Why the World Will Remember Departing ECB President as the Not-So-‘Super’ Mario Draghi

By Marshall Auerback. a market analyst and commentator. This article was produced by Economy for All, a project of the Independent Media Institute.

Mario Draghi ends his term as president of the European Central Bank (ECB) at the end of October. He will do so as the most consequential head of the ECB since the euro’s inception. By substantially expanding the role of the central bank, Draghi likely saved the eurozone from implosion. But much like the preservation of the Bashar al-Assad regime in Syria, it’s still unclear whether the preservation of the single-currency union was a worthwhile objective, or simply perpetuated a profoundly flawed system that created misery for millions.

In many respects, Draghi’s actions were akin to adding additional floors onto a structure with a poor foundation, violating the safety codes while doing so, even as he provided more living space so that the building could become marginally habitable. But in so doing, his actions have contributed to huge socioeconomic costs and, in the words of Fritz W. Scharpf, former director of the Max Planck Institute for the Study of Societies, “also had the effect of ‘destroying the democratic legitimacy of government.’” What happens next is likely to provoke three possible outcomes: 1) the EU agrees to let member nations redevelop national sub-currencies that could balance economic issues; 2) the national debts held by EU nations could be merged to produce a supranational treasury that would sustain a huge credit; 3) or, in the absence of those two policies, dithering could produce weakened legitimacy that could initiate a collapse of the European Union project itself.

Let’s take a step back: Since inception, there have been two related problems in the Eurozone. One is the solvency issue (i.e., the individual countries can theoretically go bust, even Germany, because they are functionally like a Canadian province or U.S. state—they use the currency, but they don’t create it). Draghi basically solved the insolvency problem with his quantitative easing program, because as the issuer of the euro, the ECB was the only institution that could credibly backstop the national sovereign bonds and prevent a default. That’s why yield spreads compressed so dramatically and national borrowing costs plunged.

As successful as this measure became, it came at a great cost. The ECB would only step in to underwrite the bonds and thereby guarantee national solvency on condition that the recipient country carried out spending cuts. In effect, the right hand stole from the left hand, as the austerity measures simply exacerbated the problem of poor consumer and business demand and forced the governments concerned to issue yet more national debt. In fairness to Draghi, the austerity conditionality was probably crucial to securing a buy-in from Europe’s central economic players in Germany; Bundesbank officials were concerned about the so-called “free rider” problem, in which hitherto profligate governments would be rewarded with low interest credit, without having sound financial controls. Absent the Berlin acquiescence, the markets would have likely dismissed the Draghi pledge.

In this regard, “Super Mario” was almost too successful. His actions created a kind of moral hazard run amok in the Eurozone bond markets. The most vivid illustration of this phenomenon is the recent bizarre phenomenon of negative yields, in which certain sovereign countries, such as Germany, have actually been paid by creditors for the “privilege” of holding their paper. This in turn has created huge financial pressures among, for example, German financial institutions, such as banks, and national pension funds. How can they pay out income to their depositors, or annuities to their retirees, if these institutions are being charged for holding German bunds which, by law, they are required to buy? In the words of Ambrose Evans-Pritchard, the international business editor of the Daily Telegraph, Mario Draghi has created “the most deformed bond market in history… [and] has jumped from the frying pan into the freezer.”

The demand problem has remained even more problematic: the Eurozone has long had a case of insufficient demand (especially in long-suffering Mediterranean nations, such as Greece, Italy, Portugal and Spain, but now extending into Germany itself). This is a fiscal problem, but as noted previously, there is no “United States of Europe” treasury, so the individual Eurozone countries are still left to their own devices on spending decisions.

As the EU currency is divorced from each member state’s fiscal authorities, however, there are multiple components that create significant budget austerity pressures. One is the presence of the Stability and Growth Pact that arbitrarily sets borrowing and spending limits (with threatened financial penalties for those serial offenders who persistently refuse to comply with the rules). The second problem is directly related to euro’s weird supranational status: by agreeing to exchange their national currencies for the euro (a currency only issued by the ECB, not the national central banks), all single-currency members have relinquished their public sector’s capacity to provide high levels of employment and output. Like American states, these countries are limited in their ability to spend by taxation and bond revenues, and the markets can effectively shut them down if fiscal policy is deemed by them to be financially unsustainable. Market participants simply stop buying the bonds, yields skyrocket and bankruptcy becomes a real possibility. This is precisely what happened before Draghi’s “whatever it takes” speech seven years ago and the so-called “PIIGS crisis” was at its peak. The problem of demand paradoxically was exacerbated by the “resolution” of the solvency issue, which created a third pressure in favor of budget austerity. Countries “saved” by the ECB were like hobbled wrecks, whose legs were broken every time they tried to stand on their own two feet. They survived, but at what cost?

