Debt

Financialization and the low burden of public debt

Published by Anonymous (not verified) on Fri, 14/12/2018 - 5:04am in

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Debt

Financialization is a fuzzy concept. There are many definitions, and none is clear cut, at least to characterize the changes of the last 40 years or so, which is the period most authors associate with financialization. I'm not suggesting it's not a useful concept though.* In some sense, financialization refers to the last phase in the capitalist system (even if there are ways in which one might argue that capitalism was always financialized).
At any rate, going to the point I wanted to make, the financial burden of public debt went down in the 2000s, but that is not necessarily a good sign. I was trying to check the financial burden of public debt (i.e. the total spending on interests, out of total current spending) in the United States. The figure above shows that the financialization (ha, another possible definition) of the budget started with the Volcker shock, and ended more or less with the collapse of the dot-com bubble in the early 2000s.

The hike in interest rates in the late 1970s increased the financial burden of public debt, and with the lower output growth -- associated not just to higher interest rates and its effects on consumption, but also higher unemployment and lower wages which additionally impacted private demand -- debt dynamics was on the unstable side of the Domar rule (r > g) and public debt increased significantly in a peaceful period that was for the most part prosperous.

Public debt normally increased in periods of crises or of external threats (wars). In other words, public debt was an instrument for the preservation of society for the most part. There was also an agreement that public debt was a necessary instrument for the accumulation of capital, and it provided a secure asset for the functioning of the financial system. Btw, that was a point that was contentious, and not everybody accepted the Hamiltonian notion that public debt could be, to some degree, a blessing. Think of Andrew Jackson's payment of debt, and the various modern Cassandras afraid about the debt burden on future generations.

The rise of public debt since the 1980s (with the minor decrease in the late 90s) has served a very different purpose. While part of it can be seen as the reaffirmation of American Hegemony, with the increased military spending of the Reagan years (still low if compared to the heights of war, hot or cold), much of it was the result of lower taxes for the wealthy. The accumulation of debt was, like the hike in interest, necessary to discipline the labor class and control inflation.

In part, the result of that perverse use of public debt accumulation is that private agents have ramped up private debt in order to compensate for income stagnation. Think about college kids accumulating more debt to compensate the reduced public support for public universities. That of course goes hand in hand with the fact that most booms now are associated with some bubble (stock market, dot-com, housing, etc), or in the absence of a bubble we end up with a moderate lack luster recovery (the last decade), and what is confusedly described as 'secular stagnation.' The flip side is that the low burden of debt on this side of the 2000s, is not benign like the one from the 1950s to the 1970s, which was closer to what Keynes' notion of the euthanasia of the rentier.

It reflects the needs of the economy to maintain private debt under control in a relatively unstable economy. Something that is still necessary to the extent that labor is still very much being disciplined by macro and micro policies that keep wages under control.

* For a relatively recent discussion of the meaning of financialization and its relevance see Epstein (2015) here, and for an older discussion see Palley (2007) here.

Education…education…education

Published by Anonymous (not verified) on Mon, 03/12/2018 - 2:24am in

Aerial view of students wearing mortar boards at a graduation ceremonyAnd in the news this week…

 

Education…education…education.

 

Last week the Public Accounts Committee published its findings on the sale of the student loan book.  The government was criticised for having sold yet another public asset for half its face value, but it explained that net government debt would fall as a result, enabling it to borrow more. The PAC, in its turn, said in its report that it had expected the Treasury to get the best possible deal on behalf of the taxpayer and achieve its aim of reducing the public sector net debt.  And then according to the Office for Budget Responsibility, in its Student Loans and Fiscal Illusions working paper published earlier this year, the sale was also a ‘perverse incentive’ to make it appear that the public finances had improved. It then went on to estimate that the government’s plans would, in addition, deprive the Treasury of billions in repayments over the lifetime of the loans thus making the country poorer in the long term.

The fiscal language of government and its institutions cited above is instructive, and demonstrates how government’s success or failure is being measured in household accounting terms rather than the effects of its spending policies on environmental, economic and social well-being of the nation.  A good deal for taxpayers, reducing public deficit and debt, depriving government of revenue, borrowing from the future and debt burden are all examples of recurrent tropes which are fed into the public arena daily by politicians, journalists and institutions. So, it is no surprise that people are led to believe that the state finances resemble their own household budgets and they judge a government by how much it reduces or increases the deficit or debt. The vocabulary of income, spending, borrowing and debt however does not apply to a government which issues its own currency and the term fiscal responsibility should be confined to measuring how such a government balances the economy by ensuring that money creation does not exceed the productive capacity of the nation.

