Posts Tagged ‘Debt Crisis’

Depression’s Causes: Righteousness & Viciousness

October 14, 2014

TODAY’S GREATER DEPRESSION HAS MANY DEEP CAUSES

Slowly rising consensus: in some important ways (evolution of relative GDP; employment rate; public investment; education’s relative performance), the economies of the leading countries are doing worse than during the “Great Depression” of the 1930s.

That’s why I prefer the expression “Greater Depression” to “Great Recession”.

And we have seen nothing yet: the cause of the “Greater Depression” of the 1930s was a chain of errors, which were easy to avoid.

(First a splurging in the 1920s, especially in the USA and Britain, and its unavoidable attending crash compounded by the American Senate’s arrogance that the international economy could be tweaked through tariffs, to profit only the USA, the whole thing followed by collapse of international trade and then by “liquidating everything” (as was said at the time).)

Thus, the roots of Depression of the 1930s were shallow, easy to avoid next time: avoid splurging, keep international trade going, use public money to avoid 9,000 bank failures (in the USA alone), and institute a FDIC (Federal Deposit Insurance Corporation: Europe’s “Banking Union” is trying to mimic that).

There are serious problems now, much more serious than in the 1930s. Including a lack of seriousness.

Serious reasons for collapse caused the long decline of the Roman Empire, or struck shortly after 1300 CE, when entangled ecological, climate, demographic, and plutocratic crises, with an attending plague, combined to kill half of Europe, and brought five centuries of war.

Indications are that the world economy, having not really recovered from the 2008 crisis, is stumbling. Especially Europe. Population: more than 750 million (EU + Russia, etc.).

Why? Why not?

In the 1930s, the government of the USA, first under Hoover, and then much more spectacularly under Roosevelt, starting in 1933, made Herculean efforts (in public spending, and legislation). Nowadays, it’s quite the opposite.

Paul Krugman suggests that righteousness is the cause of this decline: see the obstinate Merkel, and the refusal to do away with high debt levels.

In “Revenge of the Unforgiven. How Righteousness Killed the World Economy”, Krugman observes that:”…now [world] growth is stalling, and the specter of deflation looms.

If this story sounds familiar, it should; it has played out repeatedly since 2008. As in previous episodes, the worst news is coming from Europe, but this time there is also a clear slowdown in emerging markets — and there are even warning signs in the United States, despite pretty good job growth at the moment.

Why does this keep happening? After all, the events that brought on the Great Recession — the housing bust, the banking crisis — took place a long time ago. Why can’t we escape their legacy?

The proximate answer lies in a series of policy mistakes: Austerity when economies needed stimulus, paranoia about inflation when the real risk is deflation, and so on. But why do governments keep making these mistakes? In particular, why do they keep making the same mistakes, year after year?

The answer, I’d suggest, is an excess of virtue. Righteousness is killing the world economy.”

Notice that brandishing righteousness diverts attention away from full blown viciousness (which I believe is dominant). Then Krugman presents a small fraction of the problem, affecting to believe naively that high debt is the cause of everything:

“What, after all, is our fundamental economic problem? A simplified but broadly correct account of what went wrong goes like this: In the years leading up to the Great Recession, we had an explosion of credit (mainly to the private sector). Old notions of prudence, for both lenders and borrowers, were cast aside; debt levels that would once have been considered deeply unsound became the norm.

Then the music stopped, the money stopped flowing, and everyone began trying to “deleverage,” to reduce the level of debt. For each individual, this was prudent. But my spending is your income and your spending is my income, so when everyone tries to pay down debt at the same time, you get a depressed economy.

So what can be done? Historically, the solution to high levels of debt has often involved writing off and forgiving much of that debt.”

This is a solution I have advocated since 2008. See “Reforming World Finance”, from November 2008, when I naively still hoped my friend Obama would grab the bull by the horns, as if he were courageous, or something. None of these obvious reforms was implemented, but at least now an economy Nobel was given roughly in this direction (see yesterday’s essay).

The 2011 version is: “To Save The World, Please Default (And Grab Capital From the Conniving Plutocrats)

Iceland and Greece did write-off some debt. They had no choice.

However, debt forgiveness is only part of the problem (Oh, by the way, full disclosure: I have zero debt, so if I were biased, it would be the other way!)