It is true that the decision of these countries to swap their national currencies for the euro took place well before Draghi took on the top job at the ECB, although he certainly played an active role during the early 1990s at the Italian treasury in order to ensure that Rome acquiesced to the rigid conditions of entry. As reported in Market Watch, according to European Union historians Kenneth Dyson and Kevin Featherstone, “Mario Draghi, currently president of the European Central Bank and then director general of the Italian treasury, ‘believed in his soul’ that the euro would enforce the discipline Italian governments needed.”

One man’s discipline is another man’s needless austerity obsession. “Super Mario” saw the euro as a means of breaking the country from its so-called addiction to fiscal profligacy, which is an economic way of describing national autonomy. During his time at the Italian treasury, questions have also been raised about Draghi’s role in a mysterious currency swap that took place between Italy and JP Morgan, just before the country joined the European Union’s Economic and Monetary Union. The swap allegedly helped the Italian government to secretly borrow billions and thereby enabled it to cook its books in advance of formal entry into the Eurozone. It is precisely this cavalier approach to legality that has long characterized the economic culture of the ECB (indeed, the European Union as a whole), despite its repeated (and often hypocritical) insistence on wayward countries adhering to a rules-based order. Draghi’s tenure as ECB president has done much to expand the central bank’s remit into legally questionable activities.

And at what cost? Much of the continent is blighted by a lost generation of youth, who have never experienced anything remotely approaching secure, full-time employment or economic security. Double-digit unemployment is still rife in many parts of the EU, along with rising inequality, mounting political strife, and a revival of nationalist tensions, the elimination of which was supposedly the primary political aim of the “European ideal,” when the community was first envisaged in the aftermath of World War II. So diminished is the trust between the Eurozone member states that there is virtually no appetite for a full-on move to a “United States of Europe” fiscal authority, if the rise of intensely nationalist populist parties in France, Italy, Belgium, Hungary and Poland is anything to go by. In the past, I have likened the current scenario to Yugoslavia, prior to its dissolution in the early 1990s:

“The relatively rich republics of Yugoslavia (Slovenia and Croatia) resented policies that transferred of wealth to the relatively poorer republics, like Serbia, Macedonia, Montenegro, or the autonomous region of Kosovo. Once Tito’s organizing genius disappeared, the linkages stitching the country together became frayed and eventually snapped as old grievances manifested themselves in newer forms. The same type of evolution could happen to the European Union if it underwent a supranational fiscal union, where the rich countries feel they are being unfairly burdened—the beginnings of which are already in evidence.”

It may have created significant financial dislocation (as well as put him out of a job), but surely a better option for Draghi would have been to admit that monetary unions, absent an accompanying fiscal union, could never work. That was certainly the historic experience during the initial phase of American national independence under the Articles of Confederation, a union characterized by a weak central taxing authority and comparable squabbling amongst the original 13 colonies regarding the settlement of state debts and competing land claims. Instead of building on that weak structure, the entire articles were ultimately scrapped at the Constitutional Convention, during which a new Constitution was established that provided for a much stronger federal government by establishing a strong executive branch, national courts, and centralized taxing powers.

In an ideal world, Draghi and others would have made the case for coordinated action to reintroduce national currencies and immediately require all tax and other public contractual obligations within the nation to be denominated in that currency so as to create demand for these currencies. The problem, of course, is that Draghi was ultimately a prisoner of the austerity illusion against which he now rails in his dying hours as ECB president, belatedly understanding that monetary policy has finally reached a dead end. In the end, Not-So-Super Mario was a man fooled by the austerity illusion… and a man willing to engage in the necessary cavalier policies of a central banker tasked with begetting a fiscal umbilical cord to the EU to fill a huge institutional hole that was never his to fill in the first place.

