Jan 262015
 January 26, 2015  Posted by at 11:35 pm Finance Tagged with: , , , ,

Matson Aircraft refueling at Semakh, British Mandate Palestine 1931

In what universe is it a good thing to have over half of the young people in entire countries without work, without prospects, without a future? And then when they stand up and complain, threaten them with worse? How can that possibly be the best we can do? And how much worse would you like to make it? If a flood of suicides and miscarriages, plummeting birth rates and doctors turning tricks is not bad enough yet, what would be?

If you live in Germany or Finland, and it were indeed true that maintaining your present lifestyle depends on squeezing the population of Greece into utter misery, what would your response be? F##k ’em? You know what, even if that were so, your nations have entered into a union with Greece (and Spain, and Portugal et al), and that means you can’t only reap the riches on your side and leave them with the bitter fruit. That would make that union pointless, even toxic. You understand that, right?

Greece is still an utterly corrupt country. Brussels knows this, but it has kept supporting a government that supports the corrupt elite, tried to steer the Greeks away from voting SYRIZA. Why? How much does Brussels like corrupt elites, exactly? The EU, and its richer member nations, want Greece to cut even more, given the suicides, miscarriages, plummeting birth rates and doctors turning tricks. How blind is that? Again, how much worse does it have to get?

Does the EU have any moral values at all? And if not, why are you, if you live in the EU, part of it? Because you don’t have any, either? And if you do, where’s your voice? There are people suffering and dying who are part of a union that you are part of. That makes you an accomplice. You can’t hide from that just because your media choose to ignore your reality from you.

And it doesn’t stop there. It’s not just a lack of morals. The powers that be within the EU deliberately unleashed shock therapy on Greece – helped along by Goldman Sachs and the IMF, granted -. All supra-national organizations tend towards zero moral values. It’s inherent in their structures. We have NATO, IMF, World Bank, EU, and there’s many more. It’s about the lack of accountability, and the attraction that very lack has for certain characters. Flies and honey.

So that’s where I would tend to differ from people like Alexis Tsipras and Yanis Varoufakis, the man seen as SYRIZA’s new finance minister, and also the man who last night very graciously, in the midst of what must have been a wild festive night in Athens, responded to my congratulations email, saying he knows what Dr Evil Brussels is capable of. I don’t see trying to appease Brussels as a successful long term move, and I think Athens should simply say thanks, but no, thanks. But I’m a writer in a glass tower, and they have to face the music, I know.

But let’s get a proper perspective on this. And for that, first let’s get back to Steve Keen (you now he’s a personal friend of The Automatic Earth). Here’s what I think is important. His piece last week lays the foundation for SYRIZA’s negotiations with the EU better than anything could. Steve blames the EU outright for the situation Greece is in. Let’s see them break down the case he makes. And then talk.

It’s All The Greeks’ Fault

Politically paralyzed Washington talked austerity, but never actually imposed it. So who was more successful: the deliberate, policy-driven EU attempt to reduce government debt, or the “muddle through” USA? [..]muddle through was a hands-down winner: the USA’s government debt to GDP ratio has stabilized at 90% of GDP, while Spain’s has sailed past 100%. The USA’s macroeconomic performance has also been far better than Spain’s under the EU’s policy of austerity.

[..] simply on the data, the prima facie case is that all of Spain’s problems – and by inference, most of Greece’s – are due to austerity, rather than Spain’s (or Greece’s) own failings. On the data alone, the EU should “Cry Uncle”, concede Greece’s point, stop imposing austerity, and talk debt-writeoffs – especially since the Greeks can argue that at least part of its excessive public debt ratio is due to the failure of the EU’s austerity policies to reduce it.

[..] why did austerity in Europe fail to reduce the government debt ratio, while muddle-through has stabilized it in the USA? .. the key factor that I consider and mainstream economists ignore—the level and rate of change of private debt. The first clue this gives us is that the EU’s pre-crisis poster-boy, Spain, had the greatest growth in private debt of the three—far exceeding the USA’s. Its peak debt level was also much higher—225% of GDP in mid-2010 versus 170% of GDP for the USA in 2009

[..] the factor that Greece and Spain have in common is that the private sector is reducing its debt level drastically – in Spain’s case by over 20% per year. The USA, on the other hand, ended its private sector deleveraging way back in 2012. Today, Americans are increasing their private debt levels at a rate of about 5% of GDP per year—well below the peak levels prior to the crisis, but roughly in line with the rate of growth of nominal GDP.

