Nov 14, 2011

Senator Releases Breathtaking Report On How The Government Showers The Rich With Free Money

From The Business Insider :

Sen. Tom Coburn (R-OK), one of Congress' biggest deficit hawks, released a report on Monday showing that the federal government has paid over $9.5 billion in benefits to millionaires since 2003.

The memo is titled "Subsidies of the Rich and Famous" and addressed  to taxpayers, and states that millionaires (those with an adjusted gross  income greater than $1 million per year) receive benefits worth more  than $30 billion from the government each year including tax giveaways and federal grant programs. And almost 1,500 millionaires paid no income tax to the federal government in 2009.
From tax write-offs for gambling losses,  vacation homes, and luxury yachts to subsidies for their ranches and  estates, the government is subsidizing the lifestyles of the rich and  famous. Multimillionaires are even receiving government checks for not  working. This welfare for the well-off – costing billions of dollars a  year – is being paid for with the taxes of the less fortunate, many who  are working two jobs just to make ends meet, and IOUs to be paid off by  future generations.
The populist tenor could hardly be topped by an Occupy Wall Street  protester — and this is coming from one of Congress' most conservative  members.

$9.5 Billion in direct federal payments

And $113.7 billion in deductions and tax credits:

The wealthier you are, the more you get from Social Security:

See the rest of the story at Business Insider

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The World Is Drowning in Debt, And Europe Laces On Concrete Boots

from Zero hedge:

by Charles Hugh Smith from Of Two Minds

The World Is Drowning in Debt, and Europe Laces On Concrete Boots

Three metaphors describe Europe: drowning in debt, circular  firing squad and trying to fool the money gods with an inept game of  3-card monte.

The world's major economies are drowning in debt--Europe, the U.S., Japan, China.  We all know the U.S. has tried to save its drowning economy by bailing  out the parasite which is dragging it to Davy Jones Locker--the  banking/financial sector-- and by borrowing and squandering $6 trillion  in new Federal debt and buying toxic debt with $2 trillion whisked into  existance on the Federal Reserve's balance sheet.

It has failed, of course, and the economy is once again slipping  beneath the waves while Ben Bernanke and the politico lackeys join in a  Keynesian-monetary cargo-cult chant: Humba-humba, bunga-bunga. Their  hubris doesn't allow them to confess their magic has failed, and rather  than let their power be wrenched away, they will let the flailing U.S.  economy drown.

Europe has managed to top this hubris-drenched cargo-cult policy--no mean feat. First, it has indebted itself to a breathtaking degree, on every level: sovereign, corporate and private:

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Germany, the mighty engine which is supposed to pull the $16 trillion  drowning European economy out of the water, is as indebted as the  flailing U.S.

Second, the euro's handlers have already sunk staggering sums into  hopelessly insolvent debtor nations, for example, Greece, which has 355  billion euros of outstanding sovereign debt and an economy with a GDP  around 200 billion euros (though it's contracting so rapidly nobody can  even guess the actual size). According to BusinessWeek, the E.U.  (European Union), the ECB (European Central Bank) and the IMF  (International Monetary Fund) own about $127 billion of this debt.

Since the ECB is not allowed to "print money," the amount of cash  available to buy depreciating bonds is limited. The handlers now own  over 35% of the official debt (recall that doesn't include corporate or  private debt), which they grandly refuse to accept is now worth less  than the purchase price. (The market price of Greek bonds has cratered  by 42% just since July. Isn't hubris a wonderful foundation for policy?)

In other words, they have not just put on concrete boots, they've laced them up and tied a big knot.  We cannot possibly drown, they proclaim; we are too big, too heavy, too  powerful. We refuse to accept that all these trillions of euros in debt  are now worth a pittance of their face value.

When you're drowning in debt, the only solution is to write off the debt and drain the pool.  The problem is, of course, that all this impaired debt is somebody  else's asset, and that somebody is either rich and powerful or  politically powerful, for example, a union pension fund.

Third, the euro's handlers have set up a circular firing squad.  Since the entire banking sector is insolvent, the handlers are  demanding that banks raise capital. Since only the ECB is insane enough  to put good money after bad, the banks cannot raise capital on the  private market, so their only way to raise cash is to sell assets--such  as rapidly depreciating sovereign-debt bonds.

