Category Archives: Macroeconomic policy

Michael Hudson: The Financial Road to Serfdom – How Bankers are Using the Debt Crisis to Roll Back the Progressive Era

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.

Financial strategists do not intend to let today’s debt crisis go to waste. Foreclosure time has arrived. That means revolution – or more accurately, a counter-revolution to roll back the 20th century’s gains made by social democracy: pensions and social security, public health care and other infrastructure providing essential services at subsidized prices or for free. The basic model follows the former Soviet Union’s post-1991 neoliberal reforms: privatization of public enterprises, a high flat tax on labor but only nominal taxes on real estate and finance, and deregulation of the economy’s prices, working conditions and credit terms.

Steve Keen: Dude! Where’s My Recovery?

By Steve Keen, Associate Professor of Economics & Finance at the University of Western Sydney, and author of the book Debunking Economics. Cross posted from Steve Keen’s Debtwatch.

I initially planned to call this post “Economic Growth, Asset Markets and the Credit Accelerator”, but recent negative data out of America makes me think that this title is more in line with conversations currently taking place in the White House.

According to the NBER, the “Great Recession” is now two years behind us, but the recovery that normally follows a recession has not occurred. While growth did rise for a while, it has been anaemic compared to the norm after a recession, and it is already trending down. Growth needs to exceed 3 per cent per annum to reduce unemployment—the rule of thumb known as Okun’s Law—and it needs to be substantially higher than this to make serious inroads into it. Instead, growth barely peeped its head above Okun’s level. It is now below it again, and trending down.

The ECB’s Target2 activities are not constraining German credit growth

Cross-posted from Credit Writedowns Perhaps you have seen Hans-Werner Sinn’s incendiary commentary from 1 Jun on the ECB’s stealth bailout. Well, Karl Whelan who has many years’ central bank experience finds that “Professor Sinn’s analysis is incorrect and that his policy prescriptions are extremely dangerous”. He wrote a recent post at Vox, which Credit Writedowns […]

William Dudley on Economic Policy

Cross -posted from Credit Writedowns New York Fed Chief William Dudley gave a speech yesterday called “U.S. Economic Policy in a Global Context” (hat tip Yves Smith). Dudley’s overall aim was to show that one must regard US policy in an international context and not based on domestic factors alone. I think the whole Speech […]

Philip Pilkington: Down in the Hole – Is America Becoming the Next Japan?

Philip Pilkington is a journalist currently sinking, together with the rest of his fellow countrymen, down into the hole in the Irish banking system

Will all your money
Keep you from madness
Keep you from sadness
When you’re down in the hole

Cause you’ll be down in the gutter
You’ll be bumming for cigarettes
Bumming for nylons
In the American Zone
–‘Down in the Hole’, The Rolling Stones

Everyone who is anyone is saying it: the US looks set to become the next Japan. Yet the particulars of the argument are never really trashed out. Certainly both countries suffer from the same malady – namely, a bursting asset bubble punching gigantic holes in private sector balance sheets. This leads to similar policy approaches – not to mention similar policy failures. But beyond this overarching comparison people tend not to tread.

Let’s start from the beginning; the asset bubbles that set off the crises.

Alexander Gloy: Merkel to Sinn: “In my office. NOW.”

Yves here. Outbreaks of candor and foresight among the political classes are so rare that they bear watching. As Gloy’s sighting suggests, they have to be arrested quickly lest they prove to be contagious.

By Alexander Gloy, CIO of Lighthouse Investment Management

Hans-Werner Sinn, head of German research institute Ifo, has just put his life into peril. He had to pick a Swiss magazine (“Bilanz”) to express what nobody else is allowed to mention in Germany: “Greece is a bottomless barrel”.

Michael Hudson: Will Greece Let EU Central Bankers Destroy Democracy?

Yves here. This is a long and important post. Hudson reports that he has gotten a great deal of correspondence from Greece saying that articles like this arguing against the pending stripping of Greece by banks are being translated and circulated widely to provide moral support. If you cannot read this piece in full, please be sure to read the discussion at the end of how Iceland stared down its foreign creditors.

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.

Promoting the financial sector at the economy’s expense

When Greece exchanged its drachma for the euro in 2000, most voters were all for joining the Eurozone. The hope was that it would ensure stability, and that this would promote rising wages and living standards. Few saw that the stumbling point was tax policy. Greece was excluded from the eurozone the previous year as a result of failing to meet the 1992 Maastricht criteria for EU membership, limiting budget deficits to 3 percent of GDP, and government debt to 60 percent.

The euro also had other serious fiscal and monetary problems at the outset. There is little thought of wealthier EU economies helping bring less productive ones up to par, e.g. as the United States does with its depressed areas (as in the rescue of the auto industry in 2010) or when the federal government does declares a state of emergency for floods, tornados or other disruptions. As with the United States and indeed nearly all countries, EU “aid” is largely self-serving – a combination of export promotion and bailouts for debtor economies to pay banks in Europe’s main creditor nations: Germany, France and the Netherlands. The EU charter banned the European Central Bank (ECB) from financing government deficits, and prevents (indeed, “saves”) members from having to pay for the “fiscal irresponsibility” of countries running budget deficits. This “hard” tax policy was the price that lower-income countries had to sign onto when they joined the European Union…..

