars for everyone and the rest of the high consumption lifestyle; then no, there is no “solution”.

          But it is still materially possible in theory to achieve graceful decline to a soft-landing via some form of what Heinberg has called “powerdown”. If we can’t cram that down the OverClass’s throat, then I suppose we get Dmitri Orlov’s chaotic collapse.

          In which case, some parts of the country fall farther and collapse harder than other parts. Perhaps the survival-minded people will want to move to those parts of the country which seem more “neo-medieval survival ready” or at least “potentially survivability-retrofittable”. And start preparing to survive there.

          1. Blissex

            «But it is still materially possible in theory to achieve graceful decline to a soft-landing via some form of what Heinberg has called “powerdown”. If we can’t cram that down the OverClass’s throat, then I suppose we get Dmitri Orlov’s chaotic collapse.»

            Then problem is cramming that down the throad of the middle classes. The overclasses can take a reduction in their wealth, they would still be very rich, and anyhow they are very realistic and opportunistic.

            The problem is that the middle classes (especially the lower middle class) are wholly invested in their sense of superiority and entitlement, and in their fear of begin thrown out of their white picket fence fantasy. They will do whatever it takes (think of the confederate middle classes desperate to uphold their sense of superiority and entitlement volunteering in great numbers to be slaughtered by union cannon).

            The overclass know this very well, and probably the tentative plan they have is to use the usual means of reassuring the middle classes of their status, which is national fascism, for as long as possible, and when that fails too, just let chaotic collapse happen and then pick up the pieces later.

  5. psychohistorian

    So Yves can call it drunk-on-austerity-Kool-Aid message but it happens to also be the operative message at this time and into the know future.

    So how to effect change in that message? Putting one of these puppets for the global inherited rich in jail would be a start…..or maybe in stocks in Athens where he might be humbled a bit and call out to his global inherited rich friends who will be next.

  6. bob goodwin

    There are three choices (or combinations thereof) for high sovereign debt: Decrease spending, Increase Taxes, or some version of default/economic decline.

    It is the last choice which forces the first ones, however there is little appetite for taxes. Austerity may be the rhetoric, but denial seems the course.

    1. j.grmwd

      Sovereign debt, and the key word is “sovereign”, forces neither default nor decline. Unfortunately, the Europeans gave up their sovereignty.

    2. Ransome

      Austerity is fiction. We charge you more for using less. Warm winter means high gas prices Exectives are saving their bonus not someone’s bonus in the future. We want you to to work two jobs, One to pay former debt and ond

  7. Rotter

    “He argued instead that continuing economic shocks would force countries into structural changes in labor markets and other aspects of the economy, to return to long-term prosperity…”

    Based on thousands of years of history over and over again this prediction is probably true (except for the long term proseperity line, which is happy talk), although this road always leads to the kind of “structural changes” that leave people like draghi swinging 4 and 5 at a time from lamposts along barricaded streets. Astonishgly, they are always “shocked” when this happens

  8. Seth

    In other words, average Europeans should have shittier lives to keep the banksters from suffering the consequences of their mistakes.

    If everything has to be liquidated, how about starting with the BANKS?

  9. Eric377

    Imagine that Greece’s creditors simply agreed to a 75% default provided that the remaining 25% of value had an iron-clad guarantee of being paid that was not at all in control of the Greek state. And then the creditors said nothing at all about how Greece managed its fiscal business other than to observe that there was no requirement on anyone to rollover another Euro of debt or provide another Euro in a rescue package. What would Greece do? Does the non-austere policy line raise the economy fast enough and high enough to pay for the debt costs needed to fund it? Is there a real, non-austere policy that could be paid for? For Greece there might not be. All the protests notwithstanding, maybe there simply is nothing better they can come up with that they can fund.

    1. j.grmwd

      If this were really about repayment, and I mean repayment in the sense of real goods and services, then we’d be seeing policies that got Greek people back to work. And Greece, being a developed first world country, could certainly produce worthwhile goods and services at a competitive price with just a little bit of currency devaluation.

      1. CaitlinO

        Greece doesn’t have its own currency to devaluate. Although very difficult, leaving the Euro would give it this lever and seems more and more like the only real workable option.