This pushes the price of those bonds even lower, as supply (sellers)  completely overwhelm demand from buyers (the unflinching ECB and its  proxies).

This decline in bond prices further lowers the value of the banks'  assets, which means they need to raise more capital, which means they  have to sell even more bonds.

Voila, a circular firing squad, where the "bulletproof" ECB  is left as the only buyer who will hold depreciating bonds longer than a  few hours, and all the participants gain by selling bonds before they  fall any further. This is the classic positive feedback loop,  where selling lowers the value of remaining assets and that drives  further selling.

As many have noted, soaking up all the Greek debt--a mere sliver of  the eurozone's impaired debt-- would essentially wipe out the entire  EFSF "stability" rescue fund.

The "solution" to the cargo-cult crowd is "obvious"--print, baby,  print, and use that new paper to buy 3 trillion in mostly-worthless  bonds. But that is just another circular firing squad, as Nobel prize  winning economist Thomas Sargent noted: "There's a fundamental truth  that everyone has to understand: what the government spends, the public  will pay for sooner or later, whether in taxes or inflation or having  their debt defaulted on." (Source: BusinessWeek 11/20/11)

The 3 trillion euros comes of somebody's pocket, one way or the other; there is no free lunch.

Even worse, debt is the only engine of "growth" left in the developed world.  This chart shows how America's "growth" since 1980 has been fueled by  debt that expanded by 136% ($30 trillion) beyond actual economic growth.  The same is also true of Europe, where Italy, for example, borrowed 1  trillion euros over the past decade or so in return for essentially zero  growth.

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This reveals the key dynamic of the past decade: the diminishing productivity of debt.  What happens when an economy is so burdened by the friction of  inefficiency and indebtedness that borrowing a trillion euros just keeps  the economy barely above water? The next trillion won't even keep  "growth" at zero, and the economy sinks beneath the waves.

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The world has reached the point of debt saturation. Creating  more debt no longer generates "free lunch" growth, even in China,  though the central bank in China is still playing as if shifting debt  off-balance sheet into a "shadow" system will fool the money gods. It  won't.

Everybody in Europe is playing the same sort of games, hoping  to fool the money gods and keep the "free lunch" economy "growing."  While everybody focuses on the circular firing squad in Italy, untold  billions of euros of impaired private mortgage debt in  housing-bubble-popped Spain still sits on the books of Spanish banks at  full value, lest a sneeze of reality send Spain's entire banking sector  to Davy Jones Locker.

Though no official publicly admits it, nobody really knows how much  debt there is in Greece, or who even holds it. Here's the fig leaf  confession: "Scarce data makes estimates difficult." Yes, I'm sure it  does. So the true size of Europe's debt is unknown because everyone with  a stake in the charade is trying desperately to keep the true scope  hidden. (Ditto in China.)

The debt will get renounced, and debt as the "engine of growth" will also be renounced.

Europe is an inept 3-card monte player attempting to swindle the money gods.  The gods aren't fooled by such shallow shuffling games, in fact they  are greatly annoyed that humans even dare to attempt such flimsy tricks.  Their wrath is building, and human hubris will only make the reckoning  worse.

My "On the Edge" interview with Max Keiser is now online.  Fortunately for me, Max keeps the ball rolling and succinctly  summarizes my rambling. Good fun in Paris--thank you, Max and Stacy, for  the opportunity to spend some time with you. 

__________--

Related:

RED ALERT COMMENTARY: The Euro Collapse

Comments from Eurocalypse, the Resident BoomBustBlog Credit Trading Guru...

Western Governments Are Heading Toward Bankruptcy

L-Pap Rejects New Austerity Measures for Greece, Merkel States Europe "Could Fail"

Germany Ruling Party Votes To Allow Eurozone Exits

So Much For "Europe Is Fixed": French, Spanish, And Belgian CDS Hit New Records

Someone Please Send This Chart To The Germans... (EWI)

From Clusterstock :

If you want the ultimate German take on the euro crisis, you must go read the FT's interview with Bundesbank chief Jens Weidmann.

