“The IMF has never been wildly enthusiastic about Osborne's tough austerity plan for the British economy and has been saying for at least a year that the Treasury should ease off if recovery falters. But up until now it has tended to avoid telling Osborne that his policy is failing.
No longer, it appears. "We said that if things look bad at the beginning of 2013 – which they do – then there should be a reassessment of fiscal policy", Blanchard said.
Fiscal policy involves changes to tax and public spending, and Blanchard noted that the chancellor has the perfect opportunity "to take stock and make adjustments" in the March budget, due in less than two months.”
So in a way, Graham is right -- only his formula is wrong. If we don’t want to become Greece (which can't happen, anyway), we should never, ever consider austerity measures or conservative principles. How quickly the world forgets that it was under a conservative George Bush presidency that the global economy collapsed. Why should we ever turn to his acolytes' beliefs to fix the problem now?
By Wednesday (a week later), the protests had spread across Europe into Italy, Portugal and Madrid, Spain where "hundreds of thousands" took to the streets protesting further budget cuts and tax increases that have already created rampant unemployment, crippling the economies of six European nations.
"Austerity" is destroying the European economy (and bringing down world markets with it), but wealthier nations like Germany & the UK (which grew their way out of the Recession by investing in green technology and infrastructure [pdf]), which are loaning these countries money through the IMF (International Monetary Fund), are more concerned with being paid back than aiding the economic recovery of those nations, and like the GOP in this country, they are wedded to the idea that "budget cuts" and "reduced spending" are the path to prosperity despite all evidence to the contrary. As the video notes, unemployment continues to rise in Spain, now approaching a stomach-churning 26%, while Portugal's "debt" is now 107% of the nations' GDP. Greece has seen its economy contract by 23% in just the past five years. Not exactly a recipe for growth that would make any lender comfortable with ever being paid back.
You may have noticed that the Stock Market took a nasty dive (313 points) the day after President Obama's reelection on November 6th and has been tumbling ever since. So naturally, some Republicans were quick to blame President Obama's reelection and the looming "fiscal cliff" for the sudden plunge on Wall Street. It's nonsense of course, but it makes the Right feel better to think Wall Street is terrified of a second Obama term.
Because if there's one thing Wall Street hates, it's "uncertainty"... and who knows what this "Obama" guy will be like as President? Am I right?
George Osborne's drastic deficit-cutting programme will have sucked £76bn more out of the economy than he expected by 2015, according to estimates from the International Monetary Fund of the price of austerity.
Christine Lagarde, the IMF's managing director, last week caused consternation among governments that have embarked on controversial spending cuts by arguing that the impact on economic growth may be greater than previously thought.
The independent Office for Budget Responsibility implicitly used a "fiscal multiplier" of 0.5 to estimate the impact of the coalition's tax rises and spending cuts on the economy. That meant each pound of cuts was expected to reduce economic output by 50p. However, after examining the records of many countries that have embraced austerity since the financial crisis, the IMF reckons the true multiplier is 0.9-1.7.
Wow, who could have predicted that? Well, everybody who isn't a conservative.
Neal Lawson, director of left-wing pressure group Compass, said, "the cuts were never going to work, but these calculations show the effect is bigger than anyone judged. The economy isn't suffering from government borrowing but a severe lack of demand that only the government can fix."
Osborne told reporters in Tokyo that the IMF does not allow for the boost provided to growth by the Bank of England's £375bn of quantitative easing. "The point I would make about their study of the fiscal multipliers is that they explicitly say they were not taking into account offsetting monetary policy action. In the UK, I would argue we have a tough and credible fiscal policy to allow for loose and accommodative monetary policy and I think that is the right combination."
But many economists believe the dent in growth caused by austerity policies may be larger than first thought, because the financial crisis has left banks starving firms and households of credit; and with many countries cutting back simultaneously, it is harder to fill the gap created by cuts with demand for exports.
Europe is at a crossroads now, and you can rest assured that the Powers That Be will be trying to influence the new leadership in whatever friendly way they can to change their minds about austerity - and in some not-so-friendly ways as well. The reality is, governments usually do what the IMF and the World Bank "persuade" them to do. The persuading has probably already begun:
Socialist Francois Hollande defeated conservative incumbent Nicolas Sarkozy today to become France's next president, heralding a change in how Europe tackles its debt crisis and how France flexes its military and diplomatic muscle around the world.
Exuberant, diverse crowds filled the Place de la Bastille, the iconic plaza of the French Revolution, to fete Hollande's victory, waving French, European and labor union flags and climbing its central column. Leftists are overjoyed to have one of their own in power for the first time since Socialist Francois Mitterrand was president from 1981 to 1995.