      2. Eric377

        Years of experience tells me that creditors do not care a whit about what debtors do with the rest of their money provided they are convinced that the debtor is either paying them their debt as contracted or pursuing a path to pay as much as they can. Since I do not hear private holders of Greek debt complaining about the policies that the Troika is forcing on Greece, I assume they think these policies are not harming their return. That’s key: convince debtors that they will get a better deal if Greece turns off the austerity and there will be a highly influential group of advocates for less austerity. If debtors get 15% better returns with Greeks retiring at 40 with 100% pensions, that’s what they favor.

  10. The Dork of Cork

    A viper amongest a den of vipers.
    Napoleon eliminated The Bank of Saint George for a very good reason.
    Shame Stanley Kubrick did not cover that historical anomaly.

  11. Linda Piker

    Draghi is a well coiffed male cheerleader for sociopathic profiteering. Ellen Brown writes how Greece could take down the Overlords:

    ” The Houses of Morgan, Goldman and the other Big Five are justifiably worried right now, because an “event of default” declared on European sovereign debt could jeopardize their $32 trillion derivatives scheme. “

  12. Ziggy

    Crony capitalists need to make the broadly shared, overall high quality of life created by the post WW II northern European economic model – via a more equitable distribution of wealth – disappear before restless Mainstreet Americans wake up and finally figure out what they’ve been missing. Listening to Republican candidates demonize European socialism via their Faux News propaganda ministry tells you exactly what the oligarchs fear most.

  13. goat_farmers_of_the_CIA

    Draghi:“Backtracking on fiscal targets would elicit an immediate reaction by the market,”

    Yves: “But as long as the ECB stands ready to throw liquidity at any emergency, the markets will remain complacent.”

    That pretty much sums up the real nature of the Market: a deified construct per Pilkington, a mere place in antiquity lately turned into some kind of omniscient mythical entity whose judgements are as impartial as those of our local Pravdas, that one should hold in the unquestioning awe expected of medieval peasants. But like the medieval Catholic dogma, it is all pretentious humbug – just a cover for the barbarian elite’s raping and pillaging.

    Every time I notice Market priests’ rich male cattle manure spread on newspapers by spineless “journalists”, I remember what some rock musician said on the radio loong ago: “I will beat the darkness till it bleeds daylight!” Here’s to Draghi doing the same with the “Market” to get “prosperity”, so that he’s more successful than certain shamans who tried to get shiny golden stuff out of lead.

  14. Lyle

    Actually if you go back and look at it the European safety net was put in place in the late 1940s to keep France and Italy from falling into the Soviet block, since they both had large communist parties. Now that the Soviet Union is no longer and communism has been discredited it is time to take back the bargain so that the 1% can reclaim there (to them) rightful place.

  15. jsmith

    This man just told people that his actively trying to kill them.

    That is what to take away from any of these neoliberal fascists.

    When they speak of cutting social safety nets, reducing wages, etc etc, what everyone shoud hear is:

    We are stealing your money from you.

    We are taking away your means to survive.

    No longer can we let these scum frame the debate.

    These cowards are murdering innocent people but hide behind the aegis of “the market” to conceal their cravenness.

    These men and women should be imprisoned and/or exterminated.

    It truly is “us versus them”.

  16. Michael Fiorillo

    Social safety nets provide a foundation that Labor is able to build upon, creating a broader middle class and rising living standards for the working class. By reducing/eliminating them, Labor is “disciplined” and weakened, and profits rise accordingly.

    Class warfare, straight, no chaser.

    1. Eric377

      So what is at work to reduce or eliminate social safety nets in Europe? Serious doubt has crept into the minds of many, many potential credit-providing entities that current arrangements have a risk level for which the continued purchase of sovereign debt is a good idea. That’s pretty much it. Convince them otherwise or compensate them more and the credit will be there. Raise more revenue directly and the need for these creditors diminishes. I could care less about class warfare, but it I lend you money I want it back. If you pay it back, you can have a 10 hour work week for all I care. It’s less complicated that you think.

      1. different clue

        If you lend me imaginary credit and call it “money”, do I get to emit imaginary credit of my own and call it “money” and pay you back with it?

