Category Archives: Economic fundamentals

Michael Hudson: Breakup of the euro? Is Iceland’s rejection of financial bullying a model for Greece and Ireland?

Yves here. This piece describes how voter opposition may derail rule by bankers via IMF, European Commission, and ECB austerity programs in Europe.

By Michael Hudson, a research professor of Economics at University of Missouri, Kansas City and a research associate at the Levy Economics Institute of Bard College. Cross posted from CounterPunch.

Last month Iceland voted against submitting to British and Dutch demands that it compensate their national bank insurance agencies for bailing out their own domestic Icesave depositors. This was the second vote against settlement (by a ratio of 3:2), and Icelandic support for membership in the Eurozone has fallen to just 30 percent. The feeling is that European politics are being run for the benefit of bankers, not the social democracy that Iceland imagined was the guiding philosophy – as indeed it was when the European Economic Community (Common Market) was formed in 1957.

Marshall Auerback: To Save the Euro, Germany Has to Quit the Eurozone

By Marshall Auerback, a portfolio strategist, hedge fund manager, and Roosevelt Institute fellow

When the euro was launched, leading German politicians used to argue, with evident relish (and much to the chagrin of the British in particular), that monetary union would eventually require political union. The Greek crisis was precisely the sort of event that was expected to force the pace. But, faced with a defining crisis, Ms Merkel’s government is avoiding airy talk of political union – preferring instead to force harsh economic medicine down the throats of the reluctant Greeks, Irish, Portuguese and Spanish electorates. This is becoming both economically and politically unsustainable. If the objective is to save the currency union, perhaps policy makers are looking at this the wrong way around. In the end, paradoxically, to save the European Monetary Union, the least disruptive way forward would be for the Germans, not the periphery countries, to leave.

Philip Pilkington: Beyond growth – are we entering a new phase of economic maturity?

By Philip Pilkington, a journalist and anti-economist writing from amidst the devastated ruins of Dublin, Ireland

All successful revolutions are the kicking in of a rotten door – JK Galbraith

What’s the easiest way to embarrass an economist? Okay, that’s a bit of a trick question. After all, economics is a pretty embarrassing profession and there are a million questions you could put to an economist that would likely turn his or her cheeks red. You could, for example, approach your typical ‘academic of ill-repute’ and ask them if they saw the bursting of the US housing bubble coming or the unsustainable debt-overload that accompanied it – yep, that would probably do the trick.

One topic that does cause your average economist a lot of brain-bother, though, is the environment. After all, everyone and their cat cares about the environment these days, but such concern seems irreconcilable with the ‘infinite growth’ assumptions of most economists. It has long been pointed out by environmentalists, concerned citizens and the sane how, if we are to prevent global warming from melting the planet, we have to put some sort of a ceiling on economic growth and industrial development. This is a truly pressing concern – yet it appears that economists and policymakers simply cannot integrate it into their worldview.

But here’s an uplifting thought: what if History is doing our work for us? What if we are already entering a sort of ‘post-growth’ world?

More Worries About the Foreclosure Overhang

The New York Times provides a workmanlike update on the impact of current and probable foreclosures on the housing market. The odd bit is that even though the article is downbeat, it manages to be relatively optimistic compared to industry sources.

Marshall Auerback: IMF’s Predatory Policies Likely to Continue with New Leadership

By Marshall Auerback, a portfolio strategist and hedge fund manager. Cross posted from New Deal 2.0.

It doesn’t matter who leads the IMF when the institution is governed by ideology.

Greece and Ireland appear to have lost an important political ally with the sidelining of Dominique Strauss-Kahn as both plead for more financial assistance from European partners to avoid an early restructuring of debt. The key word is “appears,” as in truth, arsenic remains arsenic, even if it is coated in sugar by an ostensible champagne socialist like Mr. Strauss-Kahn.

On Short-Termism and the Institutionalization of Rentier Capitalism

Andrew Haldane and Richard Davies of the Bank of England have released a very useful new paper on short-termism in the investment arena. They contend that this problem real and getting worse. This may at first blush seem to be mere official confirmation of most people’s gut instinct. However, the authors take the critical step of developing some estimates of the severity of the phenomenon, since past efforts to do so are surprisingly scarce.

