Bernie Sanders Asks Janet Yellen to Explain Her Apparent Inaction on Greece

Last week, we wondered why the Fed was tacitly supporting the ECB shellacking of Greece. As we wrote:

Obama is one of the few national leaders to come out forcefully against the Troika’s efforts to squeeze more out of an already bankrupt Greece. From the Wall Street Journal report on his remarks:

“You cannot keep on squeezing countries that are in the midst of depression. At some point there has to be a growth strategy in order for them to pay off their debts to eliminate some of their deficits,” Mr. Obama said in an interview with CNN’s Fareed Zakaria aired Sunday.

He said Athens needs to restructure its economy to boost its competitiveness, “but it’s very hard to initiate those changes if people’s standards of livings are dropping by 25%. Over time, eventually the political system, the society can’t sustain it.”…

So why is the Fed, whose mandate includes promoting growth, pointedly ignoring Obama’s views and tacitly supporting the ECB? The US central bank actually has significant leverage over the ECB via its dollar swap lines. Those were extended in violation of Congressional approval processes, but Congress has been too supine or inattentive to challenge them. While the swap lines are not presently in use, they are important to the ECB. Withdrawing them over the treatment of Greece and the potential serious downside risk would constitute a serious rebuke and get the ECB’s attention.

Similarly, Congress could challenge the Fed’s authority to have granted the currency swap lines at all, a move it should have taken long ago. There is a good argument to be made that it is unconstitutional to have done so without prior explicit approval from Congress, and no justification for making them “permanent”.

Even worse, the ECB has an almost certain booster in the Board of Governors in the form of Stanley Fischer, who was ECB chief Mario Draghi’s thesis advisor. If Yellen were to be concerned about the dangers of the Troika’s policies towards periphery countries as a danger to global growth, and hence the US, the odds are high that any effort to press the ECB to moderate its course would be influenced, as in checked, by Fischer, or that he would volunteer himself as intermediary, which would serve the same end.

It appears the same thing occurred to Senator Bernie Sanders. He issued a letter over the weekend asking Janet Yellen to “make it clear to the leadership of the European Central Bank that the United States and the Federal Reserve object to actions that affect our national interest and risk U.S. and global financial stability through the unnecessary and counterproductive implementation of deflationary policies.” The full letter is embedded below. Also note that Senator Sanders wrote Christine Lagarde at the IMF on January 28, two days after Syriza’s victory, expressing his concern about the humanitarian costs and political risks of continuing to pursue failed austerity policies.

If you are a Vermont voter, please e-mail him and thank him for taking this stand. And the rest of you who are moved to help, please write Hillary Clinton’s office and ask why, as the Democratic party Presidential nominee-in-waiting, why she is silent on this important topic.


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  1. Marko

    I’m voting Sanders-Warren in 2016.

    Or Warren-Sanders. They can flip a coin or something , but this is the ticket for me.

      1. frosty zoom

        as they say in french,

        “tu rêve en couleurs..”

        SPOCK/UHURA ’16 — “Brains and balls for America!”

      2. Brooklin Bridge

        Vermonters love him for standing tall and bringing home Single Payer in Vermont; Oh wait…

        That said, I’m writing my letter to Hillary.

        1. hunkerdown

          For what it’s worth (and it might just be a response to recent grousing), Bernie’s got other plans during Netanyahoo’s address to Knesset West.

  2. Swedish Lex

    Sanders seems more concerned about Europe than Schäuble does. A lot more.

    German Industry to benefit monumentally from QE-created growth, free ECB money and ultra low euro (while U.S. exports slow down).

    And should the Germans on top of that be given the ultimate Schadenfreude of kicking Greece out of the euro, although all know that it would be the wrong decision?

  3. LAS

    I love Bernie Sanders. This is consistent with his other efforts on behalf of population health and well-being. I wish he were younger so he could be in politics for longer, longer, longer and clone himself.

    1. Brooklin Bridge

      What Tsipras and Varoufakis have done in a week of absolutely astounding backbone in standing up to Germany and the Troika, Bernie Sanders has not done in a decade of largely ineffectual but grand sounding speeches or stances such as this (that unfortunately evaporate with any heat) .