"Austerity can no longer be inevitable!" Hollande declared in his victory speech Sunday night after a surprising campaign that saw him transform from an unremarkable, mild figure to an increasingly statesmanlike one.
Sarkozy is the latest victim of a wave of voter anger at government spending cuts around Europe that have tossed out governments and leaders over the past couple of years.
[...] Hollande inherits an economy that's a driver of the European Union but is deep in debt. He wants more government stimulus, and more government spending in general, despite concerns in the markets that France needs to urgently trim its huge debt.
While some market players have worried about a Hollande presidency, Jeffrey Bergstrand, professor of finance at the University of Notre Dame, said it's a good thing that Hollande will push for more spending throughout Europe to stimulate the economy.
Europe is "going into a really serious and poor situation," Bergstrand said. Hollande "is going to become the speaker for those countries that want to do something about economic growth."
Meanwhile, the situation in Greece after yesterday's election is much more volatile as long as they remain chained to the euro. The country is dependent on loans from the European Union and the IMF just to survive, and they will release those funds only if Greece continues to beggar her own people:
In a surprise result, Greece's Coalition of the Radical Left, or Syriza, which seeks to annul the austerity program, saw its share of the vote more than triple, to 16.2% of the vote and 50 seats—making it the second-largest party in parliament, the ministry projections showed.
Greece's Coalition of the Radical Left, or Syriza, saw its share of the vote more than triple to 15.5%-18.5%-making it the second-largest party in parliament, exit polls showed. Alkman Granitsas reports from Athens.
"Smokestack Lightnin'," with Hubert Sumlin backing Howlin' Wolf in 1964
This is the time of year when we're reminded of all the famous people who died over the last twelve months, a list which includes two of my favorite guitar players (Hubert Sumlin and Cornell Dupree). But there were also some notable non-human deaths in 2011, especially in the world of economic policy.
One of those deaths should have completely altered the political debate in Washington. The name of the deceased was "Austerity Economics," and it was first glimpsed in a 1921 paper by conservative economist Frank Wright. Austerity died of natural causes brought on by prolonged exposure to reality.
But the debate in Washington didn't change nearly enough after its passing. In the nation's capital, dead things still rule the night.
"Austerity economics" backers claim that today's economic woes can only be fixed by dramatic reductions in government spending, which will lead to increased private-sector confidence and therefore to greater investment and growth.
But it's never worked. And if investors have lost confidence in the U.S. government's fiscal stability, they're sure not acting that way. There hasn't been this much demand for Treasury bonds since the government began tracking it twenty years ago, and they haven't performed as well since the go-go 1990s.
It's easy to understand austerity's attraction for power elites inside and outside of government. The people who suffer from austerity budgets aren't the kinds of people they know personally, since they're typically public employees like teachers, police, firefighters and the administrators of social programs; people who need government assistance, like the poor; and middle-class people with the temerity to either grow old or become disabled.
Austerity's attraction became even greater in the U.S. because once it became conventional wisdom that tax increases on the wealthy was "politically infeasible." That made it a program whose sole purpose was to cut government spending, lowering the pressure to increase taxes on the wealthy from today's historically low levels.
For a one-percenter, what's not to love?
Austerity Comes of Age
The idea's been around in one form or another since that 1921 paper, and the International Monetary Fund (IMF) had been imposing it on Third World nations for decades.
But 2009 was the year that austerity really came of age. That was the year that a wealthy stockbroker's son named David Cameron began campaigning for Prime Minister of Great Britain on an explicitly pro-austerity platform.
It was also the year that Cameron helped to form a group named European Conservatives and Reformists (ECR) dedicated to electing like-minded politicians across Europe and helping them collaborate on ways to slash government spending. It was also the year that right-leaning Angela Merkel won reelection as the Chancellor of Germany with a stronger mandate than she'd been given in her first term.
With Nicolas Sarkozy as President of France, Great Britain was the only major European power not yet in the hands of the corporate-backed austerity crowd.
The Global Sado-Erotic Thrill Machine
That changed with Cameron's election as Prime Minister in May 2010, an event that threw pro-austerity Americans into throes of near-erotic ecstasy. And if that sounds like hyperbole, consider conservative Anne Appelbaum's reaction to Cameron's budget in September of 2010:
Vicious cuts." "Savage cuts." "Swingeing (sic) cuts." The language that the British use to describe their new government's spending-reduction policy is apocalyptic in the extreme. The ministers in charge of the country's finances are known as "axe-wielders" who will be "hacking" away at the budget. Articles about the nation's finances are filled with talk of blood, knives, and amputation.
And the British love it.