A short-term perspective is tantamount to applying an overly high discount rate to an investment project or similarly, requiring an excessively rapid payback. In corporate capital budgeting settings, the distortions are pronounced:

David Apgar: Trash Trichet’s Stockholdings to Save the Euro Zone

By David Apgar, the founder of ApgarPartners LLC, a firm that helps companies and development organizations learn by treating goals as assumptions to be tested by performance results. He blogs at www.relevancegap.blogspot.com.

The best hope for the euro zone may be to find a few bank stocks rattling around in European Central Bank (ECB) Governor Trichet’s brokerage account. There’s no chance that the long-time French civil servant would compromise his policy views to benefit himself, but it’s the kind of made-for-muddled-media factoid that, if found, could put a quick end to the farce he and the ECB perpetuate in pretending Greece is not bankrupt. Europeans tolerate this farce and the crisis it prolongs only because it will suppress the euro and block export-led recovery in the US. And if there’s one thing more attractive to the Euro-policy crowd than ending a crisis of the euro, it’s blocking US recovery.

A leader in this week’s Economist lays out the dimensions of the problem.

Marshall Auerback: Revenue Sharing for the States – How It Works, Why We Need It and Why Nixon Liked It!

By Marshall Auerback, a portfolio strategist and hedge fund manager. Cross posted from New Deal 2.0.

States are being cut off just at the time they most need federal assistance. Revenue sharing would be a winning strategy for the economy and for Obama.

Raghuram Rajan on Delineating the Role of Government

In this interview, Rajan, who famously told Greenspan at his last Jackson Hole conference that recent changes in financial services industry policy had increased risk, takes on the question of the role of government. He contends that economists have neglected this issue due to overspecialization.

On the Treasury’s Curious Denial That Geithner Blocked Deal on Irish Debt

This is getting interesting. The US Treasury has roused itself to issue a narrow denial of an op-ed in the Irish Independent by one of Ireland’s most highly respected economists (by virtue of his having predicted a very severe housing crash), Morgan Kelly. To recap briefly, Kelly said that the IMF was willing last November to haircut €30 billion of unguaranteed bonds by roughly two-thirds on average, but that Geithner’s disapproval on a conference call killed the idea:

The deal was torpedoed from an unexpected direction. At a conference call with the G7 finance ministers, the haircut was vetoed by US treasury secretary Timothy Geithner who, as his payment of $13 billion from government-owned AIG to Goldman Sachs showed, believes that bankers take priority over taxpayers. The only one to speak up for the Irish was UK chancellor George Osborne, but Geithner, as always, got his way.

The Irish Independent today reported on the Treasury’s objection:

Marshall Auerback: Obama Needs to Get Serious About Jobs

Yves here. I have no doubt that some readers will give a knee jerk negative response to the idea of aggressive measures to create more jobs, seeing it as undue government intervention in the economy.

But that horse has left the barn and is now in the next county. Like it or not, the economic damage done by the financial crisis was too severe for governments to sit on their hands. So the question is not intervention versus no intervention, but what sort of intervention is most likely to be salutary? That means the benchmark is not doing nothing, but the measures taken thus far, which consist heavily of overt and hidden subsidies to the financial sector.

By Marshall Auerback, a portfolio strategist and hedge fund manager. Cross posted from New Deal 2.0

A universal Jobs Guarantee Program could free us from the predations of politicians and foster a strong economy.

On the anniversary of the inauguration of the Works Progress Administration (WPA), it is striking to compare the unemployment record of Franklin Delano Roosevelt, and that of his modern day successor, Barack Obama. FDR’s achievements in putting Americans back to work are among the most impressive of his tenure; he took the rate from 25% to 9.6% by 1936. But so far, Obama’s policies have failed to “jump-start” unemployment in a significant way, even as Wall Street has continued a recovery utterly and totally divorced from Main Street.

Geithner Blocked IMF Deal to Haircut Irish Debt

Was the US Treasury Secretary’s deep sixing of a plan by the seldom-charitable IMF to give the Irish some debt relief Versailles redux? By that I mean the Treaty of Versailles, the agreement at the end of World War I devised by the victors to dismember the German economy. Bear with me as I tease out this conceit.