The nature of the old debt, and the nature of the new debt are the core problems.

Debt because housing prices are through the roof comes from lack of building. Debt because of enormous leverage by public-private banks and companies involved in financial horror to steal We The People, is still something else.

The erroneous nature of the debt has misaligned the entire economy. We live in a world where there are master sommeliers. And where millions of people are tickled pink by the idea of being waited by a master sommelier, somebody who can look through a bottle thanks to the light of a candle, he expertly lighted, to stop exactly before the deposit at the bottom gets into the clear wine.

But then there was not enough money, or interest, to invent an ebola vaccine. Civilization is drunk, Bacchus is god, and Death invited to the party.

The entire debt machinery is stuck. Banks have lent to financial conspirators for decades, and are still doing it ever more. This sort of debt ought not to exist. (Bankers have been conspiring to steal on the currency markets, the administration of the USA claims to have just discovered, hinting that this time some bankers may be prosecuted personally. Maybe. Perhaps. We will see… But that sort of outright criminal activity is different from stealing by giving money only to one’s friends and co-conspirators.) What is needed for civilization to survive, is debt that brings new high Return On Investment for We The People. That could be new tech, or new housing, new, sustainable energy sources (my eye being on thermonuclear fusion, a field where power is growing according to its own “Moore Law”, that means, exponentially; to provide clean BASE energy). Plutocracy naturally is not interested by We The People flourishing. Just the opposite: Pluto thrives on misery. That’s the part of the economy which no one very serious, and part of the oligarchy, wants to see.

Even normal people do not want to see it: it’s too depressing, and they don’t know what to do.

Moreover plutocracy is entangled with a more far-out explanation of the present economic distress: the world is getting old, as the Romans used to say. The Romans needed to transit from the old economy, to a new one. As we do. Paralyzed, mesmerized and occupied by plutocracy, the Romans could not even conceive of the notion (all the more as some zones of the empire, especially in the Orient saw their GDP climbing all the way until the barbarians invaded, archeology shows). Roman mines got exhausted, regions which used to produce lots of food became poor, Return on Investment of many activities collapsed,. there were not enough slaves, nor small farmers to support production, or the army, the economy and security organized until then by the state faltered, from too small tax revenues, and finally the middle class and local government (the “curiales”) were destroyed by taxation, while plutocrats went on a rampage, grabbing most powers. Romans had to make transitions (new tech, no more slavery, less plutocracy!) They didn’t. We are in a similar crisis. ROI is collapsing, so is the biosphere. Robots are threatening to destroy much employment all together. The notion of productive activity, thus productive debt, has to change, forgiven or not.

Krugman himself concludes that the debt crisis will not abate. He does not say why. I will: it’s not just out of mental inertia, it’s out of viciousness.

Some will say I exaggerate. Not so. Look at Italy. The government debt is around 145% of GDP, and pays more than 3% interest. So it augments at the clip of around 5.5% a year. To diminish that debt, nominal Italian GDP ought to grow at more than 5.5% a year. But guess what? Not only is Italy not growing, but Italian GDP is smaller now than 14 years ago (with a larger population).

There is only one way out: default. That is tell the plutocrats that they can forget their money, or, more exactly, treating We The People as if we were indentured servants, or serfs. I rest my case.

Patrice Ayme’

Constitutional Crisis

October 11, 2013

BEYOND THE DEBT CRISIS, A CONSTITUTIONAL CRISIS:

What’s the problem with the debt of the USA? Well, it can be viewed as worse than the debt of most European countries whose debt led to confidence crises (see the second paragraph below).

This debt crisis has become a government by the fools, for the fools, and it is starting to look foolish, even to the fools. It’s also bringing up constitutional questions, namely on the constitution of the USA, which is really very different from that of other democracies.

It’s no happenstance that no country has a constitution similar to that of the USA. A situation like the present one is simply impossible in other democracies, because new elections are automatically called when a budget cannot be passed. Generally it does not even get to this stage, because a no confidence vote is called well before that (as just happened in Italy).

It’s only normal that the legislative branch would be called to execute the law. However, in the USA, the legislature does not have to govern.

A legislature that does not have to govern does not have to be realistic.