What can I say? There are people who collect serial-killer memorabilia, too. But Appelbaum wasn't just speaking for herself. It became unacceptable for any politician in Washington, Democrat or Republican, to advocate anything other than an austerity budget for the United States.
And it was more than an economic strategy to its backers. Austerity became a way to demonize those who had suffered most from the banking abuses and self-indulgences of the wealthy, a totemic "blame the victim" response that turned the political debate into a grotesque inversion of morality. Again, Appelbaum:
"Not only is austerity being touted as the solution to Britain's economic woes; it is also being described as the answer to the country's moral failings."
Bad Metaphors vs. Good Economists
The Democratic President of the United States, Barack Obama, jumped onto the bandwagon with both feet by repeatedly lecturing Americans on the need for government to stop "spending beyond its means." Obama recycled the popular conservative metaphor of a family that has to sit around the kitchen table and decide how much money it has to spend.
That's one of the worst metaphors in modern politics. Does a family establish its own currency -- especially one that has the unique position of the dollar? Can a family borrow money at rates so low they're effectively less than zero? Would a family let Grandma go hungry because Junior bought too many Porsches out of the family kitty and then gambled it away on lousy mortgage investments?
The world's top economists, those who had successfully predicted the crisis of 2008, tried telling the rest of the world what was wrong with the idea: Joblessness and consumer fears were killing any chance of real recovery. More short-term spending was needed to get the economy moving again. Austerity would make things worse, not better.
But nobody listened. Austerity's S&M-like attraction had the world's elites in its grip.
Death of a Delusion
And then something else came into the picture: Reality.
Cameron's austerity budget had a shattering effect on the already-struggling British economy. His government's financial stability was downgraded five times during his first year in power and retail sales had fallen 2.5 percent. Household income was projected to fall an additional 2 percent if his austerity plans were carried forward. Britain's modest employment gains were reversed, youth unemployment reached record levels, and income inequality was the worst it had been in more than half a century.
Anne Appelbaum's erotic dreams had become Great Britain's nightmare.
As Europe's ruling austerity class pushed forward with their plans, even the IMF tried to dissuade them. It was clear to anyone who wasn't blinded by ideology or political cynicism that austerity economics was a failed program. Even in countries like Greece, where government was far graver than elsewhere, the austerity programs imposed from outside threatened to destabilize society while other reasonable measures like improved tax collection were still not taken seriously enough.
And now the entire Eurozone hangs in the balance. Bankers became wealthy by treating governments as if they were mortgages, lending recklessly and pocketing their fees without considering the long-term reliability of their loans. European leaders insisted for months they were take the kind of sensible steps that should've been taken in the United States by requiring bankers to accept at least part of the losses for the bad loans they had issed.
That plan was quietly dropped last month. "Austerity economics" never calls for austerity from those who have gotten rich by being irresponsible, only from those who didn't benefit from it at all.
President Obama has dropped his austerity rhetoric, at least for the time being, but the Republicans have not. Listening to Mitt Romney discuss economics is like having a doctor wave a dead chicken over your head and saying he's decided to cast a spell on you rather than operate on that thing they found in your X-rays.
Aside from the bill introduced this month by the House Progressive Caucus to almost no media attention, there's no comprehensive plan for dropping this country's ineffective austerity strategy and replacing it with an agenda that works.
Rational solutions to our economic problems are being ignored. There won't be a real debate about alternatives to austerity until an entire political party, not just part of it, adopts this kind of program. Until then there will be chaos. And where there is chaos, austerity's powerful advocates can step in and take charge.
Austerity economics died in 2011 and is survived by the British, German, and French governments as well as the GOP and large portions of the Democratic Party. Instead of sending flowers, the family has asked the public to abandon all hopes of future economic growth.
The presumption of innocence until proven guilty is, or at least was once, a cornerstone of American law, and one that the French government has been rather quick to remind us of after the arrest of IMF chief Dominique Strauss-Kahn in New York on charges of sexual assault and rape. Which is somewhat ironic, given the inquisitorial nature of France’s Napoleonic Code.
But the presumption of innocence or guilt doesn’t seem to count for much in the courts of public opinion, however, and accusations and conspiracy theories are running rampant on both sides of the Atlantic. In France, where Mr Strauss-Kahn has long been a popular figure and would have been a serious challenger for the presidency in next year’s elections, the CSA opinion poll has indicated that 57% of those polled believe the charges against him are part of an elaborate plot to discredit him. Fully 70 percent of Socialist sympathizers agreed with that view, even though most French media have dismissed conspiracy theories. Some French journalists, who have described Mr Strauss-Kahn as ‘a charmer of women’ with a ‘taste for the fairer sex’, ‘unresistant to feminine attractions’ and his repeated harassment of women as being just a ‘romantic quirk,’ have chosen to dismiss the allegation of rape on the grounds that the woman is ‘très peu séduisant.’ Not very tempting. Mr Strauss-Kahn himself, perhaps rather unwisely, tweeted that ‘the lawyers were surprised at the appearance of the arrival of a very unattractive young woman’.