It basically comes down to this: There is no Euro crisis, there's  only a crisis in various European countries, and they're all unique. In  Greece, they racked up too much debt. In Italy their politics are crap.  The solution: stick to the original rules, and everything will be fine.

What's incredible -- and almost impressive -- is how uncool this  thinking is. And we don't mean that in a pejorative way, but rather,  nearly everyone else thinks that the Euro has structural problems  associated with the fact that countries don't have flexible currencies,  and thus can't adjust, or naturally overcome their debts.

Paul Krugman nailed the problem  pretty well in one sentence this past week, explaining that countries  like Greece and Italy voluntarily reduced themselves to the status of  third-world countries that have to borrow in a foreign currency (the  euro).

Anyway, Bundesbank's Weidmann is incorrect. It's not a crisis that's  just about unique situations in various European countries. It's a  Europe problem, and more great evidence of this comes from this awesome  chart from Naufall Sanaullah's latest economic overview showing the difference in Italian-German industrial production pre-and-post Euro.

As you can see, the two countries grew mostly in line in the years up  until they fixed the exchange rate. It was after the exchange rate got  fixed, and the Italians no longer had the power of competitive  devaluation that the gap started to emerge.

Of course, this is consistent with several other points people have  made that basically the euro has been a great boon for the Germans, as  all of its partners have been both stymied (less currency flexibility)  and been afforded more credit (with which to buy more German goods).

So yes, someone please send this chart to the Germans, preferably  tonight, so they can greenlight the ECB's inevitable market  intervention.

Obama Buddy Gets No-Bid $ 1/2 Billion Contract for Untested Smallpox Vaccine

From SilverDoctors: 

Obama has awarded a $ .5 Billion no-contract bid for a buddy's company to supply untested vaccines for an eradicated disease. 

Perhaps Obama should just order $50 billion worth and mandate that every American receive a shot in case the Cold War 2 breaks out.

A company controlled by a longtime political donor gets a no-bid contract to supply an experimental remedy for a threat that may not exist.
Over the last year, the Obama administration has aggressively pushed a $433-million plan to buy an experimental smallpox drug, despite uncertainty over whether it is needed or will work.
Read more »
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Related:

Lynn Forester de Rothschild Calls for More Taxes and More Public-Private Partnerships

“Insider trading is not only rampant in Congress, but completely unregulated.”

The hypocrisy of the Euro cabal is staggering

From Billy blog :

As  they say in the classics – “some of my best friends are” … and in my  case I might have added German. The Euro crisis – that is, the crisis  because the creation of the Euro stripped member nations of their  capacity to defend their economies against negative private spending  episodes – is being extended by the incredible resistance by Germany and  the Troika (EU, ECB, IMF) that is dominated by the Troika. The  Brussels-Frankfurt consensus – which claimed the creation of the  Eurozone would engender stability and growth is shattered –  irretrievably humiliated one might venture to say – yet the cabal that  hides behind that “consensus” maintains power and influence. The  hypocrisy that the cabal engage in is staggering. Their narrative is  almost totally dislocated from the reality. They regularly disregard  their own rules to favour the vested interests that keep them in power.  And meanwhile, they are overseeing a collapse of all the ideals they  claimed their system was designed to achieve.

 
This article in the UK Observer (November 13, 2011) – There is only one alternative to the euro’s survival: catastrophe – talks a little about “blinkered Germans”. It was written by Will Hutton.

I agree that the crisis is marked by “an insupportable burden of  private debt created by oversized, undercapitalised banks” which is a  common problem across the globe and constitutes “a crisis in  contemporary capitalism” but the EMU crisis is different again.

The US and the UK have a way out of their crisis should they choose  to use the capacities that are intrinsic to their fiat monetary systems.  Their treasuries and central banks can cooperate to ensure that growth  is strong enough to create enough employment to eliminate their  unemployment.

Such growth in national income would provide the capacity to the  private sector to save and it would also see what are now toxic or  difficult loans to the private sector become performing loans. The  strain on banks would be significantly reduced.

This is not to say that the credit binge overhang would be eliminated  speedily. Far from it. This “balance sheet” recession will take a  decade or more to resolve but that resolution could be quicker and less  painful if governments used their fiscal capacity to support growth.  That should be the priority.