      2. Lyle

        What is at work the end of the Soviet Menace, pure and simple. If you consider the conditions in the late 1940s TPTB made a deal to avoid the populace going over to the Soviets in at least France and Italy. Now no Soviet menace, no need to maintain the bargain. (Note that also it worked great for 50 years or so anyway)

    1. LeonovaBalletRusse

      Schofield, thanks for the link. It’s hard to conclude that what’s unfolding in Euroland is *unintended consequences* — especially given the Lebensraum loot for the Global .01% *rentier* class from “Versailles” unto 2012 (see Thorstein Veblen anent *cui bono* with The Treaty of Versailles: outcome = loot to Global .01%, catastrophic pain and loss to Euro citizenry, enactment of *The Final Solution* for *efficient* genocide of *undesirables* in the World Order.

      1. LeonovaBalletRusse

        As you see from the above, the agenda of the .01% Global Reich has been CONSISTENT: from WWI through WWII through 2012: from Holy Roman Reich II through Reich III through Reich IV denouement now taking place.

        “THE SHOCK DOCTRINE” leads to Lebensraum and genocide by any name.

        1. different clue

          And what is interesting is that most “normal people” will still think of “lebensraum” in ethno-racial terms, and will therefor assume that the OverClass also thinks of it in ethno-racial terms.

          But the “new nazis” are not race-nazis. They are class nazis . . . bussiness-nazis or “biznazis” if one prefers. Their preferred Biznazi future is ethno-racially equal opportunity. The Biznazi Master Class will welcome Barak Obama into the lower fringes of their ranks while seeking to arrange the seemingly accidental mass death by famine and epidemic of countless millions of disemployed and discarded white ex-workers . . . for example.

          Am I wrong? Am I missing an ongoing ethno-racial component to all this? And if I am right, is the OverClass still stealth-moving slowly enough that we the disregarded can still take social counter-offensive measures? Or at least personal-survival countermeasures for some of us?

          1. different clue

            If I have understood you correctly then, and if you are correct in your assessment of the situation; then am I right to think that there is still something which we the disregarded can do to reverse the situation collectively or perhaps survive the situation individually or in small survivalist groups?

            If so, what might those countermeasures be?

  17. RanDomino

    The ‘problem’ with unemployment is actually that those who work aren’t paid well enough that they could work less, allowing others to pick up the slack and have an income. What kind of crazy world is this where increases in technological productivity actually lead to an increase in poverty and misery for many and an increase in opulence for a tiny minority?

  18. Schofield

    When Obama says a sovereign currency issuer like the United States can go bankrupt is he really saying this because he’s a Neo-Liberal who wants to dissimulate or genuinely believes it? If he was asked about the importance of paying attention to sectoral balances and not letting the banks distort them through bubble blowing would he understand what was being said or would he argue a Neo-Liberal line that it’s of no importance?

    What’s wrong with American voters that they never seem to think it’s important to find out where candidates they vote for really stand on such issues? Well don’t we know the answer to this is? That in fact they vote ignorantly on such an important issue as a candidate having the right economic know-how. Until a new party comes into existence dedicated to educating the public on economic and monetary policy matters the economy will continue to go from bad to worse and the Chinese Communist Party’s “Dictatorship of the Proleteriat” (Sorry Top Honchos) will win the day.

  19. Dave of Maryland

    Dear Yves, Please reconsider your medieval leech analogies. Medieval doctors applied leeches to relive excess heat. From accounts I have read, patients, as squeamish then as now, often refused, and patient refusal was absolute. Actual blood loss was minimal. A leech can hold about a tablespoon and will drop off of its own accord when full. Modern research (see Wiki) says that a healthy leech is sterile and will not cause infection. The wound will bleed afterward due to the leech’s saliva preventing clotting. Cleaning the wound speeds clotting.

    Contrast this to modern blood “donations” where entire pints are removed in one go. Contrast to surgeries, many of them elective, where blood loss can exceed a full quart in only an hour or two, requiring immediate transfusions, with grave attendant risks, even if it’s your own blood being returned. It’s modern doctors who will bleed you.