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About Lambert Strether

Readers, I have had a correspondent characterize my views as realistic cynical. Let me briefly explain them. I believe in universal programs that provide concrete material benefits, especially to the working class. Medicare for All is the prime example, but tuition-free college and a Post Office Bank also fall under this heading. So do a Jobs Guarantee and a Debt Jubilee. Clearly, neither liberal Democrats nor conservative Republicans can deliver on such programs, because the two are different flavors of neoliberalism (“Because markets”). I don’t much care about the “ism” that delivers the benefits, although whichever one does have to put common humanity first, as opposed to markets. Could be a second FDR saving capitalism, democratic socialism leashing and collaring it, or communism razing it. I don’t much care, as long as the benefits are delivered. To me, the key issue — and this is why Medicare for All is always first with me — is the tens of thousands of excess “deaths from despair,” as described by the Case-Deaton study, and other recent studies. That enormous body count makes Medicare for All, at the very least, a moral and strategic imperative. And that level of suffering and organic damage makes the concerns of identity politics — even the worthy fight to help the refugees Bush, Obama, and Clinton’s wars created — bright shiny objects by comparison. Hence my frustration with the news flow — currently in my view the swirling intersection of two, separate Shock Doctrine campaigns, one by the Administration, and the other by out-of-power liberals and their allies in the State and in the press — a news flow that constantly forces me to focus on matters that I regard as of secondary importance to the excess deaths. What kind of political economy is it that halts or even reverses the increases in life expectancy that civilized societies have achieved? I am also very hopeful that the continuing destruction of both party establishments will open the space for voices supporting programs similar to those I have listed; let’s call such voices “the left.” Volatility creates opportunity, especially if the Democrat establishment, which puts markets first and opposes all such programs, isn’t allowed to get back into the saddle. Eyes on the prize! I love the tactical level, and secretly love even the horse race, since I’ve been blogging about it daily for fourteen years, but everything I write has this perspective at the back of it.

35 comments

  1. Synoia

    In an ideal world, Draghi and others would have made the case for coordinated action to reintroduce national currencies ….

    As explained here at NC, that action would take years, be very costly, and like the majority of large IT projects could fail.

    Any possibility that 10, 13 or 15 countries could simultaneously execute such a large project, and deliver simultaneously, is ludicrous.

    Reply
    1. lyman alpha blob

      It also doesn’t seem very bright if your goal is to keep the EU together. The author suggests that the absence of option 1, parallel currencies, could lead to option 3, implosion of the EU.

      Seems to me the opposite is true. If the Greeks get their drachmas back then what’s to keep them from bolting?

      Reply
      1. Foppe

        ideally, what keeps them from bolting is a choice on the part of the EU to make the currently-poor and underdeveloped parts of the EU more liveable. At the very least, it should involve the EU ceasing to try and destroy the standard of living to benefit investors.

        Reply
    1. MisterMr

      I’m not sure why you think that local currencies would save the day. Each singular eurozone country could run in the same problem if by itself.
      The really big problem is the stability pact that puts an artificial limit to the debt/gdp ratio, but then if governments start thinking that the debt is too high they will still run in the same problem.

      Reply
      1. Marshall Auerback

        The problem goes WAY beyond the Stability Pact. So long as you divorce money from national sovereignty you have an illiberal anti-democratic foundation which, when placed in the hands of unelected technocrats, biases policy in favour of austerity. Sure, if Germany (and the others) all of a sudden agreed to scrap the borrowing limits in the SGP, allowed a mutualization of the country debts, created a Euro-wide FDIC type of system (backed by the ECB), then many of these problems could be resolved. And how likely do you think that is likely to be?
        More likely is a breakup of the eurozone with the countries being forced to redominate into national currencies. It could have been done far less painfully a number of years ago, but let’s not pretend that the current halfway house is worth sustaining.

        Reply
    2. The Rev Kev

      Would it be possible to introduce parallel currencies gradually? That is, national currencies that can be used for local purchases but Euros for cross-border transactions? The Wörgl Experiment is very suggestive of the possibilities.

      Reply
      1. Synoia

        The consensus here, on NC, was that parallel currencies are difficult if not impossible to manage.

        Almost on day 1 the banks have to process the second currency, and in itself a second currency is a gigantic IT project for the whole country.

        Gigantic IT projects have a high failure rate and long execution time.