Unfortunately, under pressure from my corrupt profession and the  media lackeys who take the ideas of mainstream economists in to the  public sphere and the competing vested interests (in the financial  markets) who actually profit from the crisis, our governments are not  exercising those choices and so the crisis drags on.

But the EMU situation is a step removed from that. There is no  elected government that has the capacity to stimulate its own economy.

Why? They signed away their currency sovereignty and now operate in a  foreign currency – the Euro. And in doing so they agreed to make their  public spending reliant on their tax bases and their capacity to access  funds from the private bond markets. Once their tax bases shrunk as a  result of the crisis and the bond markets worked out that insolvency was  a real possibility, public spending opportunities declined.

You will note that I have been saying that the ECB could rescue the  European economy should it use its fiscal capacity (the fact that it has  the monopoly rights to issue the currency). But consistent with my  tastes for democracy that should only be done through the elected  governments (via funding their fiscal decisions) and that is not  happening at present.

The ECB is bailing out the system – but only as it descends more or  less into its death spiral. The ECB – as part of the cabal that runs  Europe – aka The Troika – is forcing its member nations to adopt  anti-growth policies which just worsen the financial ratios and  prospects and damage the citizenry – while keeping the bond markets out  of the picture. This ridiculous and myopic strategy is based on some  notion that they don’t want a government to announce insolvency.

Presumably they are delaying that inevitability while they organise  all the vested interests and minimise their losses. They are prepared to  attack the living standards and opportunities of the unemployed, the  pensioners, the elderly, the sick, the small businesses, etc while they  preserve their own hegemony and that of their mates.

Hutton, however, doesn’t support the break up of the Eurozone. He  seems to think that Britain’s interest “lies in the survival of the  euro” and rattles out all the usual stuff about “seismic bank runs in  Ireland, Portugal, Spain and even Italy as citizens and companies,  fearing the same could happen to them, moved their cash out of their  countries” and folding banks, etc. Apparently, the ECB “would be  overwhelmed” and the “European economy would slump – and Britain with  it”.

None of that bears scrutiny when you understand the options that each  nation would have with its own currency. There might be bank runs but  we have already seen a great number of banks nationalised in 2008 and  still functioning.

Each nation would be able to fully capitalises its banks and protect deposits in its own currency.

Each nation could immediately announce large-scale public employment  programs and restore incomes (in the new currencies) to their citizens  who are now facing no or little income.

Each nation would immediately be able to pursue domestic growth  strategies which would spill over into increased import demand which  would help their neighbours.

At present, all those avenues of growth and stability are being thwarted by the manic austerity bias in Europe.

Hutton claims the only two options for Europe are debt forgiveness or  inflation. He supports the former with the ECB acting as the “lender of  last resort everywhere in the eurozone” – bailing out private banks,  governments etc.

It could do that given its capacity. But then what happens when the  next negative aggregate demand shock hits? And if you stick with a  system that forces governments to issue debt to net spend, how will  governments be able to underwrite growth if they are being forced to  reduce debt, even if the ECB is bailing them out as they do delever?

Hutton notes that Germany appears to be the sticking point – “consistently blocked making the money flow”:

 It has said no to the European Central Bank operating as a lender of  last resort across the eurozone; no to creating a genuine European  Monetary Fund on the scale needed; no to the creation of single euro  bonds. Ireland, Greece and Italy are all doing their part. Germany must  now do its – or the euro will buckle.

Germany’s phobias are well-known – inflation and then slump led to  Hitler. What’s more, the German constitutional court has ruled that the  EU is a Staatenbund (a group of states). This means that Germany can  only constitutionally make fiscal transfers to other members if each one  is agreed by the German parliament. But phobias and constitutional  courts cannot trump the agonising choice facing Germany and Europe. Before I come back to that, I conclude that Hutton also doesn’t  really get to the nub of the problem – of loss of currency sovereignty.