  20. Hugh

    This is why viewing modern economies from a kleptocratic perspective is critical. If you look at Draghi’s statements from any other viewpoint, they come across as bizarre, even deranged. But look at them through the lens of kleptocracy and they are not only perfectly comprehensible but completely predictable.

    Kleptocracy is both criminal and evil. It’s prime agents, like Draghi, are even more so. Consider Draghi’s experience, knowledge base, and responsibilities. There is simply no way for someone to get to where he is now and be acting in anything but bad faith with regard to Europe’s 99%s. The sheer breadth of his knowledge and experience should have taught him that austerity makes no sens, doesn’t work, inflicts great harm to the 99%, and is nothing more than an excuse for elite looting. His responsibilities demand that he know this.

    Bad faith is not about what you believe or think you know. It is about what you should have known. Believing in Nazism does not absolve one from being a Nazi. Just so Draghi’s belief in kleptocracy does not absolve him from being a kleptocrat.

    But it should inform us that he is not a mistaken man but a deeply evil and criminal one.

  21. viper18

    Why is everything so black and white? Isnt’ it clear both that Wall Street robber barons have gotten away with murder, but isn’t it also clear that the European social model, which our current president would love to adopt fully (not just health care) is unsustainable?

    1. Hugh

      Nice try. Without extreme wealth inequalities, we could afford not only strong safety nets but good middle class lifestyles for everyone.

      1. viper18

        The reality is europe overspent. They cannot afford $10,000 “baby payments” as in Germany, retirement at age 55 funded by government, taxis in Italy who charge you for the waiting period prior to the ride, etc. Someone has to make the money to pay for these schemes.
        The common theme for both Europe’s socialists and Wall Street’s robber barons is that both are violating the taxpayer. There is a middle ground where people work reasonably and there is a reasonable social safety net. Europe’s was not a reasonable safety net.

        1. viper18

          Also…look at the math and take all the wealth from the “wealthy” and redistribute it to those less wealthy, and you will find it there is not enough money to provide “nice middle class livings” for everyone. The top 5% already pay what…50-70% of all tax receipts…can’t remember the exact number…and right now about 48% of Americans pay no taxes! Look, I’m not a republican/conservative, just stating what I know. The money’s not there. That’s the problem. The problem is the debt. The debt wall street saddled us with, the debt the governments saddle us with when they promise us things we can’t pay for.

          1. j.grmwd

            The poor 5%, they pay 59% of the income tax and only receive 30% of the income (under that strange definition of income where capital gains don’t count). Oppression, right. Well, let’s look at their share of total taxes – 41%. Not looking so oppressed now, are they? Now let’s look at the 5%’s net worth – 62% of the total. So with 62% of the wealth they only pay 41% of the taxes. Look’s to me like it’s the bottom 95% who are getting screwed.

          2. different clue

            48% of Americans pay no taxes? I have seen the statement that 48% of Americans pay no “income taxes”. But I don’t know how true even THAT is. And the Americans who pay no Federal Income taxes pay so because they have too little income to pay such taxes on. And if they make any legal income at all whatsoever, they pay FICA taxes and Medicare taxes starting on dollar one. Also, every one of them who buys something pays a sales tax on it. Plus whatever other “user fees” and other “use taxes” they pay on this and that.

            So the statement that “48% of Americans pay no taxes” is what we call a consciously knowing counterfactual statement . . . what is also called a “lie” by impolite people.

            The “take away all rich peoples’s money at once” is a clever diversion . . . meant to obscure the loss of public revenue attendant upon undertaxation of the OverClasses year after year after decade . . . ever since the Reagan tax cuts and the Bush tax cuts after that.

        2. Hugh

          Governments can fund without debt if they are sovereign in their currency. A democratic fiscal union in Europe could do this.

          D’uh, the rich pay most of the taxes because they have all the wealth. That they do is prime evidence of how massive and extreme wealth inequality has become.

          You use the standard cherrypicking of a few instances to indict a whole system. But the idea that people should work until they drop dead is the other side of what you decry. As it is countries like France are increasing the age for retirement even as it has millions of young unemployed. If the best way to distribute work across the generations is to have people retire at 55, then let’s have more of it. As for $10,000 baby payments, in most of the countries I know about that have programs like that, it is not part of the social safety net per se but rather an incentive to increase low birth rates.