 

And in more news on education

 

“Privatisation, marketisation, neo-liberalism and austerity are beams of the same sun.”

Steve Watson, Faculty of Education (Cambridge University).

 

While the government focuses on accounting gymnastics to balance its accounts, the dire state of higher education has been in the public spotlight this month as it was revealed that the universities watchdog was forced to give a struggling institution an injection of cash so that it could remain afloat. This followed news earlier this month that three universities were on the verge of bankruptcy and having to rely on bridging loans to keep going.  The financial uncertainty was said to be linked to falling numbers of 18 year olds applying to go to university, increased competition for students and more stringent immigration controls on foreign students who, in the absence of adequate government funding, bring much needed revenue to university coffers.  The University funding policy and funding report published in 2016 noted that given limited government funding and the fact that not all universities can borrow more over the long term, they will need to maintain and grow their student numbers, including those from outside the EU, to fund increased investment.  As governments fights over allowing foreign students to access higher education and adequate funding streams from government a train crash would seem inevitable.

How have we come to this pass? The process started in the 1990s with the first steps towards the marketisation of higher education.  New Labour followed the Tories lead and gave universities the right to charge tuition fees, thus changing the very basis upon which universities were funded. Private debt instead of government spending became a primary mechanism to finance higher education. As Steven Watson who lectures in the Faculty of Education at Cambridge University notes:

“The introduction of student loans, tuition fees and subsequent increases are all part of the commodification and privatisation of higher education. The Higher Education and Research Bill that was hurried through before the general election in 2017 further embeds the consumerization of higher education, with the creation of the Office for Students and providing opportunities to establish challenger institutions to increase competition in the sector.”

Universities have become businesses with a product to sell and students have become customers with choices. University management elites command huge salaries whilst lecturers increasingly face the prospect of insecure contracts and low pay. According to an analysis by UCU published in 2016 university teaching is now dominated by zero-hours contracts, temp agencies and other precarious work.  It also noted that the richest Russell Group institutions rely heavily on insecure academic workers.

Instead of higher education being about learning, exploration and creativity, it is increasingly becoming commodified; serving the interests of capital rather than the development of the individual for life and the benefit of society. Already, as Steve Watson notes, there is the potential for subjects that do not have a direct link to the world of work to disappear or be reconfigured for employability.  And while universities struggle for funding and try to cut costs, students face the prospect of a lifetime of education debt without even the certainty of finding a good, well paying job at the end of it.

The public is fed a daily diet of the benefits of choice, competition and private-sector efficiency and innovation, whether we are talking about education, the NHS, or the energy, rail and water sectors, when the reality is that it has more to do with accruing capital, than providing high quality public services. We are also fed the daily lie that the government has no other alternative as it has no money of its own and must seek to balance its accounts to prove its financial competence.

BUT the national economy is not one great big household, and a government which issues its own currency could, by making a political choice, spend on our public services tomorrow. Why would it not do so?  Education is an investment which is not just about economics. It gives people the skills they need for life, enables them to ask questions and seek solutions as well as confront the challenges of our times from social issues to environmental ones. Getting with monetary realities is a first step in challenging the neoliberal, market driven status quo.

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The UN report

Published by Anonymous (not verified) on Sat, 24/11/2018 - 4:10am in

Mother and child washing hands in kitchen sinkAs reported in last week’s MMT Lens Philip Alston’s report on extreme poverty and human rights is truly shocking. Far from austerity being based on the need for financial prudence, as claimed by the government, it is a deliberate assault on some of the poorest and most vulnerable citizens in the country driven by a pernicious ideology which divides people and tears down communities. Such ideology values the individual over cooperation and places personal responsibility for an individual’s fate in their own hands.  

One of the areas where Philip Alston expressed considerable concern was the cuts to local authority budgets. In  his interviews with local authority leaders, he reported that they are increasingly reduced to emergency provision. Such cuts to central funding have been destroying the fabric of public infrastructure and services across the UK, ripping the heart out of local communities. As his report so brutally revealed it has brought about unnecessary hardship and suffering and lives blighted or cut short by unnecessary austerity.

Alston’s criticism comes after several councils in England including Northamptonshire, East Sussex, Somerset and Surrey have reported financial difficulties. Councils are being forced to plunder their reserves to keep essential services going and make cuts to spending to other essential services.  Staff have been sacked, pay frozen and libraries and other services closed or reduced to voluntary manning. Some councils are even facing the prospect of defaulting on their statutory duties to public health and social care or restricting services to the most vulnerable citizens.  David Cameron’s ‘Big Society’ is increasingly being expected to take responsibility for supporting its elders and vulnerablefriends and neighbours, paid for with goodwill.

