By Rob Parenteau, CFA, sole proprietor of MacroStrategy Edge and a research associate of The Levy Economics Institute
It would not be impossible to prove with sufficient repetition and a psychological understanding of the people concerned that a square is in fact a circle. They are mere words, and words can be molded until they clothe ideas and disguise.
― Joseph Goebbels, Reich Minister of Propaganda 1933-45
Austerians possess a well-honed psychological understanding of their target markets. They are also quite adept at proving, with sufficient repetition of course, that national governments in the Eurozone cannot afford to pursue pro-LIFE (Low Inflation Full Employment) economic policies. Austerians are very good at Goebbelnomics, indeed.
You see, fiscal deficits are a sin, especially if they are larger than an arbitrary 3% of GDP. “Monetized” fiscal deficits are a mortal sin punishable by the inevitably of hyperinflation – a state of ever accelerating inflation which Austerians love to hyperventilate about, even as more and more nations sink into outright price deflation. Austerians hyperventilate about monetized fiscal deficits even though all fiscal expenditures in countries with sovereign currencies have to be “monetized”, because there is no other way for the private sector to get the money needed to pay taxes and buy government bonds. Households and nonbank firms cannot create money – that is called counterfeiting, and punishable by law.
And government debt to GDP ratios always and everywhere need to be kept below an arbitrary 100% of GDP ceiling. Or better yet, as long as we are pulling numbers out of our asses, below 60% of GDP. Why, you may ask? Because beyond one of those ceilings lies, as Reinhart and Rogoff argued with empirical and historical precision (plus a somewhat faulty spreadsheet formula), very explosive debt dynamic dragons. Big debt dragons. Debt dragons that breathe fire and sink ships.
Forget, for a moment, that government debt is held as an asset by some households after they save money and invest it for retirement purposes. And forget for a moment the government bonds are used as collateral by both the conventional and the shadow banking systems. Forget also that government debt may be financing the construction of tangible assets, like infrastructure, with monetary and social returns lasting decades. You’ve seen the dragons, right?
But that old Austerian schtick – the “sorry, we done ran out of money already” routine – is wearing a little thin – like phyllo dough thin – in the eurozone these days. At least judging by the column of smoke rising from the Bloccupy street protests of the ECB’s grand opening ceremony at its new headquarters in Frankfurt yesterday, the “we ran out of money” routine may need a new laugh track.
In fact, the duplicity of the Austerians has become impossible to ignore. Yet somehow, the mainstream media, and even the opposition politicians, still manage to ignore it. They fail to connect the dots, even though the neoliberal lies, duplicity, and hypocrisy are now “hidden” in plain view. It is as if Lady Thatcher has a grip from beyond the grave on our frontal lobes, and the repeated refrain of TINA – There Is No Alternative – is all that can be heard in the echo chamber between our ears.
The Austerians, it appears, are practicing a form of Goebbelnomics. The square is in fact a square, but we have been led to believe by their awe inspiring persuasive skills that it is a circle – even when the square is sitting right in front of our collective noses. This is no small feat, and old JG would undoubtedly be proud.
In this regard, consider the following excerpt from a March 16th, 2015 Guardian article ostensibly dealing with fingergate:
Adding to the tension, Belgium’s finance minister warned Greece on Monday that it was a dispensable eurozone member. Johan van Overtveldt said the currency bloc had sufficient funds to cope with a Greek departure. “What we have now in place would certainly allow us to survive that,” Mr. Van Overtveldt said. “Nobody talks too much about that very openly, but my feeling is [the concern] is quite present around the table.”
So let’s get this straight. The Troika does not have enough money to roll over Greek debt (in a Ponzi scheme like fashion, mind you) – debt that was incurred not so much as a bailout of Greece, but more as a bailout of German and other core nation banks and insurance companies and private investors who made stupid loans to or investments in Greece, but refused to fob them off on their own taxpayers. But the Troika does have enough money to adequately perform damage control for the eurozone if Greece, because, you know, Greece is a “dispensable” eurozone member – even though ECB lawyers themselves say there is no legal mechanism for disposing of eurozone members in any such fashion.