          It is part and parcel of elite kleptocratic indoctrination that while money, no matter how many tens of trillions it comes to, can always be found for those elites and their projects, there is no money for programs that would make the life of the 99% better, easier, and fairer. All I hear you repeating is the propaganda we have all been fed. But why is it the math works perfectly fine for the 1% but suddenly stops working for the rest of us? Has mathematics become like our justice system two-tiered?

          1. viper18

            Governments can’t “fund without debt if they are sovereign in their currency”. Debt is debt and it must eventually be paid. The US has been getting away with it, but it will work only until it stops working, and it will eventually stop working here too.
            I am not advocating people “work until they drop dead”. That’s what I mean by seeing everything in black and white.
            Of course the $10,000 is an incentive to increase birth rates. Also an unsustainable, goofy idea which people use to prop up their incomes and definitely part of the social safety net.

          2. j.grmwd

            And repaying sovereign debt amounts to changing a balance held as a term deposit into a demand deposit. It’s just keystrokes.

          3. F. Beard

            Governments can’t “fund without debt if they are sovereign in their currency”. Debt is debt and it must eventually be paid.

            What you apparently fail to realize is that the sovereign debt of a monetarily sovereign nation is ITSELF a form of money – but one that pays interest. THUS, THERE IS NO DEBT, practically speaking. To pay off that “debt” would entail swapping brand new fiat ,which pays no interest, for those bonds which do pay interest.

            Price inflation risk? It should actually decline. The inflation occurred when the bonds were created; swapping them for new fiat should be deflationary sine fiat pays no interest while the bonds do.

          4. viper18

            I am corrected…the income tax is not paid by 48%, but other taxes are, and they are not tax free at these income levels, so it is not correct to say “no taxes paid by 48%”, but it was not my intent to “lie”.

            On the other hand, are you proposing a “net worth tax” here? I am speaking of income taxes.

            On sovereign debt, I disagree. Countries that simply print more money eventually lose their credibility. It will also happen in the US. Sure it is just a keystroke, but it is not free. Eventually, their bond yields rise, or they try to inflate their way out of their debt, or they devalue. Countries like China, creditor nations, will not help the Europeans because they know it is throwing good money after bad. Debt does matter.

          5. j.grmwd

            I would personally impose a tax on the unimproved value of land as a substitute for the majority of taxes on productive activity (e.g. income tax) – the Henry George position.

            We agree then that paying back sovereign debt is just keystrokes. Therefore we can only understand the economic effect of that debt, not by looking at the gross level of debt/GDP, but by understanding how, when and why redeemed debt returns to the spending stream and how that relates to the taxation system, the productive economy, and the income distribution. Japan, for example has a supposedly unmanageable gross public debt of 200% of GDP, but I can’t see any behaviorally plausible set of actions on the part of the actual holders of Japanese bonds that leads to crisis. Perhaps you can. You will of course remember that Japan lost its credibility back in 2002 when their credit rating was downgraded below Botswana. The result – a big fat nothing.

        3. Calgacus

          but isn’t it also clear that the European social model, which our current president would love to adopt fully (not just health care) is unsustainable?

          BALONEY Pernicious nonsense. Utterly false. The diametric opposite of the truth. The goal is to destroy the European social model, because it works so well, is so cheap, is so productive and efficient. That is why the craziest, most destructive monetary system in the history of mankind had to be devised. What is unsustainable & lethal is the US war of the 1% on everyone else social model.

          Europe grossly UNDERSPENT. Even before the Euro, and the Euro just made things worse. A bigger, better social safety net would have more than paid for itself. In two ways – Micro, by doing good stuff that would make people’s lives better & more productive & Macro – because Europe overall has been grossly underspending, worse than the USA, since the 70s. Since Mitterand decided to snatch defeat out of the jaws of victory when he terminated France’s expansive fiscal policy in the 80s. Repeat after me: DEMAND-CONSTRAINED ECONOMY.

          If you think European good health care is expensive (and it is not) try American crappy health care that costs an arm and a leg.

          1. Calgacus

            And to continue, Viper18 & Hugh et al, government bonds are just a kind of money (NFA is the MMT word, which I don’t really like). Money is debt. Debt is money. (The last needs some explanation).