He claims his aim is to promote policies that are in Britain’s best  interests – but then says that if “Germany were to act responsibly” and  help the EMU out of this crisis then the British Prime Minister should  announce that:

 Britain would peg sterling to a reformed euro and in the long run even  consider joining the regime. Moreover, Britain would do this either way,  he could argue – eventually joining a single currency in which Germany  accepted its responsibilities or a single currency without Germany. That would just add another economy to those who risk insolvency and  would ensure that Brits no longer had much say on what government  policies were followed.

Britain would become another domain for the EU cabal (which includes the IMF) to rule over.

This article in the UK Guardian (November 13, 2011) – These bailouts aren’t democracy. What’s worse, they aren’t even a rescue – touched on some of the anti-democratic developments in Europe that have intensified as a result of the crisis.

Heather Stewart writes:

 The deeply undemocratic nature of the euro project had already been laid  bare in Cannes by the European elite’s outraged response to George  Papandreou’s announcement that he would hold a referendum on the latest  “rescue” package for his country … [and] … Italy’s neighbours to be  demanding the departure of its democratically elected leader was hardly a  shining moment for European democracy … In case there was any doubt  that Italy faces joining Greece, Portugal and Ireland as closely  monitored protectorates of Brussels, economic and monetary affairs  commissioner Olli Rehn wrote to the Italian finance minister last week,  demanding details about each one of the 39 reform measures Italy has  promised to take. The article also notes that a report (published November 9, 2011) by the Centre for European Reform – Why stricter rules threaten the eurozone – reminds us that “Germany and France haven’t themselves always embraced the reforms they are now recommending”.

I will consider that paper in another blog later. It has its own issues.

But the hypocrisy of the core EMU states which are now turning on Italy is manifest.

Remember the Stability and Growth Pact (SGP)  – aka (The “neither stability or growth pact”) which was adopted in  1997 after the Maastricht Treaty was formalised? It said that:

An annual budget deficit no higher than 3% of GDP (this includes the  sum of all public budgets, including municipalities, regions, etc.)
National debt lower than 60% of GDP or approaching that value.
My 2008 book with Joan Muysken – Full Employment abandoned  – was written before the crisis emerged although it was clear that  during the period we were writing it that the world economy was headed  for a major recession. We wrote extensively about why the SGP had failed  to stimulate growth and was incapable of maintaining financial  stability.

The mainstream of my profession, of-course denied most of the obvious  criticisms of the SGP. Their usual retort was that I had failed to  understand the victory that macroeconomics had achieved by focusing on  price stability and adopting largely conservative fiscal positions.

Please read my blog – The Great Moderation myth – for more discussion on this point.

In our book, we analysed the so-called – Sapir Report – otherwise known as the An Agenda for a Growing Europe  – which was published in 2003 and was a report to the EU edited by a  “panel of experts”. André Sapir managed the project which was funded by  the President of the European Commission.

The Report was intended to be a review (evaluation) of how the EU was  travelling in the wake of the decision to create the Eurozone within  it.

It is interesting to go back to read the sort of doctrinal briefing  documents that the EU was receiving from the mainstream economists and  then compare what they are saying today. The conclusion – they didn’t  get it then – were totally wrong in their assessments – and they use the  same logic now to inflict massive damage on the citizens of Europe in  the name of an economic strategy.

Sapir is now a “resident scholar” (very high sounding) at a Brussels-based “think tank” – Bruegel.   In 2010, it received over 2 million euros from European governments  with the bulk coming from France, Germany, Italy, Spain and the United  Kingdom. Greece decided not to waste any money supporting the centre.  They also receive significant funding (just under a million euros from  the big financial institutions such as Deutsche bank, Goldman Sachs, BNP  and other corporate heavyweights.

Some of the so-called “experts” that contributed to the Sapir Report  also work for the Bruegel Organisation. If you read the 183 page Sapir  Report you will see what I mean about these “experts” and their capacity  to understand what they were talking about.

The ideas that come out of that so-called “think tank” are nowhere  near as beautiful as the paintings of the tank’s namesake. a Flemish  renaissance painter and printmaker Pieter Breugel 

Some quotes:

 Faster growth is paramount for the sustainability of the European model …

The Group considers that three pillars upon which the European economic edifice is now built are fundamentally sound … 

Expanding growth potential requires first reforms of microeconomic policies at both the EU and national levels …

there is no doubt that the period of the last 15 years has been a tremendous success … The main emphasis was that the challenges were at the microeconomic  level – to free up more markets and reduce welfare budgets etc.