The figures from the National Audit Office 2018 Report on Financial Sustainability of local authorities make for stark reading. There has been a:

49.1% real-terms reduction in government funding for local authorities between 2010-11 and 2017-18

28.6% real-terms reduction in local authorities’ spending power (government funding plus council tax) between 2010-11 and 2017-18

66.2% percentage of local authorities with social care responsibilities that drew down their financial reserves in 2016-17

Alongside reductions in funding local authorities have had to deal with growth in demand for key services as cuts to public spending have kicked in. Dealing with growing homelessness and coping with the extra demand for adult and children’s social care have all put huge pressures on local government. Eight years of austerity have increased demand for local government services associated with precarious employment, poverty, homelessness and rising crime.

The local charity sector has always played a significant role in supporting the needs of local communities and grants from local government have been its lifeblood. When David Cameron launched his big society drive to empower communities, he was less clear about how such work would be funded. Over the last eight years of central government-imposed austerity the charitable sector, which relied on local government grants for part of its funding flow, has been hard hit too.

One of the hardest hit services have been Sure Start Centres, a flagship New Labour policy, which was a local area–based programme delivering services and support to families with young children. Its aim was to reduce inequality whilst acting also as a gateway to more specialised service provision. Figures suggest that more than 1000 centres might have closed nationally in response to local authority funding pressures with a change of focus moving from a universal service to one targeting high need families.

Philip Alston referred in his press conference to the ‘mechanical economic analysis’ by government officials that ignores the damage being done to the fabric of British Society. Political choices are cloaked in the idea that there is no alternative to financial prudence. ‘Prudence’ in this context is seen simply in terms of the money-in, money-out of tax and spend and whether it ‘balances the books’. 

This is not just about our libraries or other local services closing. This is an attack on the fundamental belief in the value of public service and public services to deliver public and social purpose for the health and well-being of the nation. The increasing focus on individual consumer desires instead of cooperation to bring about vital social cohesion is fracturing society. The government’s digital strategy will also disenfranchise many people whilst at the same time removing their access to IT by closing public libraries which also often provide safe meeting places for local organisations and charities such as Home Start and Sure Start.

The government, whilst claiming that there is no money, is the only entity able to secure funding for our public services.  It has the currency issuing powers to ensure that funds are available to purchase the goods and services required to meet the needs of our local communities. By not investing today we are storing up, not a financial burden, but the burden of decaying infrastructure and the knowledge capital and know–how built up over decades at local level.  The government is denying the power of the public purse to support a network of ready to go services with staff skilled and experienced in tailoring services to meet their own community needs.

Our local communities, high streets and businesses are the backbone of the economy they provide the glue that holds the nation together. As local government struggles to provide even its statutory duties, cuts ever more vital services and slashes staffing levels the consequences for local economies become ever clearer both in financial and social terms. Furthermore, the Big Society dream that the voluntary sector can fill the gaps left by lack of local government provision is an ideologically inspired Conservative fantasy.

Alston’s report is a wake-up call to the real alternative to cutting public spending. Failure to do so will cause further privation and distress which will have long term effects on the health and well-being of citizens and the economy.

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Mutual Aid vs Moral Hazard

Published by Anonymous (not verified) on Wed, 21/11/2018 - 11:46am in

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Debt

How the Bronze Age saved itself from debt serfdom

There has been an explosion of discussion about whether to cancel student debts. Critics of the idea point out that wealthy people would be the main gainers, posing moral hazard. The debate has  has quickly slipped into a discussion of modern economies and whether it was moral to cancel the debts of people who are in arrears, when some people have struggled to keep current on their payments.”

Bankers and bondholders love this argument, because it says, “Don’t cancel debts. Make everyone pay, or someone will get a free ride.”

Suppose Solon would have thought this in Athens in 594 BC. No banning of debt bondage. No Greek takeoff. More oligarchy Draco-style.

Suppose Hammurabi, the Sumerians and other Near Eastern rulers would have thought this. Most of the population would have fallen into bondage and remained there instead of being liberated and had their self-support land restored. The Dark Age would have come two thousand years earlier.

My book “And forgive them their debts”: Lending, Foreclosure and Redemption from Bronze Age Finance to the Jubilee Year (available on Amazon) is about the origins of economic organization and enterprise in the Bronze Age, and how it shaped the Bible. It’s not about modern economies. But the problem is – as the reviewer mentioned – that the Bronze Age and early Western civilization was shaped so differently from what we think of as logical and normal, that one almost has to rewire one’s brain to see how differently the archaic view of economic survival and enterprise was.