            Governments can’t “fund without debt” because money IS debt. Of course they can “fund without” what is usually called debt or borrowing – just as they can fund without printing 3 dollar bills. But they can’t fund without printing some kind of dollars. If the government didn’t print dollars all the time, there would be no dollars.

            Centuries of data show that “printing money” to “pay off” bonds – which of course lowers bond yields, not raises them – tends to be deflationary/disinflationary, not inflationary. Why should this surprise? – bonds are just money for rich people, that auto-inflates.

          2. F. Beard

            Why should this surprise? – bonds are just money for rich people, that auto-inflates. Calgacus

            Well said!

          3. viper18

            Wow. “Europe has underspent compared to the US since the 70’s”….Europe is in this very fix because they overspent and created too much sovereign debt..isn’t that obvious? Once you’re a debtor, you’re a slave. As an individual, you’re a slave to the banks. As a sovereign like Greece, you’re a slave to Germany. And I agree BTW that the Greeks should have told the EU to shove it long ago, declared bankruptcy, and started over…with a new model based on merit and hard work. And ALL Greeks should have paid their taxes, which some in their society are famous for being able to evade.

            OK…I get it, this is the socialist board. Create new money, call it the “quad” or whatever, reinvent the meaning of money to finance it Just create money and give it to everyone. OK. Whatever you think will work.

            I knew after the bankers corrupted the politicians in the US it would discredit capitalism. Unfortunately, there are only two ways to run the world, in my opinion; democracy and captilism, and with a reasoable safety net. Government must live within its means. There must be compassion for the poor. There must be a reasonably progressive tax system, not confiscation, so that there is some incentive to work. There must be some middle ground between the Chinese model of $10/day and the recent US model of the wealthy buying off politicians. Socialism and central planning has a long, distinguished history of failure and anyone who advocates going back to that is intellectually bankrupt themselves.

          4. F. Beard

            OK…I get it, this is the socialist board. viper18

            Not in my case. I am an anti-fascist. That does not make me a socialist.

          5. Skippy

            Fascism (play /ˈfæʃɪzəm/) is a radical authoritarian nationalist political ideology.[1][2] Fascists seek rejuvenation of their nation based on commitment to an organic national community where its individuals are united together as one people in national identity by suprapersonal connections of ancestry, culture, and blood through a totalitarian single-party state that seeks the mass mobilization of a nation through discipline, indoctrination, physical education, and eugenics.[3][4] Fascism seeks to purify the nation of foreign influences that are deemed to be causing degeneration of the nation or of not fitting into the national culture.[5] Fascism promotes political violence and war, as forms of direct action that create national regeneration, spirit and vitality.[3][6] Fascists commonly utilize paramilitary organizations for violence against opponents or to overthrow a political system.[7] Fascism opposes multiple ideologies: conservatism, liberalism, and two major forms of socialism—communism and social democracy.[8] Fascism claims to represent a synthesis of cohesive ideas previously divided between traditional political ideologies.[9] To achieve its goals, the fascist state purges forces, ideas, people, and systems deemed to be the cause of decadence and degeneration.[10]

            The fascist party is a vanguard party designed to initiate a revolution from above and to organize the nation upon fascist principles.[11] The fascist party and state is led by a supreme leader who exercises a dictatorship over the party, the government and other state institutions.[12] Fascists reject the conventional form of democracy—majoritarian democracy that assumes human equality, and instead claim that fascism represents an organized and centralized authoritarian democracy.[13] This fascist form of democracy advocates the rule of the most qualified, rather than rule by a majority of numbers.[14] Fascists reject majoritarian democracies as being based on quantitative and egalitarian evaluation of individuals and their opinions rather than on qualities.[15]

            Fascism supports a socially united collective national society and opposes socially divided class-based societies and socially-divided individualist-based societies.[16] Fascists claim it is a trans-class movement, advocating resolution to domestic class conflict within a nation to secure national solidarity.[17] While fascism opposes domestic class conflict, it favours a proletarian national culture and claims that its goal of nationalizing society emancipates the nation’s proletariat, and promotes the assimilation of all classes into proletarian national culture.[17] It opposes contemporary bourgeois class-based society and culture for allegedly being based on selfish and hedonistic individualism that results in plutocracy and war profiteering at the expense of the nation.[18] Fascism claims that bourgeois-proletarian conflict primarily exists in national conflict between proletarian nations versus bourgeois nations; fascism declares support for the victory of proletarian nations.[19]