[..] the conclusion is that Greece’s crisis is the EU’s fault, and the EU should “pay” via the debt write-offs that Syriza wants – and then some.

That’s not the attitude Berlin and Brussels go into the talks with Tsipras and Varoufakis with. They instead claim Greece owes them €240 billion, and nobody ever talks about what EU crap cost the PIIGS. But Steve is not a push-over. He made Paul Krugman look like a little girl a few years ago, when the latter chose to volunteer, and attack Steve on the issue, that – in a few words – banks have no role in credit creation.

Back to Yanis. The right wing Daily Telegraph, of all places, ran a piece today just about fully – and somewhat strangely – endorsing our left wing Greek economist. Ain’t life a party?

Yanis Varoufakis: Greece’s Future Finance Minister Is No Extremist

Syriza, a hard left party, that outrightly rejects EU-imposed austerity, has given Greek politics its greatest electoral shake-up in at least 40 years.

Hold, wait, don’t let’s ignore that 40 years ago is when Greece ended a military dictatorship. Which had been endorsed by, you know, NATO, US … So “greatest electoral shake-up” is a bit of a stretch. To say the least. There was nothing electoral about Greece pre-1975.

You might expect the frontrunner for the role of finance minister to be a radical zealot, who could throw Greece into the fire He is not. Yanis Varoufakis, the man tipped to be at the core of whatever coalition Syriza forges, is obviously a man of the left. Yet through his career, he has drawn on some of the most passionate advocates of free markets. While consulting at computer games company Valve, Mr Varoufakis cited nobel-prize winner Friedrich Hayek and classical liberal Adam Smith, in order to bring capitalism to places it had never touched.

[..] while Greece’s future minister is a fan of markets in many contexts, it is apparent that he remains a leftist, and one committed to the euro project. Speaking to the BBC on Monday, he said that it would “take an eight or nine year old” to understand the constraints which had bound Greece up since it “tragically” went bankrupt in 2010. “Europe in its infinite wisdom decided to deal with this bankruptcy by loading the largest loan in human history on the weakest of shoulders, the Greek taxpayer,” he said.

“What we’ve been having ever since is a kind of fiscal waterboarding that have turned this nation into a debt colony,” he added. Greece’s public debt to GDP now stands at an eye watering 175%, largely the result of output having fallen off a cliff in the past few years. Stringent austerity measures have not helped, but instead likely contributed.

That last line, from a right wing paper? That’s the same thing Steve Keen said. Even the Telegraph says Brussels is to blame.

It will likely be Mr Varoufakis’ job to make the best of an impossible situation. The first thing he will seek to tackle is Greece’s humanitarian crisis. “It is preposterous that in 2015 we have people that had jobs, and homes, and some of them had shops until a couple of years ago, that are now sleeping rough”, he told Channel 4. The party may now go after multinationals and wealthy individuals that it believes do not pay their way.

[..]The single currency project has fallen under heavy criticism. The economies that formed it were poorly harmonised, and no amount of cobbling together could make the end result appear coherent. Michael Cembalest, of JP Morgan, calculated in 2012 that a union made up of all countries beginning with the letter “M” would have been more workable. The same would be true of all former countries of the Ottoman Empire circa 1800, or of a reconstituted Union of Soviet Socialist Republics, he found.

That’s just brilliant, great comparisons. Got to love that. And again, it reinforces my idea that the EU should simply be demolished, and Greece should not try and stay within eurozone parameters. It may look useful now, but down the line the euro has no future. There’s too much debt to go around. But for SYRIZA, I know, that is not the most practical stance to take right now. The demise of the euro will come in and of itself, and their immediate attention needs to go to Greece, not to some toxic politics game. Good on ’em. But the fact remains. The euro’s done. And SYRIZA, whether it likes it or not, is very much an early warning sign of that.

[..] A disorderly break up would almost certainly result in a merciless devaluation of whatever currency Greece launched, and in turn a default on debt obligations. The country would likely be locked out of the capital markets, unable to raise new funds. As an economy, Greece has only just begun to see output growth return. GDP still remains more than 26% below the country’s pre-crisis peak. A fresh default is not the lifeline that Greece needs.