Nor is support for him confined to France; in the States, his attorneys are doing what attorneys usually do when defending a high-flying client charged with a heinous crime – blaming the victim. Sorry – ‘alleged’ victim. Mr Strauss-Kahn’s lawyer, Benjamin Brafman, told the press that the forensic evidence ‘will not be consistent with a forcible encounter’, inferring that the maid consented to performing oral sex on Mr Strauss-Kahn. Mr Brafman’s conjecture is further bolstered by Mr Strauss-Kahn’s longtime friend, French philosopher Bernard-Henri Levy, as well the conservative former speechwriter for Nixon and Ford, Ben Stein, both of whom have questioned how it would be possible for such a ‘short old fat man’ to forcibly rape a young hotel maid, a description rather less flattering than those employed by the French. And just about as apposite. Short old fat men can’t be rapists, apparently, and unattractive women are never their victims.
But according to Mr Stein, Mr Strauss-Kahn’s only ‘crime’ is being rich. ‘(T)his is a case about the hatred of the have-nots for the haves, and that’s what it’s all about. A man pays $3,000 a night for a hotel room? He’s got to be guilty of something. Bring out the guillotine.’ And the maid? She’s not Lara Logan, blue-eyed and blond, a respected professional journalist whose sexual assault in Egypt shocked the world. She’s black. Poor. An immigrant. A cleaner in a hotel. A single mother. A Muslim. Oh, and apparently, she’s ugly. One of those have-nots who hates the haves, the sort of people who are ‘complete lunatics’ who have stolen money, medication, even airline tickets from Mr Stein. She has to be guilty of something, naturally. Bring out the noose.
Just so we understand what's really important: Governments "need to show they're getting their economies in shape" and bondholders need to be protected from taking their losses. Oh, and it's all the fault of the greedy unemployed working class, who actually expect their governments to help them out during hard times:
European governments sought to quell the market turmoil menacing the euro, handing debt-strapped Ireland an 85 billion-euro ($113 billion) aid package and diluting proposals to force bondholders to cover a share of future bailouts.
European finance chiefs ended crisis talks in Brussels yesterday by endorsing a Franco-German compromise on post-2013 rescues that means investors won’t automatically take losses to share the cost with taxpayers as German Chancellor Angela Merkel initially proposed to the consternation of bond traders.
The first test of the twin decisions come today with markets resuming trading after speculation intensified last week that Portugal and perhaps even Spain will require external support. In a third move, Greece was told it could have an extra four-and-a-half years to repay emergency loans totaling 110 billion euros to match the seven-year term under Ireland’s deal.
“People are now going to focus on Portugal and it’s probably also going to need some help,” said Axel Merk, president and chief investment officer of Merk Investments LLC in Palo Alto, California. “We’ll maybe see some relief in markets, but governments need to show they’re getting their economies in shape.”
Right. Not banks, because as we know, governments are always going to bail them out. And by the way, how fiscally sound is it to use a national pension fund to bail out banks?
THE €85 billion EU-IMF bailout package for Ireland announced last night was roundly condemned by the Opposition parties who are now all likely to vote against the Budget on December 7th.
Fine Gael, Labour and Sinn Féin attacked the intention to use the National Pension Reserve Fund to help provide a further €10 billion in further capital for the banks. In total, the banks could end up getting another €35 billion if their losses are bigger than expected.
The remaining €50 billion is to cover the State’s borrowing needs for the next three years. Opposition parties were highly critical of the 5.8 per cent average interest rate that will be charged by the EU and the International Monetary Fund.
A memorandum of understanding to give legal status to the agreement is near completion and will be published before the budget. It will give quarter-by-quarter targets which will have to be met by the Government in order for funds to be released.
Under the agreement the State will contribute €17.5 billion of the package from the National Pension Reserve Fund and cash held by the National Treasury Management Agency while the total external assistance in the fund will come to €67.5 billion. It is comprised of €45 billion from the EU, bilateral loans from Britain, Sweden and Denmark, and €22.5 billion from the IMF.
Britain will lend nearly €8 billion, including €4 billion in a direct bilateral loan. The British have won a major concession from EU partners, particularly the Germans, by ensuring the UK will not be automatically part of any euro-rescue packages after 2013.