            Fascists advocate: a state-directed, regulated economy that is dedicated to the nation; the use and primacy of regulated private property and private enterprise contingent upon service to the nation or state; the use of state enterprise where private enterprise is failing or is inefficient; and autarky. It supports criminalization of strikes by employees and lockouts by employers because it deems these acts as prejudicial to the national community.[20]

            There is a running dispute among scholars about where along the left/right spectrum that fascism resides.[21][22][23][24] Fascism was founded during World War I by Italian national syndicalists who combined left-wing and right-wing political views, but Italian Fascism gravitated to the right in the early 1920s.[25][26] Benito Mussolini in 1919 described fascism as a syncretic movement that would strike “against the backwardness of the right and the destructiveness of the left”.[27][28] Italian Fascists described fascism as a right-wing ideology in the political program The Doctrine of Fascism: “We are free to believe that this is the century of authority, a century tending to the ‘right,’ a fascist century.”[29][30] They also, however, officially declared that although they were “sitting on the right” they were generally indifferent to their position on the left-right spectrum, as being a conclusion of their combination of views rather than an objective, and considering it insignificant to the basis of their views, which they claimed could just as easily be associated with “the mountain of the center” as with the right.[31] Major elements of fascism have been deemed as clearly far right, such as its goals of the right of claimed superior people to dominate while purging society of claimed inferior elements; and in the case of Nazism, genocide of people deemed to be inferior.[32]


            Definition of FASCISM
            often capitalized : a political philosophy, movement, or regime (as that of the Fascisti) that exalts nation and often race above the individual and that stands for a centralized autocratic government headed by a dictatorial leader, severe economic and social regimentation, and forcible suppression of opposition
            : a tendency toward or actual exercise of strong autocratic or dictatorial control


            Skippy… From above which do you speak and your propensity to invoke Manichaean language puts you in some camp, which is it?

          6. Skippy


            That is not a definition, it is a opinion. Please check above and select a more fleshed out definition or find another some where and submit if, if you would.

            Skippy… by your metric America has been largely fascist since inception, corporate is just another word for wealth… eh.

        4. Leverage

          Unlike your USA, Europe has a balanced current account with the world.

          We can afford all that and more if we want and neoliberals like Drugged do not kill us first.

        5. Kunst

          Viper, appropriate name.

          “right now about 48% of Americans pay no taxes”

          This is one of those urban myths about alligators in the sewer system. You are talking about income taxes, ignoring payroll taxes (15% from the first dollar until $100K+), sales taxes, property taxes (even through rent). You are also ignoring that may of those non INCOME tax payers are retired and/or very poor. In other words, a non sequitur, extremely misleading, but designed to serve a particular message and those who (at least think they) benefit from it.

  22. Schofield

    Sure it’s obvious to a minority that failure to pay attention to sectoral balances and allowing an unaccountable system of money creation to infer with those balances has landed most global economies in their current mess. Unfortunately vast ignorance and vested greed doesn’t see it that way.

  23. LeonovaBalletRusse

    YVES, Tyler tells us that German tax collectors shall descend on Germany (comments excellent and fruitful). Is Monti playing Mussolini to Merkel’s Hitler?

    To think Mel Brooks could make it hilarious in satire, thinking it was so over:

    ‘Springtime for Hitler’ (V.O.S.) from “the Producers” (MusicalsVOS on Aug 21, 2007) — PRICELESS.

  24. Susan the other

    Yesterday, Friday, Dylan Ratigan had an epiphany. It was triggered by the Facebook IPO. And the value of those shares. And what the value was actually based on. In real life. And Dylan’s conclusion was that Facebook’s value was based on social stock; or the COMMUNITY. Well, Duh. The value of all stock for the last 100 years has been based on the community. Maybe it is assumed to be secret but it is not. It is, however, the favorite little gidding of investment bankers. So newsflash to Mario: WE are the economy. Go ahead and cut off social safety nets. We dare you, you idiot.