Some will say: so what? The history of the USA show an incapacity to adapt to progress. The Civil War in the USA was, by far, the most deadly civil war in the West since the religious wars of the sixteenth and seventeenth centuries (it killed an order of magnitude more than the French revolution, relative to population). Adjustments could not be made in Congress, until a full blown war.

After the war, it took a century to get rid of institutionalized racism. And I have advocated the point of view that, for a century, plutocracy in the USA has been gathering steam. It leveraged World War Two, and related events leading to it, and following it, that it organized. Now global, the plutocracy installed the 2007 crisis, making the People pay for it, before, during and after.

Right now, sequestration is already a disaster (say on long term scientific and medical research). The evolution of employment, and of the median income, are also disasters. All what the plutocrats want is to starve the beasts, and the beasts are us, the Public.

For the plutocrats, the Republic, as long as it exists, is only a machine to make the richest thrive. And bonds, and Quantitative Easing, are crucial that way.

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MORE DETAILS, & A DEEPER ANALYSIS:

USA debt: The total debt of the government of the USA is 16.7 trillion dollars (more than GDP; the number can look smaller when one looks only the debt “held by the public”, but that’s obviously not the important number).

The cash deficit, under Obama, reached 12.5% of GDP. Now it’s 5% and shrinking, thanks to unsustainable “sequestration”, a sort of amputation of the brain to make the patient lose weight. That, realized the bipartisan research arm of Congress, will actually augment the deficit. Very soon, considerably, and durably.

Many take for granted that a country like the USA cannot default, because its debt is in its own currency. That statement is so absurd, so anti-factual, it’s hard to answer. Countries which defaulted in their own currencies are legions. A recent major example is Argentina, which defaulted in 2001-2002. Notice:

1) the banks of the USA operating in Argentina made like bandits from that default.

2) Argentina is still trying to recover from that shock.

The reason why a damaging default for the USA is hard to imagine are the following;

1) The USA is completely self sufficient in nearly everything. The USA is the largest fossil fuel and gas producer in the world (with 22 million barrels a day). It also has the largest sea empire (slightly larger than France’s!), and resources therein.

2) The USA has by far the most powerful, most autarkic military, perfectly capable of protecting 1)… And more.

3) The dollar is the world’s reserve currency (although a second one has appeared: the euro!) The dollar is also low relative to the euro. Thus a serious down swing in the dollar is unlikely, and anyway, irrelevant, as planet USA is totally self sufficient (see 1))

But, precisely, that makes it possible for the USA to default!

It reminds me somewhat of the relationship between Spain and… China. China needed Bolivian silver (from Potosi), to strike a currency worth something (after disastrous paper inflation under the Yuan). China had silk and many other precious goods.

The interface between the co-dependent empires, was next to Manila. The Chinese established a powerful Chinatown. Way too powerful: the Spaniards at some point took umbrage, and annihilated it, killing all. What did the Chinese do? Well, they came back, and established another mighty Chinatown, crucial to the Spanish empire. And then the Spaniards had enough, and annihilated it, killing all. And the Chinese came back.  

There always will be USA bonds, they will always come back, as long as there is a Pentagon, and it’s mightiest. But there will not necessarily be a democracy in the USA.

Examples are plenty, in history, of republics that became plutocracies. It happened to Sparta. It happened to Athens. It happened to Rome. Even the European empire of the Franks, initially successful because it was less plutocratic than Rome, became riddled with plutocracy, seven centuries later. Florence, started as a republic, also evolved, after two centuries, into a plutocracy. The people loving, enlightened monarchy of Henri III and Henri IV, turned, within a generation, into the horrendous plutocracy of Louis XIV.

Progress can definitively go backwards. History clearly show that republics are the exception, and plutocracies, the rule.

***

Patrice Ayme

How Wall Street Occupies Minds

December 4, 2011

OCCUPY WALL STREET, OR WALL STREET WILL OCCUPY YOU:

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Abstract: Obama did not do much in his first three years, perhaps mostly because the left has no coherent, or even cogent, discourse. Not to say worse. An example arises with the debt crisis. In particular, with the attitude to Europe.

Wall Street seems to have given talking points: 1) Call the debt crisis a “Euro Crisis”. 2) Faced by failure of credit… propose only the lending of more money. (See FDR below.) And those talking points, the decerebrated, or corrupt left repeats at nauseam (so it’s more than a bit unfair to accuse Obambi, standing in the headlights of history).