Instead, it will be up to a Syriza-led government to negotiate some sort of debt relief, whether that be in the form of a restructuring, a deal to provide leeway on repayment timings, or all out forgiveness. It will be up to Mr Varoufakis – if he is selected as finance minister – and newly sworn in Prime Minister Alex Tspiras to ensure that this can be achieved without Greece getting pushed out of the currency bloc in the process.

And whaddaya know, Steve Keen finishes it off too. Complete with history lessons, a take-and-shake down of failed economic policies, and a condemnation of the neo-liberal politics that wrecked Greek society so much they voted SYRIZA. It’s not rocket politics…

Dawn Of A New Politics In Europe?

About 40 years ago, one of Maggie Thatcher’s chief advisors remarked that he wouldn’t be satisfied when the Conservative Party was in government: he would only be happy when there were two conservative parties vying for office. He got his wish of course. The UK Labour Party of the 1950s that espoused socialism gave way to Tony Blair’s New Labour, and the same shift occurred worldwide, as justified disillusionment about socialism as it was actually practiced—as opposed to the fantasies about socialism dreamed up by 19th century revolutionaries—set in.

Parties to the left of the political centre—the Democrats in the USA, Labour in the UK, even the Socialist Party that currently governs France—followed essentially the same economic theories and policies as their conservative rivals.

Differences in economic policy, which were once sharp Left-anti-market/Right-pro-market divides, became shades of grey on the pro-market side. Both sides of politics accepted the empirical fact that market systems worked better than state-run systems. The differences came down to assertions over who was better at conducting a pro-market economic agenda, plus disputes over the extent of the government’s role in the cases where a market failure could be identified.

So how do we interpret the success of Syriza in the Greek elections on Sunday, when this avowedly anti-austerity, left-wing party toppled the left-Neoliberal Pasok and right-Neoliberal New Democracy parties that, between them, had ruled Greece for the previous 4 decades? Is it a return to the pro-market/anti-market divides of the 1950s? No—or rather, it doesn’t have to be.

It can instead be a realisation that, though an actual market economy is indeed superior to an actual centrally planned one, the model of the market that both sides of politics accepted was wrong. That model—known as Neoliberalism in political circles, and Neoclassical Economics in the economic ones in which I move—exalts capitalism for a range of characteristics it doesn’t actually have, while ignoring characteristics that it does have which are the real sources of both capitalism’s vitality and its problems.

Capitalism’s paramount virtues, as espoused by the Neoliberal model of capitalism, are stability and efficiency. But ironically, the real virtue of capitalism is its creative instability—and that necessarily involves waste rather than efficiency. This creative instability is the real reason it defeated socialism, while simultaneously one of the key reasons socialism failed was because of its emphasis upon stability and efficiency.

[..] real-world capitalism trounced real-world socialism because of its real-world strength—the creative instability of the market that means to survive, firms must innovate—and not because of the Neoliberal model that politicians of both the Left and the Right fell for after the collapse of socialism.

Neoliberalism prospered in politics for the next 40 years, not because of what it got right about the economy (which is very little), but because of what it ignored—the capacity of the finance sector to blow a bubble that expanded for almost 40 years, until it burst in 2007. The Neoliberal model’s emphasis on making the government sector as small as possible could work while an expanding finance sector generated the money needed to fuel economic prosperity. When that bubble burst, leaving a huge overhang of private debt in its wake, Neoliberalism led not to prosperity but to a second Great Depression.

The Greeks rejected that false model of capitalism on Sunday—not capitalism itself. The new Syriza-led Government will have to contend with countries where politicians are still beholden to that false model, which will make their task more difficult than it is already. But Syriza’s victory may show that the days of Neoliberalism are numbered. Until Sunday, any party espousing anything other than Neoliberalism as its core economic policy could be slaughtered in campaigning by pointing out that its policies were rejected by economic authorities like the IMF and the OECD.

Syriza’s opponents did precisely that in Greece—and Syriza’s lead over them increased. This is the real takeaway from the Greek elections: a new politics that supports capitalism but rejects Neoliberalism is possible.

All Europeans, and Americans too, must now support SYRIZA. It’s not only the only hope for Greece, it is that for the entire EU. SYRIZA breaks the mold. Greeks themselves would be terribly stupid to start taking their money out of their accounts and precipitating bank runs. That’s what the EU wants you to do, create mayhem and discredit the younger generation that took over this weekend.