        Reply
      2. Marshall Auerback

        Yes, I think parallel currencies are another possibility. The Italian MiniBot was dismissed out of hand by Brussels (typical), but it was potentially a very elegant solution. So we’ll probably have to wait for another crisis until something along those lines is considered again.

        Reply
  2. MisterMr

    IMHO, what is happening in the EU is this:

    – There are some democratically elected governments, who for a variety of reasons on the whole believe in austerity;

    – This causes some serious problems for the EU economy;

    – The ECB under Draghi had to step in by keeping the interest rate very low and adopt QE, which are a less good choice relative to government direct spending; the ECB has no democratic legitimacy, and certainly can’t direct government to spend more, so this is the most it can do;

    – While the problem is caused by the democratically elected goverments, it is much easier to put the blame on the ECB, which however had no other better option (as the OP states, for example, the ECB was more or less forced to impose the structural adjustment conditions.

    The reason for this is that the economic policies that the EU should put in place are basically anti-saver policies (like wealth taxes for example), but this is still politically and culturally unacceptable.

    So I think that blaming Draghi for destroying the democratic legitimacy of the EU is misleading, because the problem is not caused by a lack of democratic legitimacy, but rather by the fact the correct policies would run directly against the interests of a group of citiziens.

    Reply
    1. pebird

      European austerity is not a policy that citizens vote for. It is a structural feature of the Eurozone, that is managed and maintained by non-democratic institutions.

      Those countries that tried to democratically institute non-austerity policies have been stopped from doing so repeatedly.

      There is no democratic legitimacy to the EU, and I don’t really care whose fault that is.

      Reply
      1. MisterMr

        “European austerity is not a policy that citizens vote for.”

        European citiziens voted many times for pro-austerity governments. Speaking with friends who voted for M5S and/or the Lega (both “big deficit” parties) when I say that the government should run higer deficits they look me as if I was crazy.

        I have a coworkers who votes Lega, is ok with the mini-bot thing, but is also a fan of Hayek and thinks that the gold standard is a great idea.

        When Greece had the famous referendum, people voted to ignore the troika requests, but still at the time publico opinion was for keeping the euro.

        This is because people fear that they will have the same nominal wages with rising prices, and/or that the value of their savings will fall substantially.

        “There is no democratic legitimacy to the EU”
        The question is if there is democracy, not if there is “democratic legitimacy”, that is just a perception.
        “Democratic legitimacy” (the perception) falls when the economy goes bad, but the EU as a whole is more or less democratic.
        The only way to make it more democratic would be to have a president of the EU; the more you break the EU up the less democratic it becomes (because even if it disappears completely the member states have to live with each other).

        Reply
      2. Stadist

        European Union within the framework of Stability and Growth Pact (SGP) is the neoliberal dream. Neoliberals generally believe state to be a problem that needs to be controlled, well what better way there is to control the state than set strict limits for budgets. Current Finnish government already received a note from EU because the budget’s planned spending slightly exceeds the limits set by SGP.

        I wouldn’t go too far in blaming Draghi though, ECB council has had it internal conflicts and even current the actions taken by Draghi during his tenure have been heavily criticized by German representatives. Impossible to say what has happened there but I suspect that Draghi’s actions have been sort of a compromise, or the best he could do with the power and space given. Draghi called for Fiscal Action at the end of his tenure, either this is his newfound wisdom, or he has always believed this, impossible to say. Draghi and ECB are between rock and a hard place, the german rule-obsessed technocrats within ECB and EU oppose the ECB’s QE actions and fiscal action. Basically the german view to economic policy has been built into and extended to EU.
        Germany even seems to suggest always to debt problem countries that they need to reform and export more, i.e. follow the german model with Hartz reforms and trade surplus. Let’s just all export ourselves to prosperity, should be simple enough.

        I am not a really a fan of Draghi at any level, but his predecessor Jean-Claude Trichet was extreme inflation hawk and compared to Trichet Draghi was a definitive step towards better. I like to be realistic, Draghi hasn’t been a success by most measures, but a step to right direction from Trichet is still a step to right direction.

        Reply
    2. tegnost

      destroying the democratic legitimacy of the EU is misleading, because the problem is not caused by a lack of democratic legitimacy, but rather by the fact the correct policies would run directly against the interests of a group of citiziens.

      hmmm…maybe destroying democratic legitimacy was the goal of the euro, replacing it with technocratic expertise (otherwise known as smart people, but that might be a tell) who thought the correct policies were the ones that favored a small group of people who happen to be bankers and international corporations, and undermining the rights of the citizens in order to feed their never ending greed?