    What drivel from the mouth of Mario. Is this how you plan to bring the medical industry to heel? By attacking the patients? How very cowardly. Or whatever social contract particulars you choose to attack. Can’t just say prices must come down. Such truth wouldn’t be prudent. People might catch on. There is a spread going one here for the sake of profit-taking lies.

    If the realization is dawning that much, much more “money” will be required in this world of 8 billion people to bring social well being to all people, then let’s look at it without all this fear and loathing. Let’s just issue a new currency, call it a Quad, and set some rules. Because our retarded understanding of money is the problem, not the well being of people.

    1. Jim

      Why blame Mario. Why not blame the Greek and Italian politicians who have decided to stay within the EuroZone?

  25. Linus Huber

    Of course, there will be a lot of pain to go around. There is no easy way to manage the required deleveraging process.

    The question however is, how to share the pain and should those that gained the most by the credit bubble should also lose the most during a deflationary period. The answer is obvious and the refusal of the top 1% will be dealt with one way or the other. Just give it some 2 to 5 years time.

    I also am impatient but what can we do until the electorate will revolt; not much.

    1. Jim

      We’ll know more when Greeks vote in about six weeks.

      If they opt for a coalition government headed by one of the two traditional parties, than we will know that they support austerity.

  26. Chauncey Gardiner

    Why has and is the focus of the corporate owned media and individuals always on the debtors? Why has there been no discussion of the role of the underwriters of these debts or the issuers of derivatives contracts. They have responsibility in this matter.

    The metrics to assess whether a sovereign state is creditworthy have been known for decades. just as the metrics are known for corporate and individual borrowers. Why did the underwriters fail to exercise a reasonable level of prudence before advancing the funds to Greece or other troubled sovereign borrowers?

    There is more to this story… much more.

  27. Matt

    A question to think on: if “the markets” demand austerity and suffering for nearly all so that a few can be rewarded, why exactly should we continue to permit them (the markets) to exist?

    1. Chris Rogers

      Many thanks for posting a most interesting link, reminds me in many ways of Adam Curtis’s documentary ‘The Century of the Self’.

      For all the attacks on Communism, or what I usually refer to as ‘Communtarianisn’, it would seem the Left as a whole as been the strongest supporters of a more family/community orientated lifestyle that is an anathema to our neoliberal intoxicated kleptocracy.

      Still, in a World of finite resources, sooner or later we’ll have to embrace this philosophy, or, and to put it bluntly, be led to the gas chambers willingly by the Power Elite.

      The choice is simple, that so many seem incapable of understanding this most simplistic of choices is beyond me and a credit to those that spin the myth of materialism above all else.

  28. tiebie66

    Is Draghi doing PR to offset any unfavorable views that may arise from the upcoming LTRO largesse? It appears to me that there is an emerging pattern of systematic variance between his statements and his actions. But I don’t know why he chose that specific venue … the PR one would think to be directed at AAA Europe, not the US.

  29. Kunst

    “The “\’high living’ that Draghi is particularly opposed to is Europe’s social safety nets.”

    And here I thought he was talking about the high cost of yachts and vacation homes.

    “Not surprisingly, the Journal did not question the notion that democratic governments should take orders from an unelected finance official.”

    You don’t think the WSJ favors democracy, do you? Anybody recall who owns that mouthpiece of kleptocracy?

    “European Central Bank President Mario Draghi warned beleaguered euro-zone countries that there is no escape from tough austerity measures and that the Continent’s traditional social contract is obsolete…”

    Hah, hah, game over. We have you so deep in debt that you will be slaves forever. Funny, Draghi doesn’t sound like a German name.

  30. Kunst

    Remember a couple decades ago when the futurists and science fiction writers predicted that automation and robots would produce a society of leisure, recreation, and contemplation – a great equalization? Instead we are on the way to recreating feudalism. Somebody took the wrong-colored pill.

    What we need is a new disease that knocks off at least 10-20% of the global human population, particularly the elderly (yes, that includes me). See, retirement and medical costs slashed, and a lot of the .01% disappear. Supply and demand applies to labor too.

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