See, the square, it is a circle. No money in Greece for humanitarian aid in a country that may be on its way to becoming a failed nation state. No money outside Greece to roll over existing debt, or when necessary to extend and pretend, add more debt on existing debt to service the old debt, Charles Ponzi style. But somehow there is still “sufficient” money to ring fence Greece from the rest of the eurozone once Greece figures out is dispensable and so must exit. Wait, what? Oh, right, the square is a circle. Duplicity? Nah. Not in the eurozone. Not amongst Austerians.
But that is not even the whole deception. It turns out the ECB does happen to have enough money to buy 60 billion euros per month of bonds from now until at least September 2016. Which means the same bondholders who are benefitting from the misnamed “bailout” funds used to keep the core nation financial institutions from collapsing under the weight of failed loans, can now count on a monthly government handout, courtesy of the ECB. Since the ECB has to bid up the prices of these bonds in order to purchase them from bondholders, this is, for all intents and purposes, a government subsidy payment to bondholders. Bondholders will be receiving free capital gains from their bond sales to the ECB. You will notice there does not appear to be much of a budget constraint on the ECB. Funny, that.
One could not possibly make this stuff up. We are first told there is no more money for Greece, but then in the next breath, we are told there is enough money for ring fencing Greece, should it recognize it has become dispensable (and the sooner the better, it would seem, according to Belgium’s Finance Minister). Then, as if we had not been told there is not enough money for Greece, the ECB commits to creating money out of thin air for the next 18 months to subsidize eurozone bondholders, who will tend to be either the 1%, or to be eurozone financial institutions. Government handouts are apparently available for finanzkapital only, so perhaps we should conclude that unlike Greece, finanzkapital is indispensable.
Or to take a related example of blatant duplicity from a recent speech by ECB Executive Board member Benoit Couere as he was explaining how the ECB’s QE campaign will work without distorting price discovery mechanisms in the bond market. Within the first few paragraphs, M. Benoit Couere contradicts himself. Openly.
From the summary at the very top of the speech, we are told : “We do want to affect market prices but we will not suppress the price discovery mechanism.” From second paragraph in Section 1 (Transmission) of the speech, we are told: “First, large-scale security purchases mechanically reduce the supply of securities available in the secondary market, which results in higher prices and lower yields through the creation of scarcity.”
Read that sentence again. The ECB will reduce the supply of bonds outstanding in the hands of private investors with QE. This artificial creation of scarcity will drive prices of bonds higher, providing a nice government hand out to bond investors. But this action will not suppress the price discovery mechanism of the bond market. Artificial scarcity never distorts prices…does it?
So M. Benoit Coeure either takes his audience as fools and simpletons, or he has no problem openly engaging in Goebbelnomics in public. Laws of supply and demand have been suspended, according to M. Couere. Artificially reduce supply, and the resulting price won’t be artificial…will it? The square, according to Benoit, is a circle. Any questions?
Surprisingly, no one is calling foul on any of this Austerian duplicity while Greece gets set up to swing in the wind so a proper example can be made of Syriza. The Troika has tipped its cards in a very explicit fashion here. They want Greece to be hung out to dry, and thereby demonstrate to Podemos et al that you never mess with The Institutions Formerly Known as the Troika. The Troika needs the opposition to shrivel up and crawl back to their respective corners with their tails between their legs, never to be heard whimpering against austerity measures again.
This is all about the rules and the discipline, mind you. In fact, it is all about class discipline, an Erratic Marxist, and possibly even a Groucho Marxist, might argue. The eurozone at best is a mechanism for extracting larger current account surpluses and hence larger profits for the core country transnational manufacturing interests, and securing ample subsidies and capital gains for the finanzkapital wing. This machine is well oiled, and the Troika is not about to allow it to be monkey wrenched by a bunch of sniveling anti-Austerians.
Make no mistake – this is an exercise in class discipline, writ large. It is unfolding right before our eyes, yet no one dares call it by its true name, Goebbelnomics. There is no longer even a superficial effort to hide the duplicity of the Austerians. Just repeat after them: the square is a circle. We have no more money, at least not for dispensable nations. But if you are a bondholder, well, step right up, because we just happen to have enough money to bid your bonds higher – though let’s be clear, that will not, and cannot possibly distort market price discovery signals. Even if it is 60b euros per month the ECB will be spending. For eighteen months. And meanwhile, we are told the eurozone has run out of money, so Greece must become a failed nation state.. That square, you see – it is a circle, after all.