It argues that the EU should create a “framework of strengthened  budgetary surveillance and more effective and flexible implementation of  the Stability and Growth Pact, while sticking to the 3% ceiling. The  Commission should reinforce its surveillance and be given more  responsibility to interpret the rules of the SGP. Also, budgetary  responsibility would be enhanced by establishing independent Fiscal  Auditing Boards in the Member States”.

So the classic unelected group (Fiscal Auditing Boards) crammed full  of mainstream economists like them who pressure and cajole governments  into adopting conservative fiscal positions.

On Page 41 of the Sapir Report, you will read the following “manifesto” of the Brussels-Frankfurt consensus:

 The maintenance of price stability – reflected in low rates of inflation  – facilitates achieving higher rates of economic growth over the medium  term and helps to reduce cyclical fluctuations. This shows up in a  lower variability of output and inflation. In turn, sound public  finances are necessary both to prevent imbalances in the policy mix,  which negatively affect the variability of output and inflation, and  also to contribute to national savings, thus helping to foster private  investment and ultimately growth. The latter beneficial effect is  magnified as low deficits and debt, by entailing a low interest burden,  create the room for higher public investment, “productive” public  spending and a low tax burden. Finally, the beneficial effects of price  stability and fiscal discipline on economic performance reinforce each  other in various ways. On the one hand, fiscal discipline supports the  central bank in its task to maintain price stability. On the other hand,  prudent monetary and fiscal policies avoid policy-induced shocks and  their unfavourable impact on economic fluctuations while ensuring a  higher room for manoeuvre to address other disturbances that increase  cyclical instability. This is the orthodoxy that has created the mess the world economy is  now in and, in the case of the Eurozone, driven it to the brink of  insolvency and forced the Euro cabal to break its rules about bailouts  and forced the ECB to run against its inflation obsession and buy  billions of euros worth of public bonds to keep the system from  collapsing.

It is also the orthodoxy that is imposing mass hardship on the citizens across the EMU.

In February 2011, Sapir wrote (as a co-author) – A comprehensive approach to the euro-area debt crisis (published by the Breugel Organisation).

The document blames Greece, Ireland, Portugal and Spain for living  “beyond their means by accumulating private and/or public debt and  running large current account deficits” but fails to mention France and  Germany who were exporting to these nations to allow the deficits to  occur in the first place.

They claim that workers in these nations enjoyed real wages growth that was “too fast”.

They claim that Greece’s government spent too much and mismanaged its budget.

Their solutions have all been the standard EU cabal gibberish. “Give  the EFSF the mission and the financial means to carry out” salvage  operations. Enforce fiscal austerity which includes wage cuts. Provide  incentives to private firms to invest.

There is always a curious disconnect within papers like this. They  realise that growth is the only way out but fail to join the dots.

For example, they claim:

 In the meantime, growth will remain subdued and debt, though reduced,  will remain high. Private and public sector efforts to pay off their  debts will have a negative impact on growth, and low growth will it make  more difficult to reduce debt levels. All of which is true. But then they claim that the EU should  “front-load” its structural spending to contribute to “fostering reform  and growth” via a “This also requires a joined-up, coordinated  approach”.

That jargon-overload claims that if firms get some innovation funding  from the EU central structural funds they will speed up the process of  wage cutting and sacking (to “increase competitiveness”) which is likely  to frustrate the private sector efforts to “pay off their debts” –  which is already having a “negative impact on growth” – at the same time  fiscal austerity is ravaging growth prospects – and from out of that  morass – you will get growth.

These characters are worse than the Alchemists who claimed all sorts of transmutations were possible.

The sort of questions that arise include:

Wasn’t the ECB telling Greek consumers that they were free to borrow  at the interest rates that Frankfurt considered to be appropriate?

Did the ECB seek to place restrictions on bank lending to Greek consumers?

Did the EU cabal tell Ireland (the “Celtic Tiger”) or Spain or Greece  to stop their consumers buying houses? To place restrictions on banks  and financial engineers who were plying consumers with credit? Did  anyone in the cabal tell Greece to stop buying ageing German military  equipment to satiate their territorial paranoia about Turkey?