      Reply
      1. MisterMr

        When Italy choose to enter the euro, inflation was quite high. After Italy adopted the euro (1992) one of the main arguments of the right against the center left (that adopted the euro) was an alleged high consumer price inflation.

        The kind of inflation that is associated with keynesian policies is a wage price spiral, so that this particular kind of inflation is beneficial for workers.
        But when people speak of inflation, they mean only the “price” side of the wage price spiral, so that it is easy for pro austerity politicians to say that excess inflation is burning the real income of workers, and they can pass anti-inflation (austerity) policies on this logic.

        They just don’t say that the mean to stop the wage-price spiral is to squeeze wages, whopsie.

        However I think that this idea that the mayority of people is totally pro an high inflation policy is not true. The EU has a lot of pro-austerity governments because austerity sells well during elections, even though it shouldn’t.

        Even the UK, that was not part of the eurozone, adopted austerity policies (even though not as hasrh as those of Greece or Italy).

        “hmmm…maybe destroying democratic legitimacy was the goal of the euro”
        I have no idea of why you would think this, even if the EUcrats were completely and totally antidemocratic they would like to look democratic and have legitimacy.

        Reply
  3. Summer

    “Countries “saved” by the ECB were like hobbled wrecks, whose legs were broken every time they tried to stand on their own two feet.”

    Broken body parts – that’s what happens when dealing with loan sharks.

    Reply
  4. Jesper

    About:

    “also had the effect of ‘destroying the democratic legitimacy of government.’”

    Nobody wanted to provide the means for the government to spend -> Does that mean that Nobody is responsible for destroying the democratic legitimacy of government?
    The countries in trouble have long histories of having trouble finding someone to fund them. Are the previous troubles also due to Nobody? Was the democratic legitimacy of government being destroyed also back then?
    Draghi saved banks, possibly in the hope that by saving banks then the ‘economy’ would be saved. I supposed it was an attempt to follow the now discredited ‘trickle down (suck it up)’ economic theory. Possibly the rescue of the banks was done for other reasons.
    Of the three possible scenarios listed above then it seems to me that they are listed in order of probability that they’ll happen.

    Reply
  5. Chauncey Gardiner

    Who are the constituencies behind Draghi’s appointment and policies? Draghi would not have been appointed nor kept his job without their support. Negative interest rates, purchases of private sector bonds at face value, austerity, transfers of publicly owned assets into private hands, widespread unemployment concentrated among youth, diminished fiscal spending and legal powers at the national level… what’s not to like? Given his professional background prior to the ECB, Draghi’s call for increased state fiscal spending on his way out the door is highly questionable.

    The ECB’s policies under Draghi boil down to the politically dominant view of the social purpose for the creation and distribution of money, and even of the state itself. This lies at the heart of what’s so refreshing about MMT and the prospects for restoration of the social contract in the EU and elsewhere after 40 years of wandering in the neoliberal wilderness. But will ECB policies under Christine Lagarde, formerly Managing Director of the IMF, be materially different? Were the flaws in Maastricht by intent and design to enable exploitation, and given subsequent amendments is there the requisite political will to amend them?

    Low information American here.

    Reply
    1. MisterMr

      “Who are the constituencies behind Draghi’s appointment”

      He was lobbied in by Berlusconi IIRC.

      “Negative interest rates, purchases of private sector bonds at face value, austerity,”

      Negative interest rates are an anti-austerity policy. It just happens that negative interest rates are not enough to counteract the fiscal austerity imposed by the various governments (and by the stability pact).

      But you can’t blame Draghi for austerity/unemployment on the one hand and for negative interest rates/QE on the other, it’s contradictory. It’s like blaming a driver for turning too much right and too much left contemporaneously.