The most well known example of completely confused pseudo left thinking emanates from the honorable Paul Krugman, Nobel and luminary from Princeton perched on the New York Times and all over TV and the world all the time (Krugman was just revealing that he was at the G30, now presided by his friend Trichet, who just stepped down as ECB chair; Krugman has much accused Trichet of being a deflating idiot, even hours before the G30 meeting, so some tensity among the suits may have been in order).

Before we can chop off the invisible hand of the conspirators of international financial piracy, we have to see where it lurks around the cookie jar (that’s us). As this essay will reveal, the “Euro Crisis” is one more Wall Street crisis, disguised this time as a Euro crisis. Everything bad used to be France’s fault, but now the Fourth Reich looms in the distance: the Bundesbank, armed with Rafale stealth bombers.

Krugman ought to know this, that it is truly another Wall Street crisis in Euro disguise. But he wants to save what he calls the “greatest city in the world” (where he was born, and lives, New York, you know, the place where Wall Street makes sure that IMF directors are treated as the worst criminals, once one has stolen their secure electronics). As Krugman professes not to read the Wall Street Journal anymore, we will condemn him to read it. And learn.

So according to Wall Street and presidential parrots, this time Germans, French and the like are asked to pay (that is, extent credit)… For Manhattan’s high rollers.  Why? Because not only it’s better when others pay, but the USA is running out of money, not to say that the American middle class is showing signs of impatience with the gruesome occupation of the country’s resources by Pluto’s forces.

However Angela Merkel was trained for, and practiced, research in hard science. She is going to go for the facts, and for the hard solutions, as president Roosevelt did, long before she was born (FDR had been trained as de facto head of the U.S. Navy in WWI, also a hard science!)

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December 2011. The official report of the World Meteorological Organization is out. It is catastrophic. 13 of the warmest years in the last 15 years. Including the warmest, 2010, and the second warmest, 1998. We have got close to the point where rising temperatures in the Arctic will provoke massive release of so far frozen CO2 and CH4 (methane).

And what can we read in official editorial after official editorial of the Wall Street Journal? That believing in Anthropogenic Greenhouse Warming (AGW) was a religion of the past. It is important that New Yorkers think in a way compatible with their sponsors’ riches.

Wall Street has not yet been occupied by the ocean, human or aquatic, as it deserves. Yet. Although it is sure to become a polder. Meanwhile, it occupies the minds of its victims.

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WHY THE AMERICAN HYSTERIA ABOUT THE EURO?

I monitor a lot of international press. It is striking that the British, and even more the American media, are more hysterical about the “Euro Crisis” than the media of the Eurozone itself. It seems that the French press has generally much more important things to deal with, such as Syria (France is sending military equipment to the Syrian rebellion, now that the number of the assassinated is officially above 4,000).

Why is France so keen to take out one dictatorship after the other? Well, Europa needs democratic Lebensraum, as Hitler did not say. One should not forget that the USSR Russia just north, with not even two-third of French GDP, takes itself for a nuclear hyper power, when, in truth, it’s just a plutocracy (the people leading Russia, Gorbachev said on Swiss TV are not just plutocrats, but have dozens of billions stashed in places such as Switzerland).

OK, the USA is also a plutocracy, and people vote there, just as in Russia (which has its parliamentary elections on December 4). How does Putin control Russia? How does wall Street control the USA? Well, simply by controlling what people know, think, and feel.

The New York Times and the Wall Street Journal, in particular have led the hysteria, editorial after editorial, urging the European Central Bank to indulge in “Quantitative Easing”. The NYT even mobilized its philosophy editor to write an absurdly uninformed article about the ineptitude of the Europeans, and urge them to Quantitatively Ease. See: Opinionator | The Stone: Euro Blind (November 21, 2011).

Euro Blind“, really? Or is it you, Mr. paid-to-“philosophize” who is Dollar Obsessed? An absurdly ignorant, and arrogant, professional philosopher, urges Europeans to have the ECB print lots of money, and give it to the profligate banksters. Hey, does not New York thrive from banking, thus the New York Times, thus its “philosophy” editors? Does not the love of money primes the love of wisdom? (As we will show below, it’s complete self interest because it turns out it’s all about New York banks, indeed!)