It’s going to be a bitter fight. The entrenched powers, guaranteed, won’t give up without bloodshed. SYRIZA stands for defeating a model, not just a government. Most of Europe today is in the hands of technocrats and their ilk, it’s all technocrats and their little helpers. And it’s no just that, it’s that the neo-liberal Brussels crowd used Athens as a test case, in the exact same way Milton Friedman and his Chicago School used the likes of Videla and Pinochet to make their point, and tens of thousands got murdered in the process.

It’s important that we all, European or not, grasp how lacking in morality the entire system prevalent in the west, including the EU, has become. This shows in East Ukraine, where sheer propaganda has shaped opinions for at least a full year now. It’s not about what is real, it’s about what ‘leaders’ would like you to think and believe. And this same immorality has conquered Greece too; there may be no guns, but there are plenty victims.

The EU is a disgrace, a predatory beast unleashed upon all corners of Europe that resist central control and, well, debt slavery really, if you live on the wrong side of the tracks.

SYRIZA may be the last chance Europe has to right its wrongs, before fighting in the streets becomes an everyday reality. Before we get there, and I don’t know that we can prevent it, hear Steve Keen: it’s not the Greeks that screwed up, it’s the EU. But they would never ever admit to that.

Home Forums It’s Not The Greeks Who Failed, It’s The EU

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    Matson Aircraft refueling at Semakh, British Mandate Palestine 1931 In what universe is it a good thing to have over half of the young people in entir
    [See the full post at: It’s Not The Greeks Who Failed, It’s The EU]


    The other very interesting bit just in the news; is the statement from the President of Argentina that she will “dissolve” the state intelligence agency; and replace it with a new one.

    I have long thought that such a step might be the ONLY way to deal with embedded corruption, and simple age, in state institutions. Fire everybody. Start over. My fingers are crossed that she succeeds in her experiment.

    Ken Barrows

    What should the birth rate in Greece be anyway? I am serious.

    John Day

    What about that “not South Stream” gas pipeline going from Russia to Turkey to the Greek border?
    There is a lot of restructuring about t happen.
    There are reasons for ongoing partnership and cooperation all through Europe, but the overhanging debt of a system based on exponentially-growth, now in contraction must be written off, globally, and the financial elites need to take complete losses first.
    Can the Eurasian Union help with this restructuring?
    I can’t see anything but a return to the gold standard, and transfers of physical gold, putting a floor under this fully rational collapse of trust.


    The root cause is Debt Money Tyranny where one person’s monetary asset is another person’s INEXTINGUISHABLE monetary liability. Any other spin is misinformation that will lead to non solutions to the ultimate root cause. “Supra-national” equates, 100%, with Debt Money Monopoly financed institutions and operatives. There are NO exceptions.

    The concept that the most powerful entity within a society will control the money of said society is common sense. Since a private international banking cartel controls most of the world’s money, THEY are the most powerful entity within society. When you rub a couple brain cells together independent of the Debt Money Monopoly financed media narratives, you’ll see how easy it is for the Debt Money Monopoly to control government WHEN THEY FINANCE AND PROMOTE THE POLITICIANS WHO WILL DO THEIR BIDDING AND THE GOVERNMENT ITSELF.

    Greece is not a failed experiment, rather, it is an astounding success of how to use debt money to create the feudal system Carroll Quigley said was the goal of the “Money Power.”

    “The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world’s central banks which were themselves private corporations. Each central bank…sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world.”
    ~Carroll Quigley, CFR Historian, President Clinton Mentor

    Oh, you thought the Council on Foreign Relations historian and Bill Clinton mentor was kidding? NOT!

    Expect Greece, and the rest of the world outside the Debt Money Monopoly and their servant class, to trend worse and worse over time. Machiavelli said the feudal lords should not let the serfs have too much power so they would be easier to control, right?

    V. Arnold

    If Syriza becomes too effective, meaning too independent, it will likely be crushed.
    The oligarchs will be obeyed…
    The EU is too unstable to allow anyone to go rogue; it might set a good example.
    Can’t have that now, can we…