      Reply
      1. Chauncey Gardiner

        Respectfully disagree. Negative interest rates are a major policy error by both Draghi’s ECB, Kuroda’s BOJ and other CBs. Even if one accepts the view that negative interest rates were intended to increase spending, stop deflation and stimulate the economy to offset fiscal austerity, they have in practice had the opposite effects. This was belatedly acknowledged last week by JP Morgan’s CEO Jamie Dimon:
        https://www.cnbc.com/2019/10/22/jamie-dimon-on-negative-interest-rates-economic-slowdown-recession.html

        “Key Points

        • Negative interest rates have “adverse consequences which we do not fully understand,” Jamie Dimon, CEO of J.P. Morgan Chase, told CNBC-TV18 on Monday.
        • The European Central Bank last month pushed rates deeper into negative territory, while the Bank of Japan appeared to be laying the groundwork for a similar move.”…

        I’m reminded of a famous quote by former Yankee baseball catcher Yogi Berra:
        “In theory there is no difference between theory and practice. In practice there is.”

        Reply
        1. Bert Schtliz

          Yeah, negative interest rates are more political than anything. Central banks need to admit the party is over, but if they did, it would destroy a part of the pyramid scheme.

          So they try and act they are “doing stuff” to stimulate the economy when none of that is going on.

          Reply
        2. notabanktoadie

          There are two ways for Central Banks to produce negative rates – one ethical and the other involving welfare for the banks and the rich:

          1) The welfare for the rich and the banks method is for the Central Bank to buy assets from the private sector at negative yields, i.e. to overpay for assets. This is welfare proportional to account balance in the assets bought.

          2) The ethical method to produce negative rates is for the Central Bank to levy negative interest on private sector, including depository institutions, fiat accounts at the CB (aka “reserves” when the account holder is a depository institution) but with a negative interest free exemption for individual citizens up to a reasonable account limit. This will drive large fiat holders to desperately seek other inherently risk-free sovereign debt (e.g. US Treasuries) – thereby depressing the yields in those to negative too.

          Moreover, ALL the inherently risk-free debt of monetary sovereigns should return at MOST zero percent – otherwise we have welfare proportional to account balance, a moral obscenity.

          Reply
          1. notabanktoadie

            That is, all NEW inherently risk-free debt of monetary sovereigns should return at MOST zero percent – since I don’t advocate reneging on existing sovereign debt.

            Reply
        3. Stadist

          I agree with you, but still looking at where Draghi is standing and what kind of policies he can enact with the pressure coming from ECB council’s german austerity wing, one can’t be helped but be reminded of the proverb: “When all you have is a hammer, every problem starts to look like a nail.”

          Even the ECB’s QE wasn’t really unprecedented or innovative action, it had been used before in USA and Japan. The finnish ECB president candidate Olli Rehn has implied in interviews that ECB council had considered many different options with the current situation, and the same probably happened around Draghi’s ‘whatever it takes’ action. It looks like to me that QE could be approved despite Germany’s resistance because there was a precedent case of it working successfully. What I mean to say is that even ECB seems to work in extremely conservative manner, mostly thanks to the germans(?), and the decision making process within the ECB seems fairly dysfunctional so not that much different from the EU itself which has hard time agreeing on or enacting any larger changes to the EU. Even the ECB governing council appears to me not as some supreme technocratic collection of wisdom to guide the ECB but rather as a another political theater where individual member countries (especially Germany) are trying to push through politics that benefit themselves. There is no solidarity.
          Draghi’s failures are even more so the ECB governing council’s failures.

          Reply
    2. Summer

      “Who are the constituencies behind Draghi’s appointment and policies? Draghi would not have been appointed nor kept his job without their support….”

      Should be asked every day about all the spokespeople puppets put in front of the cameras and microphones.

      Reply
  6. notabanktoadie

    “Super Mario” saw the euro as a means of breaking the country from its so-called addiction to fiscal profligacy, which is an economic way of describing national autonomy. Marshall Auerback

    Government privileges* for the banks mean they can create vastly more deposits (IOU’s for fiat) than they otherwise could without those privileges.

    But, assuming an equal propensity to cause price inflation, then all private bank deposit creation for the private welfare of banks and the so-called “credit worthy” comes at the expense of sovereign spending for the general welfare – for a given amount of politically acceptable price inflation risk.

    But there isn’t an equal equal propensity to cause price inflation, is there? And thus privileges for the banks are tolerated as an anti-inflation measure?

    But here’s another approach: abolish all privileges for “the banks” and replace all fiat creation beyond that created by deficit spending assuredly for the general welfare with an equal Citizen’s Dividend. And you can be sure that citizens do not usually waste their incomes, all other things being equal.