      1. readerOfTeaLeaves

        Right. Because change is super-simple and Bernie Sanders didn’t arrive on the correct White Horse?

        I can only assume that you’ve never been involved in the policy process.
        I don’t know how that man accomplishes what he does – given the forces that he’s up against, he’s phenomenal.

        1. Brooklin Bridge

          If enough people are happy with the kind of change he represents (the kind that always caves in at the end, that is always up against insurmountable odds, the kind that always just might work next time, and then next time, and then maybe next time if we can elect enough like him – maybe next time) then that is the kind of change we will continue to get.

    1. hunkerdown

      Hell no. The problem is that this system reproduces itself through social contact. If you want to change the way things are done, why would you go to the same inbred pool of bourgie Whigs, the same “enlightened” affectations, and the same infantile Whiggish “aspiwations”? More to the point, given the utter lack of evidence that this system produces any other outcomes than it has been producing, exactly what do you see that’s desirable about more pathetic pathos while enabling our birthrights to be stolen more slowly than otherwise?

  4. craazyboy

    I be scared to tell Yellen to do something about Greece.

    The answer would likely be:

    We will implement a two prong approach to helping Greece.

    1) Lower interest rates to .5%

    2) Begin QE5 at , pick a number, say $100B USD a month? Or Euros – we can get ’em on Forex thru a bank. Something big anyway. At least Bazooka size. Maybe larger. For a considerable period of time, of course. Or longer.

    1. Doug Terpstra

      Right, TINA, the only solution to unsustainable, unpayable debt is more debt. When all you have is a monetary hammer, everything looks like a liquidity nail.

  5. Paul Tioxon

    If the Pentagon and the DoD have set up a cyber command to deal with cyber attacks and cyber war, due to the destruction of infrastructure or the disruption of the orderly operations of hospitals, electrical grids, water and sewer systems, nuclear power plants etc etc, why hasn’t the economic warfare against the body politic been recognized as an equally devastating type of military hostility resulting in the same consequences of aerial bombardment? Austerity, using the collapsing tax collection function of the state as a redistribution method for income inequality results in collapsing bridges, crumbling school systems with poorly socialized and educated young citizens. Bernie Saunders is pointing out as a representative of the state that the economic institutions are no longer supporting the social order but tearing it apart. Or as Liz Warren says, the private sector is a problem not because it has too much money, but because it has taken over too much political power with that money. But then again, that is the nature of capitalism to rule by money with the support of the state issued currency and strong centralized bureaucracy reaching across of the entire territory of the state. As the Medici motto goes: MONEY TO GET THE POWER, POWER TO GUARD THE MONEY.

    Austerity as policy is guarding the money owed that can not be generated for repayment by a crushed society incapable of the minimum economic function directly due to the austerity policies. It is a self defeating course of action that is best described as a death spiral. The witless technocrats are pursuing the precious rule of law, contractually obligated debts that must be repaid, and destroying the economic capacity to be able to raise the income for eventual repayment. The stripping of assets, homes, savings deposits, pension funds all degrades the humanity of the citizens and reduces them to the status of non performing actors as labor with no hope of making goods or services offered in any market or even providing for the bare animal necessity. Just what capacity for debt repayment is being created by austerity as an economic policy? It is in fact little more than warfare by financial means with death, disease and the destruction of all the material prosperity that has been built up over generations forced into ruination by abandonment of the institutions that used to reconstruct a continent battered into rubble by WWII. Without bombs or cyber attacks, Europe is burning down.

  6. EoinW

    Good cop/bad cop? Obama says the nice things while actual action by the Fed is the exact opposite. Is it not safe to conclude that actual government policy is what the central bank is doing? Meanwhile the front man gives his head fake for public consumption. Naw no Washington politician would ever do that. They always mean what they say.

    1. Schofield

      “The first truth is that the liberty of a democracy is not safe if the people tolerate the growth of private power to a point where it becomes stronger than their democratic state itself. That, in its essence, is Fascism—ownership of Government by an individual, by a group, or by any other controlling private power.”

      (Franklin D. Roosevelt: “Message to Congress on Curbing Monopolies.,” April 29, 1938.

      1. hunkerdown

        Which makes a fine case for the replacement of term limits with universal, binding popular recall. Surely one didn’t think that just because one rallied behind someone else’s puppet, that they were owed anything?