    John Day

    The question is that of how to balance the inevitable “anticipated losses”, while maintaining the overall structure of the financial system.
    “Anticipated losses” is used to denote loss of anticipated-future-production, the promise of which is the foundation of our current monetary system.
    Many “promises” must be broken going forward, which will destroy faith in “promissory notes”. There is a loss of faith in the system gestating now.
    The ability to provide necessities of life, and the ability to enforce lies through violence are the foundations of “political economy”.
    Let’s assume that the power to enforce lies through violence is the stouter of these two pillars now.
    Those in power would rather enforce lies through violence than provide necessities of life for the proletariat when times get tough. That ends up killing the elites by crashing the system, as in French, Russian and Chinese (fairly) recent history.
    Assuming some degree of pragmatic rational self interest, of a sort seen in Soros and (shudder) Kissinger, there will have to be damage-control at all levels.
    Roosevelt did such damage-control with the “new deal”.
    The austerity has lowered birth rates in Greece, and the creeping austerity since 1976 has lowered birth rates in the industrialized world with access to birth control, since then. That’s necessary in a no-growth world. Japan, China, Germany and many others are well into birth rates below replacement, and so is the US, but there’s immigration here.
    The monetary system fails before the production system, based on the structure of things.
    The failure this time goes all the way from the farthest promises ever of future production, back to the historical position of money representing existing, real, productive assets.
    What percentage collapse is that? 80%? You tell me.
    It depends on whether a strip club in Reno is such an asset or not, doesn’t it?
    Farmland which produces without chemical inputs or irrigation is the gold standard, I think. The more temperate the clime, the better.
    Russia, Iran and China are close enough to their recent resets to hold stability-options dear. They all hold precious metals, and commodities like oil, coal, food, factories, with a back-up financial system waiting in the wings. They are developing alternatives openly.
    We have to assume that alternatives are developing secretly in western finance.
    Western finance gets to design the social experiments like Arab Spring, color revolutions, Libyan civil war, breakup of Yugoslavia and now the Greek experiment. Iceland was an odd outlier, as I see it.
    How can haircuts be applied without crashing the system, while maintaining the power structure and avoiding overt and violent regime-change?

    E. Swanson

    Whether one is a neoconservative or neoliberal or some other version of economic persuasion, all the words spewed in the media tend to ignore the real problem. That is, our notion of economic growth requires energy, which has up to now been provided almost entirely by fossil fuels. Our industrial societies have grown so large that the remaining stocks of such fuels are becoming ever more expensive to extract and the renewable alternatives are not likely to provide anywhere near the same rate of energy supply which our industrial economies require. Indeed, the rapid rise in the price of oil in 2008, briefly hitting $148 a barrel, surely was a major factor in the resulting economic crisis. The recent glut due to fracking and demand decline has not changed the fundamental problem. That our economic dogma has led to massive increases in the debts of nations means that we have mortgaged the future consumption of these resources, assuming that the energy will be available in the coming decades, when the fundamental facts of physics and geology tell us that these resources are finite and decline with each passing year. The oil glut is likely to be only a temporary respite in the long term increase in energy costs as the easy to extract, cheaper resources have been extracted first, with ever more difficult and expensive oil still to be gathered.

    Economics also fails to consider the other side of the energy problem, that of climate change. So far, attempts to reduce the emissions of greenhouse gases have only scratched the surface of the problem. It’s been estimated that emissions from developed nations, which includes the US and the EU, must be reduced by 80% if there’s any hope to minimize the warming at only 2C. The first reductions were the easy ones and some of the recent reductions were due to the the decline in production after the Great Recession. Attempts to return to a path of growth in real GNP will likely also result in a return to increasing CO2 emissions. All the while, world population continues to grow and there are still several billions living on a few dollars a day. With all this in mind, I see little hope for the future…


    <<The question is that of how to balance the inevitable “anticipated losses”, while maintaining the overall structure of the financial system.<<

    No. The debt based structure of the financial system has to go. It can’t be maintained if the common person is to avoid serfdom. Anything else is rearranging chairs of the Debt Money Tyranny Titanic.

    >>That is, our notion of economic growth requires energy, which has up to now been provided almost entirely by fossil fuels.<<

    You’ve missed a step. Debt Money Tyranny drives the growth. Without growth, most people go bankrupt. That’s why the Fed targets inflation. I’ll share the mechanism that does this in my next post.

    Debt Money injections drive growth. That’s a KEY root cause factor in play here.

    John Day

    By “overal structure of the financial system”, I did not mean structure of debt based money, which I specifically said has to be given up and replaced with money which reflects goods already produced, as was the historical situation. The illusion of paying-back-with-interest in a declining global energy scenario is doomed.
    I simply meant that there are institutions and channels of finance, which would cause much greater devastation if broken. Banks and e-commerce are quite useful to our survival.

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