Obama pointed out that the Europeans “had not done the work we did here in the last few years“. Namely to give all the American public money one could find to the banks, without anything in exchange. That is quite a “work“, indeed. I give to my friends and financiers, therefore I work, says the high class escort.

Because that is what was done, and not done, in the USA: giving public money to one’s sponsors and friends, without any quid pro quo, whatsoever. That is neither socialist nor capitalistic, just kleptocratic and conspiratorial. In many an empire or state of the past, such plotting would have been viewed as high treason. But we are apparently in a new paradigm. So it always is: a new paradigm, until the heads roll, as they did before. Abusing People works, until they have had enough, rise, and destroy all in the way.

Now Obama would like Europeans to do the same in the EU as what was done under Bush and Obama in the USA. A problem, of course, is that the European Union is made of an union of democracies. And that Union has put in its constitution that the central bank is not like the central bank of the USA, as Merkel pointed out. The directors of the Fed of the USA are mostly private bankers from the realm’s largest banks. For example Jamie Dimon, head of Morgan-Chase, and a love boy of the government of the USA (which made him offerings in the past, such as Bear-Sterns), sits on the Fed. A proud fox in the hen house. Obama used to call him his friend: could not hurt, until it did!

In the USA, the rescue package for banks, shadow banks, insurance companies and hedge funds was decided by a handful of employees of the plutocracy, such as Paulson and Geithner. There was no democratic consultation whatsoever (no referendum, no vote in Congress). So  much for “Democracy In America” Tocqueville was so toqué  about.

By contrast, the 17 Eurozone countries all democratically voted on the rescue package for Greece, Germany and France first. Slovakia resisted for a while, pointing out Greece was much richer, much lazier and more corrupt. Everybody listened to these Slovak objections carefully, and no doubt they have been incorporated in the thinking of all and the stiffening of the Franco-German spine about what to do next. Even the Greeks had to listen to what the Slovaks said (as the Slovaks could have blocked the rescue and default package). So the Greeks learn about themselves, and the error of their ways.

Then, after the government fell, the Slovak Parliament voted for rescuing Hellas. But, fortunately for Hellas, it is been rescued under some conditions. Hélas, those may not be strict enough: why do the richest in Greece pay no taxes? Why do Greek MPs get large brand new Mercedes sedans, on the public dime? (And now that mean on the dime of Slovaks, among others!)

But let’s go back to the American hysteria about the “euro”. What’s behind it? Wall Street, of course, as I have tried to explain forever. Well I need allies. I find them where I can. Nothing like going into the lion’s den to find out about the lion. Wall Street Journal, December 2, 2011:

So Who Is Too Big to Fail Now?

Here’s an irony Morgan Stanley CEO James Gorman can probably live without.

In early October, Morgan came under extreme pressure, largely due to questions about the firm’s exposure to French banks. Although that has since eased, especially in the wake of Wednesday’s central-bank-induced markets rally, the cost of insuring against default by Morgan is still elevated—and remains higher than the cost of protection on big French banks themselves.

 Morgan Stanley’s cost of insuring against default is higher than the cost of protection on big French banks, Heard on the Street columnist David Reilly reports on Markets Hub.

It cost about $446,000 Thursday to insure $10 million of Morgan debt, according to Markit. This compared with $335,000 for Société Générale. On average, Morgan’s CDS cost is about $154,000 higher than that of the big three French banks—BNP Paribas, Crédit Agricole and SocGen—more than three times the average premium in 2011.

In this, Morgan isn’t alone. The cost of insuring against default at Goldman Sachs is also higher than that of the French banks. That in part may reflect that the two U.S. firms are brokers, rather than more diversified commercial banks. But credit-default swaps for Bank of America are also more expensive, while the cost of protection for Citigroup is almost equal to that of BNP.

That is somewhat curious given French banks have more exposure to France and troubled euro-zone countries.”

And the Wall Street Journal to argue that the big French banks are too big to fail, whereas not so for the big American banks:

“…the higher cost of CDS for the U.S. brokers hints that markets may no longer think they are firmly in the too-big-to-fail club. Although they were essentially bailed out in 2008, both firms today face a far different, and more hostile, political climate, stoked by both the Tea Party and Occupy Wall Street.