At issue is whether Europe should succumb to centralized planning – on the right wing of the political spectrum, under the banner of “free markets” defined as economies free from public price regulation and oversight, free from consumer protection, and free from taxes on the rich.

The crisis for Greece – as for Iceland, Ireland and debt-plagued economies capped by the United States – is occurring as bank lobbyists demand that “taxpayers” pay for the bailouts of bad speculations and government debts stemming largely from tax cuts for the rich and for real estate, shifting the fiscal burden as well as the debt burden onto labor and industry.

Bribes Work: How Peterson, the Enemy of Social Security, Bought the Roosevelt Name

Bribes work. AT&T gave money to GLAAD, and now the gay rights organization is supporting the AT&T-T-Mobile merger. La Raza is mouthing the talking points of the Mortgage Bankers Association on down payments. The NAACP is fighting on debit card rules. The Center for Budget and Policy Priorities and the Economic Policy Institute supported the extension of the Bush tax cuts back in December. While it seems counter-intuitive that a left-leaning organization would support illiberal extensions of corporate power, in fact, that is the role of the DC pet liberal. This dynamic of rent-a-reputation is greased with corporate cash and/or political access. As the entitlement fight comes to a head, it’s worth looking under the hood of the DC think tank scene to see how the Obama administration and the GOP are working to lock down their cuts to social programs.

And so it is that the arch-enemy of Social Security, Pete Peterson, rented out the good name of Franklin Delano Roosevelt, the reputation of the Center for American Progress, and EPI. All three groups submitted budget proposals to close the deficit and had their teams share the stage with Republican con artist du jour Paul Ryan. The goal of Peterson’s conference was to legitimize the fiscal crisis narrative, and to make sure that “all sides” were represented.

Now this tidy fact is not obvious if you check the Peterson Foundation publicity for its “Fiscal Summit:”

Quelle Surprise! Consumer Confidence Falls on Oil Prices, Housing, Job Outlook

Is the latest consumer confidence release yet another example of elite disconnect? One of the things that has become striking is the degree to which the chattering classes in New York and Washington DC seem utterly unaware of what is happening in the rest of the country. New York City is doing reasonably well based on the heroic efforts by the officialdom to prop up the major capital markets firm; DC is recession immune and more recently awash in lobbying funds. The influences range from visual signals (I had a friend visiting from Boston remark how striking it was that there were so few shuttered storefronts here in NYC) to continued Administration cheerleading (a constant since the 2009 bank stress tests). And since major media stories about the economy are driven by sources in these two cities, it feeds into business reporting.

Are Fissures in Europe Worse Than Media Reports Suggest?

Thanks to an alert NC reader, we featured in Links more than a month ago the fact that Denmark, contrary to the spirit of the Eurozone, was implementing border controls. Today, a hand-wringing comment by Peter Spiegel, the Financial Times’ bureau chief in Brussels, describes how sentiment against Eurozone integration has risen among the locals. The near-victory of the nationalist True Finns, regime change in Ireland and Portugal, and demonstrations in Spain, Greece, and Portugal suggest that the citizenry is increasingly unhappy. Spiegel describes the Netherlands as “the California of Europe” and describes in some detail how it opposed the recent €440 billion rescue fund, opposed recent efforts to ntegrate the western Balkans into the EU to i, and demanded reform of immigration policies.

Perhaps I am projecting US tendencies onto the EU, but I see the same signs of elite isolation ther as we have here (in the US, it’s a New York-Washington bubble that includes finance, government officials, and major media).

Stephanie Kelton: What Happens When the Government Tightens its Belt?

Yves here. This post is certain to annoy some readers. Note that Kelton does not address under what circumstances it is desirable to have the government run a surplus versus a deficit, merely what the implications are. Bill MItchell is rather forceful on this matter:

The US press was awash with claims over the weekend that the US was “living beyond” its “means” and that “will not be viable for a whole lot longer”. One senior US central banker claimed that the way to resolve the sluggish growth was to increase interest rates to ensure people would save. Funny, the same person also wants fiscal policy to contract. Another fiscal contraction expansion zealot. Pity it only kills growth. Another commentator – chose, lazily – to be the mouthpiece for the conservative lobby and wrote a book review that focused on the scary and exploding public debt levels. Apparently, this public debt tells us that the US is living beyond its means. Well, when I look at the data I see around 16 per cent of available labour idle in the US and capacity utilisation rates that are still very low. That tells me that there is a lot of “means” available to be called into production to generate incomes and prosperity. A national government doesn’t really have any “means”. It needs to spend to get hold off the means (production resources). Given the idle labour and low capacity utilisation rates the government in the US is clearly not spending enough. The US is currently living well below its means. But the US government can always buy any “means” that are available for sale in US dollars and if there is insufficient demand for these resources emanating from the non-government sector then the US government can bring those idle “means” into productive use any time it chooses.