Here are some more questions that French financial market commentator Erwan Mahé  wrote in his regular newsletter on Friday:

 •  Who allowed Greece entry into the Eurozone while being aware that its books were cooked?

•  Who admits today that the country should have never been admitted entry?

•  Who guaranteed investors, based on Maastricht’s criteria, that any  country showing a lack of budget discipline would be brought to order  by its peers?

•  Who decided to ignore these criteria at the first signs of an economic slowdown (2003)?

•  Who promised that no country would be allowed to default on the  eurozone, but who then proceeded to launch a “voluntary” default?

•  Who strongly “encouraged” institutional investors at the time of  the first alert in May 2010 to maintain their exposure to Greek  government debt? (Apparently, French investors seemed to have taken this  encouragement to heart much more than their German peers, which may  explain Merkel’s drive to push forward this PSI as well as Sarkozy’s  initial resistance).

•  Who signed an agreement authorising a 21% discount on NPV (Net  Present Value) only to come back three months later to impose a nominal  discount of 50%, which probably amounts to a 75%-80% on NPV?

•  Who, after earlier introducing the notion of credit risk (with  this PSI), has just added the notion of currency risk via their  statement that if Greek must hold a referendum that should only concern  its continued membership in the eurozone? The hypocrisy in Europe is staggering.

Consider the following two graphs taken from the detailed government expenditure and revenue data available from Eurostat.  The first graph shows the annual evolution of the Budget Deficits (as  per cent of GDP) for the “core” EMU nations (Germany, France, Italy)  from 1990 into the convergence period leading to the creation of the  common currency and to 2010.

The red line is the SGP upper limit deficits (3 per cent). Between  2001 and 2005, Germany violated the Treaty without penalty. France  violated it between 2002 and 2004 and Italy between 2001 and 2006.

Why didn’t the Euro cabal (and the IMF) and all the rest of the  mainstream commentators demand fiscal austerity for these nations. Why  didn’t they at least invoke the EMU penalties that were enshrined in the  agreement?

Why did the EU pursue penalties under the Treaty (which the SGP is  contained) against France and Germany? Further, why did they pursue  Portugal in 2002 for breaching the SGP?

The so-called corrective arm of the Stability and Growth Pact is called the excessive deficit procedure (EDP) which the EU’s ECFIN calls the “dissuasive arm”.

ECFIN write that:

 The EDP is triggered by the deficit breaching the 3% of GDP threshold of  the Treaty. If it is decided that the deficit is excessive in the  meaning of the Treaty, the Council issues recommendations to the Member  States concerned to correct the excessive deficit and gives a time frame  for doing so. Non compliance with the recommendations triggers further  steps in the procedures, including for euro area Member States the  possibility of sanctions. Fines of up to 0.5% of GDP are allowed for in the Treaty.

  I dug this BBC article (2002) out of the archives – Row over ‘stupid’ EU budget rules – which reported that the then President of the European Commission (Romano Prodi) was quoted as saying:

 I know very well that the stability pact is stupid, like all rigid  decisions. If we want to adjust these, unanimity is needed and it  doesn’t work … The stability pact is imperfect, it’s true, because there  is a need for a more intelligent tool and more flexibility. The comments followed the admission by Germany that they had breached the SGP as had “France, Italy and Portugal”.

Germany was the nation that insisted on the inclusion of the SGP (and  as I have noted previously wanted it to be called the “Stability  Pact”). They were the first to trangress against it.

This ECB Occasional Paper (published September 2011) – The stability and growth pact crisis and reform contains some interesting history of the SGP.

For example, the authors say:

 When it came to implementing the Stability and Growth Pact in a rigorous  manner, the first test was failed. Faced with a need to fully apply the  provisions of the corrective arm of the Pact in the autumn of 2003,  France and Germany, among others, blocked its strict implementation by  colluding in order to reject a Commission recommendation to move a step  further in the direction of sanctions under the excessive deficit  procedure. Now consider this graph which shows the budget history since joining  the EMU of Greece, Spain, Ireland and Portugal. The intense cyclical  deficits are clear in the recent years.