Additionally, the Dodd-Frank Act has made it more difficult for the U.S. government to inject capital into struggling firms. For their part, regulators are focused on mechanisms to allow for the orderly wind-down of a troubled institution.

Granted, hedge funds and other traders may feel a greater need to hedge their business links with Goldman and Morgan—meaning more demand for CDS. BofA, meanwhile, is contending with a raft of U.S. legal issues. And the French banks have higher credit ratings. So, too, does France, which is still triple-A, unlike the U.S.”

So here it is, from Murdoch’s Wall Street Journal. Murdoch, not Marx.

The USA money machine, the USA plutocracy is on the ropes. Why? Because both the Tea Party people (by opposition to their sponsors, such as the Koch brothers, super billionaire heirs much vested in traditional polluting industries), and Occupy Wall Street have understood that the government of the USA is little more than a tool of the plutocracy.

As a European official pointed out, the Eurozone has spent only so far 2% of its GDP supporting the financial pirates banks, whereas Britain and the USA spent 13% of GDP doing so. So the Eurozone has actually still a lot of firepower left.

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IS KRUGMAN PAID TO GUSH ABSURDITIES?

I like Krugman, because, not only he is very intelligent, but, when called to order, he can think openly and constructively. However his primal “Keynesianism” (throw money to banks, and everything will turn good) has been invaded by Europhobia (not to say Germanophobia). Here he goes in “Killing The Euro?” (December 2, 2011):

“Can the euro be saved? Not long ago we were told that the worst possible outcome was a Greek default. Now a much wider disaster seems all too likely.

True, market pressure lifted a bit on Wednesday after central banks made a splashy announcement about expanded credit lines (which will, in fact, make hardly any real difference). But even optimists now see Europe as headed for recession, while pessimists warn that the euro may become the epicenter of another global financial crisis.

How did things go so wrong? The answer you hear all the time is that the euro crisis was caused by fiscal irresponsibility. Turn on your TV and you’re very likely to find some pundit declaring that if America doesn’t slash spending we’ll end up like Greece. Greeeeeece!

But the truth is nearly the opposite. Although Europe’s leaders continue to insist that the problem is too much spending in debtor nations, the real problem is too little spending in Europe as a whole. And their efforts to fix matters by demanding ever harsher austerity have played a major role in making the situation worse.”

OK, I will let pass the usual confusion Krugman is affected by between a currency, the euro, and a banking crisis doubled with a sovereign and private debt crisis. If anything, the euro is too strong, not too weak!

That is what Krugman claims: “Too little spending in Europe as a wholeharsher austerity have played a major role in making the situation worse.

One can use president Roosevelt to answer Krugman. Roosevelt used to make fun of the speculators and “money changers” who proposed to borrow more after borrowing too much. How does the honorable Paul Krugman’s proposal differ from that?
Well, it does not.
FDR came with an investment plan. Then he spent. Oh, president FDR had started by closing the banks, whereas most of what Krugman has proposed is to do the exact opposite, send more money to the same corrupt banks, no conditions imposed, a la Geithner (“Quantitative easing”).

Obama tini tiny real stimulus was drowned in a much larger pseudo stimulus. The USA need a real stimulus, but no detailed proposal exist. I have long ago proposed to mimic what advanced European countries do (and what China has tried to duplicate on an emergency, nearly comical basis): augment the energetic efficiency of the economy (this includes weatherization, micro energy generation, high speed trains, etc.)

Here is (part of) what our hero (just for this) F. D. Roosevelt said in his First Inaugural Address:

Nature still offers her bounty and human efforts have multiplied it. Plenty is at our doorstep, but a generous use of it languishes in the very sight of the supply.

Primarily this is because the rulers of the exchange of mankind’s goods have failed, through their own stubbornness and their own incompetence, have admitted their failure, and abdicated. Practices of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds of men. True they have tried, but their efforts have been cast in the pattern of an outworn tradition. Faced by failure of credit they have proposed only the lending of more money. Stripped of the lure of profit by which to induce our people to follow their false leadership, they have resorted to exhortations, pleading tearfully for restored confidence.

They know only the rules of a generation of self-seekers. They have no vision, and when there is no vision the people perish. The money changers have fled from their high seats in the temple of our civilization. We may now restore that temple to the ancient truths. The measure of the restoration lies in the extent to which we apply social values more noble than mere monetary profit.”