    *Such as a SINGLE (besides mere physical fiat, coins and paper bills) payment system that must work through private depository institutions or not at all.

    Reply
  7. Klaus Kastner

    The European Union holds 4 principles sacrosanct (the “4 freedoms” – products, services, people, capital). I would argue that for some countries, 2 of these principles are more than they can handle: free movement of products gave Greece current account deficits beyond imagination and freedom of capital flows gave Greece the loans to finance those deficits in previously unimaginable dimensions. Free movement of capital also resulted in money coming into the country as loans and leaving it as private capital flight. If rich Italians can protect their financial assets by transferring them to German banks while official institutions from abroad finance that exercise, something is rotten in the system.

    Reply
  8. Susan the Other

    Has the rest of the industrialized world spent China out of poverty? By massive overconsumption? Is there a plan in the works to do the same in Africa? There are enormous profits for those people who set up international corporations – that money, profit, does not all remain “international” however – it becomes private gain. So lotsa private gain is involved in indirectly dragging a poor country out of its poverty, rather than direct fiscal spending. It’s a vicious circle – that money in turn needs to be plowed back (as now from China to Africa) to make the capitalist rules work and promoting destructive overconsumption. This economic model has run its course. Now we are stuck with industrial dysfunction. In addition to this we are stuck with one or both of these 2 possibilities: climate change and depleted oil reserves. This is important because oil has been the bedrock of the global economy. And also these realities: environmental pollution and destruction; ocean rise; crazy weather; insurance bankruptcies; the living contradiction of crashing demographics and food insecurity; saturated markets with little demand; massive welfare requirements; debt hysteria and financial oxymorons like collateral rehypothecation and a securitized “food chain” of debt. No wonder the only thing we can do is simply throw money at it. We are idiots. It’s not working. For the EU to allow sub currencies to deal with state economies or for it to sovereignize the ECB to provide infinite credit is 6s. Bills need to be paid even though they keep accumulating exponentially. Why can’t we listen to good advice. Steve Keen; Michael Hudson; Richard Murphy? Richard Murphy’s bedrock idea to begin allowing bankruptcies based on the cost of “carbon” is such a good idea. “Carbon bankruptcy” could be applied beyond corporations frantically seeking diminishing profits from the efficiencies of fossil fuels (even as the world burns). We should consider the entire planet to be a corporation – Corporation Earth – with many different subsidiaries and departments. If we used our present accounting technology and did allow for carbon bankruptcies we could bet rid of the overburden of all the carbon derived debt we have been carrying and servicing. Our budgets could be managed and the money spent would be redirected from insane debt/profit service to universal well being and fiscal maintenance. We argue over this because we can’t do both. We have to choose.

    Reply
    1. Chauncey Gardiner

      Thanks for a very thoughtful comment, STO. We are seeing a microcosm of these issues playing out in real time with the tragic California wildfires and PG&E Corp.

      Some months ago, Richard Murphy cited this related tweet by Patrick Jahnke:

      “Capitalism also has a severe problem with the very long term because of the tyranny of the discount rate, anything that happens to a corporation over 25 years out doesn’t exist for them. Therefore, grandchildren, I like to say, have no value.”

      Some legacy macroeconomics, accounting, and finance policies, tools and models are open to question. And, I agree, we do have to choose. Maybe Draghi won’t be remembered at all.

      Reply
  9. Bert Schtliz

    Austerity is frankly irrelevant. Without enough new products to keep investment ramped, capitalism fails. That is essentially post-tech revolution breakdown we have had since 2007 on a global scale(in the US, back to 2001). Now Chindia is no longer investing killing commodity production globally.

    Overcapacity is rearing its head. As I said in another post, time for the junkie to withdrawal for awhile, oh that pyramid scheme, when it fails. Not all junkie’s make it.

    Remember:
    Pyramid vs. Circular. Any socialist that doesn’t support the latter is not a socialist.

    Reply
    1. notabanktoadie

      Overcapacity is rearing its head.

      Rather, the population can’t afford the production their legally stolen* purchasing power has financed.

      Otherwise, in the US, no less, we would not have homelessness, poor schools, decaying infrastructure, unaffordable health care, etc.

      The problem is not overproduction but injustice.

      *via government privileges for a usury cartel.

      Reply

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