But if you put the two graphs together (I did but the detail is  difficult to discern) you would find that the only nations that actually  ran surpluses in the common period were Ireland and Spain.

While Germany and France were “living it up” on budget deficits and  then bullying the EU Council of Ministers to turn a blind eye to their  (stupid) regulations, Ireland and Spain were acting like model EMU  citizens.

  Should you conclude from this that I would have supported punitive  action against Germany or France when they violated the SGP rules?  Clearly not. I think the rules are contrary to sound fiscal management  and their presence (rather than enforcement) creates an environment – a  pretext – for the bullies of Europe – the Troika – to impose whatever  ideological slant they want on things. The manifestations of that  behaviour are almost beyond belief.

As Heather Stewart’s article says:

 … These bailouts aren’t democracy. What’s worse, they aren’t even a rescue. Conclusion

In closing, over the weekend I re-read and article by American “institutional” economist Richard Freeman wrote once:

 What explains strong adherence to a claim whose empirical support is  “fragile”, “mixed”, “contingent on factors that need to be clarified”,  and so on? The best interpretation I can give is that these economists  come to the problem of explaining unemployment with the prior that  markets work well absent interventions, and thus that the right place to  look for causes of problems is at institutions that may impede the  operation of the markets. They have fairly tight bands around this  prior, so that it dominates weak evidence, and thus produces posteriors  close to the priors, as in standard Bayesian inference. (Full reference is Freeman, R. (2005), ‘Labour market institutions  without blinders: The debate over flexibility and labour market  performance’, International Economic Journal, Korean International Economic Association, 19(2), 129-145).

The point he is making is that when the facts contradict their  theories, most economists deny the facts. I have noted before that one  professor who taught me explicitly said that once – when confronted  about why the theory kept failing to explain anything he said “the facts  must be wrong”.

The Euro cabal and its supporting “experts” fit into this category perfectly.

I am rushing to catch a flight (sorry for flying!) and so …

That is enough for today!

Profits of Doom: Managed Democracy on the March

 By Chris Floyd

November 11, 2011

Thomas Jones, at LRB, says what I wanted to say about the exit of the plutocratic goon Silvio Berlusconi from his post as Italian prime minister:

At last Berlusconi has said he’ll step down. It should be a good day for Italian democracy. Except that – assuming he really does go – Italy’s longest serving postwar prime minister will have been finally driven from office not for corruption, croneyism, tax evasion or colluding with the mafia; not for the conflict of interests between his media empire and his political position; not for having presided over years of economic stagnation, rising unemployment and crumbling public services, and otherwise generally enriching himself at (almost) everyone else’s expense; not for his outspoken xenophobia, sexism and homophobia; and not even for having sex with underage prostitutes; but because the EU, the IMF and the bond markets think he can’t be trusted to push through the austerity regime they want Italy to enforce, which will almost certainly make everything even worse.

Exactly. Berlusconi's fate was sealed when Italian bonds broke the 7 percent mark, thereby threatening to lower, slightly, the gargantuan profit margins of the rapacious speculators who gorge themselves on chaos and suffering. The high crimes and low comedy (to coin a phrase) of his years in power never troubled the great and good (such as the saintly Tony Blair, who used to fly down for personal holidays with the Big Bunga-Bunga); but put a crimp in their bottom lines, and see how fast they turn on you.
Now the Italian government is to be led by a "technocrat" -- i.e., an unelected apparatchik of the global financial elite. Just as in Greece, where a regime change was imposed after the elected leader had the temerity -- the unmitigated gall -- to suggest asking the Greek people if they approved the savage gutting of their society to preserve the profits of our gilded gorgers. Democracy -- in Greece? Outrageous! Well, he's gone now, and an American-educated elitist apparatchik has been appointed -- not elected -- in his place. It's the very latest in "managed democracy": no muss, no fuss, no messy voting!
This kind of thing couldn't happen in the United States, of course. Next year, Americans will proudly uphold their ancient principles of popular democracy by going to the polls and ... er ... choosing between two apparatchiks of the financial elite to serve as lackey-in-chief of the plutocracy. Pericles must be proud.
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