Taoiseach Brian Cowen welcomed the fact that there would be no change to the corporation tax rate of 12.5 per cent which was vital to Ireland’s economic recovery.
Despite bitterly cold weather, an estimated 50,000 Irish citizens yesterday rallied at Dublin's General Post Office, center of the 1916 Easter uprising, to protest the proposed International Monetary Fund's proposed bailout of banking losses. Many of those losses were incurred by reckless and possibly criminal behavior by bank managers, and naturally, the politicians think the citizens should pay for it, not the bankers:
The Irish Congress of Trade Unions (Ictu) has said that the country cannot afford to pay the terms of the proposed €85 billion EU/IMF bailout package.
Addressing the large-scale rally against the Government’s planed austerity measures in Dublin today, the general secretary of Congress David Begg said that Dáil must not accede to the terms on offer under the proposed agreement – with which he drew parallels to the Treaty of Versailles after World War I.
“Does anybody in this country or in Dáil Éireann think that we can as a people afford to pay 6.7 per cent on money that we did not ask for in the first place and that is being forced upon us to bail out the banking system in Europe which is in hock to this country for €509 billion”.
“We can’t pay that money and we won’t pay that money”.
Speaking in front of the GPO in O’Connell Street, Mr Begg said that the 1916 proclamation, which was read initially from the same spot, had spoken of help “from our gallant allies in Europe”.
“Well our gallant allies in Europe have arrived 95 years too late and uninvited and instead of guns to help the revolution they have brought economic weapons of mass destruction”
Mr Begg said that gardaí had officially estimated the attendance at today’s march and rally at more than 100,000. However the Garda Press Office put the figure at up to 50,000.
Irish Times columnist Fintan O’Toole, who was the master of ceremonies at the rally, led the crowd in a minute’s chant of “Out” to the Government.
He said that the Government’s economic recovery plan was not about saving Ireland but rather represented “a plan to save the Irish elite”.
Mr O’Toole said that a Government with no mandate would do a deal with people nobody had ever elected
“We know what this deal is. On the one side we will borrow yet more billions to bail out the bankers and the other side of this deal is that this society is supposed to declare war on the poor and vulnerable”.
He said that it would involve a savage assault on the minimum wage, cuts in welfare which would further impoverish those who were already struggling to survive as well as attacks on basic services.
Mr O’Toole said that while this was happening “the elite which caused this catastrophe will protect its own interest”.
“We will still have people driving around in black cars on over €200,000 per year claiming to be the representatives of this democracy”.
“Under the Government’s four-year plan a single person earning €40,000 per year will pay exactly the same amount of extra tax as someone earning €300,000 per year”.
He said that working people in Ireland did not mind making sacrifices. He said that they made sacrifices every day for their children, for their families and for their communities. However he said that they did not want to be the sacrifice
“We are here today to say that we are not economic units whose only function is to behave ourselves and to pay off the gambling debts of our masters, we are not children who must take our medicine or be sent to bed without our supper, we are not subjects, we are citizens and we want our republic back”.
It's very depressing to see what passes for sane economic policy in Ireland. In negotiating with the same financial terrorists who got them into this mess, Ireland is only asking for more of the same. I'm still baffled, and not just about Ireland: Just how did these financial "experts" manage to make the rest of us responsible for the reckless judgment (and likely fraud like that of the Anglo-Irish Bank) of those involved with these high-flying banks? Paul Krugman points out just how crazy it all is:
Before the bank bust, Ireland had little public debt. But with taxpayers suddenly on the hook for gigantic bank losses, even as revenues plunged, the nation’s creditworthiness was put in doubt. So Ireland tried to reassure the markets with a harsh program of spending cuts.
Step back for a minute and think about that. These debts were incurred, not to pay for public programs, but by private wheeler-dealers seeking nothing but their own profit. Yet ordinary Irish citizens are now bearing the burden of those debts.
Or to be more accurate, they’re bearing a burden much larger than the debt — because those spending cuts have caused a severe recession so that in addition to taking on the banks’ debts, the Irish are suffering from plunging incomes and high unemployment.
But there is no alternative, say the serious people: all of this is necessary to restore confidence.
[...] In early 2009, a joke was making the rounds: “What’s the difference between Iceland and Ireland? Answer: One letter and about six months.” This was supposed to be gallows humor. No matter how bad the Irish situation, it couldn’t be compared with the utter disaster that was Iceland.
But at this point Iceland seems, if anything, to be doing better than its near-namesake. Its economic slump was no deeper than Ireland’s, its job losses were less severe and it seems better positioned for recovery. In fact, investors now appear to consider Iceland’s debt safer than Ireland’s. How is that possible?