  7. Dan Allen

    It should be pointed out though that one of the big news items in Greece over recent months, and I am convinced it contributed greatly to Syriza’s victory, is the Timothy Geithner revelation that the Europgroup ministers were overtly discussing the need to punish and hurt Greece through austerity measures. Geithner described the Eurogroup as wrong on the blueprint, badly ignorant of economics, and rude to his presence at the meeting (he was invited). Despite whatever anyone may think about Geithner, his words echoed loudly in Greece. Those arguing the need for austerity had their legs chopped off, and the vast majority of Greeks now believe that the logic of austerity is all about punishment (for electing an elite that robbed the country blind?) Varoufakis said this morning, “If it were a harsh and bitter pill that healed, I’d recommend we swallow it.”

    1. Yves Smith Post author

      This was actually reported contemporaneously (Geithner’s opposition to austerity, I have some mentions in my past posts from news stories) and it was ignored. The Troika’s attitude was it was none of the US’s business. Plus Geithner really did not try all that hard. He gets to say for his memoirs that he did the right thing when all he did was clear his throat a couple of times, as opposed to throw any weight behind it.

  8. susan the other

    It seems like what Varoufakis is proposing is a solution to the big contradiction of the EU. Some mechanism, linked to each nation’s GDP, that would limit the amount paid in debt service to some maximum which would allow the economy to remain productive. Isn’t that the same idea as sovereignty? The ability to control finances by allowing debts to roll over until they can be paid? There are some debts which are prioritized, but the mechanism kicks in when the country needs time. If that isn’t a good solution to the EU’s fiscal-political problems, what would be better? It is like the Troika “haven’t had a good idea for 2000 years.” To quote Catch-22 on Christianity.

    1. financial matters

      I think it’s got some merit and Varoufakis likes it and it could be a good bridge measure. For one thing, though, GDP is a somewhat flawed number. Currency exchange rates seem more realistic and based on productivity (which I think is complex and takes into account non tangible benefits such as the health and education of the workforce).

      Currency is a countries responsibility or in the case of the Euro a group of countries responsibility. The countries can have different strengths and cultures but need to show basic support and respect for each other. But they have to think there is enough dynamism and mutual benefit to act as a whole.

      It might make sense to have a political union of sorts but have separate currencies. Varoufakis has talked about an International Currency Union but I think this is more to protect currencies from raids and to balance out current accounts.

      Members of their economic team have talked before about creating 500,000 jobs, (Responding to the Unemployment Crisis in Greece)

      and this may be easier to accomplish with their own currency.

  9. vinny

    The reference to Mr. Geithner and his actions or inactions on the proposal to ‘punish Greece’ is interesting from an Irish perspective.
    It is widely believed in Ireland that his intervention on the proposal to ‘burn bondholders’ resulted in a decision by the then Irish Govt not to do so and to issue a blanket guarantee covering all bondholders, banks, depositors etc.
    This decision has recently been criticised by Bill Black as being so wrong that it bordered on the bounds of financial insanity.
    A significant part of the Irish austerity has been attributed to those actions.

  10. RBHoughton

    I am amazed – I can see his heart! I thought those legislators left them behind when they got the job. I was wrong.

    But I think ultimately this is not about monetary policy but about power. Its the usual line-up with the people in the red corner and the man with the money in the blue. Seconds out …… Round 9999 begin.

  11. bh2

    So entire sovereign countries should now be included on the FED’s “Too Big To Fail” list? Seriously?

    Bernie Sanders needs to get a grip on reality. The EURO is done. Stick a fork in it. The last thing the FED should take on its book is sovereign debt of busted countries denominated in a fiat currency eventually sure to go bust also.

    1. Praedor

      While I agree the EU is toast, I always get leery of those who use the term “fiat currency”. This means they are a magical gold bug. They believe gold is magic, has mystical power, and all that needs to done to make any currency and society stable for infinity is a gold-backed currency. Sadly, a gold-backed currency didn’t help out one bit in preventing depressions or help get out of depressions. The reason is simple: gold ain’t magic (largely, it is a useless metal except for some VERY narrow medical uses, limited use in electronics, and as a mass-tag for protein crystallization/structure solving.

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