“Faced by failure of credit they have proposed only the lending of more money?” This is exactly what Quantitative Easing is all about. How does that differ from what Krugman, the voice of the economic left in the USA, keeps on proposing?

Another point which thoroughly escapes Krugman: “harsher austerity have played a major role in making the situation worse.” True, to a great extent, if one ignores international airports built in the middle of nowhere in Spain, and the like.

Everybody in Europe knows that Germany, after re-unification, applied ferocious austerity, until she strayed, hand in hand with France, and went above the 3% deficit limit imposed by the Eurozone rule (as Merkel observed loudly).

German austerity was shared by all in German society, including the plutocratic class. Having union representatives on the boards of company helped. The pressure was relentless, and lasted two decades (and counting!) Two decades in which German real estate prices went down ever more, slowly, and steadily (that means German workers could afford better housing, not the cheap thrill of owning enormous debts).

And it is possible to compare: France played unfortunate partner in a doubly blind experiment. As Germany plunged in austerity, re-industrializing, teaching her workers to become more knowledgeable, and thus efficient, instead of just firing them, France splurged, introducing the “35 hour work week“, which was a distraction catastrophic to French GDP, while de-industrializing according to the hallucinogenic doctrine of the New Age familiar to Americans (industry is passé). French real estate bubbled up, just short of the extravagant London propelled bubble in Britain. Parisians cannot afford Paris.

Meanwhile the German state(s) extracted concessions from German companies (various advantages, as long as they invested in Germany). Also Germany had a massive renewable energy program (in spite of being as north as Canada, Germany is the world number one solar power, and now a German dominated firm, Desert Tech, will install 5,000 megawatt solar south of the Atlas mountains in Morocco).

Last but not least: Germany played several times with massive monetary expansion in the past. In the early 1920s, under Schacht (a corrupt banker with a 1899 CE PhD who was JP Morgan’s friend and creature), Germany tried to avoid paying reparations to France, Britain and Belgium which its army had deliberately devastated, by igniting  massive inflation. That turned out rather self defeating.

The following is completely obvious, and even Niall Ferguson has presented the argument (in the Pity of War, 1998). German inflation in the 1920s was not caused by reparations, but rather was a deliberate political decision on the part of the German government (Schacht, who then headed the nominally independent central bank) to employ it to extinguish World War I debts and reparations.

In the 1930s Nazi Germany opted for a massive spending as it scrambled to make war, not love. The same Schacht as before, the creature of unoccupied Wall Street, told his boss Hitler that would not do. Schacht had himself, with his Wall Street friends, had made it so that Hitler became Kanzler, so his clout with Hitler was enormous.

Hitler told Schacht not to worry: there was plenty of money to be found among his opponents, Jews, and various countries (cooperative, like the USA, Sweden, or Switzerland, or uncooperative countries that would be pillaged). So there is a direct relationship between massive deficit spending, and “The Holocaust”. Germans remember all this, even if they do not masterly sing about it on all rooftops of Nuremberg.

Meanwhile France opted for austerity and proper social policies (now copied worldwide, such as mandatorily paid vacations). Too much austerity by half, as France ought to have gone to war to save the Spanish republic. But then of course, the American propaganda machine from Wall Street, would have accused France to be blood thirsty and to have broken its wonderful Third Reich toy!

Germany, and France, have had the motivation to meditate all this carefully. They deduce that blindly giving more money to financiers, the ones who caused the crisis, will not work, just as it did not work in the 1920s and 1930s.

France, and Britain, also remember very well that they made a huge blunder to have not gone to war against dictators early on in the 1930s. Hence their tough line in Libya, Syria, Iran… Keeping in mind that Afghanistan is a completely different thing, just indulged in to humor the unreasonable Americans: not only did the USA attack first, but Karzai is a Sharia wielding corrupt strongman. OK, maybe strong is not the right word.

In the last few days, Iranian “students” attacked the British embassy. The embassies of the Netherlands, Germany, France  have been discreetly evacuated…

Live, learn, and act accordingly. May we now restore the temple of civilization to the ancient truths. The measure of the restoration lies in the extent to which we apply social values more noble than mere monetary profit.

***

Patrice Ayme

***


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