Credit economies existed long before money and coinage. These economies were agricultural. Grain was the main means of payment – but it was only paid once a year, at harvest time. You can imagine how awkward it would be to carry around grain in your pocket and measure it out every time you had a beer.

We know how Sumerians and Babylonians paid for their beer (which they drank through straws, and which was cleaner than the local water). The ale-woman marked it up on the tab she kept. The tab had to be paid at harvest time, on the threshing floor, when the grain was nice and fresh. The ale-woman then paid the palace or temple for its advance of wholesale beer for her to retail during the year.

If the crops failed, or if there was a flood or drought, or a military battle, the cultivators couldn’t pay. So what was the ruler to do? If he said, “You owe the tax collector, and can’t pay. Now you have to become his slave and let him foreclose on your land.”

Suddenly, you would have had a slave society. The cultivators couldn’t serve in the army, and couldn’t perform their corvée duties to build local infrastructure.

To avoid this, the ruler simply cancelled the debts (most of which were owed ultimately to the palace and its collectors). The cultivators didn’t have to pay the ale-women. And the ale women didn’t have to pay the palace.

All this was spelled out in the Clean Slate proclamations by rulers of Hammurabi’s dynasty in Babylonia (2000-1600 BC), and neighboring Near Eastern realms. They recognized that there was a cycle of buildup of debt, reaching an unpayably high overhead, followed by a cancellation to restore the status quo ante in balance.

This concept is very hard for Westerners to understand. Yet it was at the center of the Old and New Testaments, in the form of the Jubilee Year – taken out of the hands of kings and placed at the center of Judaic religion. My book documents how this occurred.
When debts were cancelled in Babylonia and other Bronze Age Near Eastern realms, it would have been against their way of thinking to complain that some debtors were benefiting from being freed from debts that other people had paid. In the first place, all cultivators became debtors during the growing season, with payments for everything from agricultural inputs to beer at the local ale-house to be paid on the threshing floor at harvest time. So annulling such debts benefited the population at large.

With regard to individuals who had borrowed out of need, it was recognized that if some could not keep up, it was because they were poor or unable to do so. Mutual aid became the principle of helping people who were sick, widows who lost their husbands or other factors that obliged them to run up debts. Not to have helped such people would have deprived the community of their productive labor.

Conspicuously absent from ancient moral values is the modern “moral hazard” theory to play solvent individuals against debtors. The point of reference was what would happen if people were not forgiven their debts. How would this have affected the community as a whole?

The answer is that debtors unable to pay would have fallen into bondage to their creditor, working on his land, and ultimately have lost their own land. They therefore would not be available to work on their own land to grow crops to pay taxes and other obligations to the palace, or to provide corvée labor on public works, or serve in the military. Clean Slate proclamations were part of the community’s self-preservation.

At the same time, the moral opprobrium was felt toward creditors. They were blamed for impoverishing society at large by their selfishness. The Greeks called his hubris, money-love and wealth addiction. And rulers saw an independent creditor class turning its wealth into large landholdings of creating a rival power to the palace. In addition to cancelling debts owed to the palace, rulers thus restored widespread independence from large wealthy families whose economic interest lay in resisting royal Clean Slates. Large fortunes thus seem to have disappeared in Larsa and Babylonia around the 18th and 17th centuries BC. They didn’t have any President Obama to defend them from the “mob with pitchforks.” Hammurabi said that he was serving Shamash, the sun-god of justice. And Nanshe was a prototype for Greek Nemesis, punishing hubris and abusive wealth, protecting the poor and needy (already in 3rd-millennium Sumer).

The context for today’s debt overhead is one in which most debts are owed to private-sector banks, bondholders and other creditors. Also, not everyone is in debt – and society is rich enough to afford imposing a loss of status and self-reliance on large classes of debtors. Still, there is a logic in forgiving debts owed by the needy (but not by the wealthy).

Creditors argue, for instance, that if you forgive debts for a class of debtors – say, student loans – that there will be some “free riders.” Students freed from debt will benefit, while students who were able to carry and pay off their debts had to “meet their obligations.” It is further argued that if student debts are forgiven (or “junk mortgage” loans written down to fair real estate valuations), people will expect to have bad loans written off. This is called a “moral hazard,” as if debt writedowns are a hazard to the economy, and hence, immoral.
This is a typical example of Orwellian doublespeak engineered by public relations factotums for bondholders and banks. The real hazard to every economy is the tendency for debts to grow beyond the ability of debtors to pay. If large numbers of students remain liable to pay student loans without having obtained well enough jobs to pay, this will prevent them from being able to qualify for mortgage to buy a home and start a family. Many students today are obliged to keep living with their parents, and are unable to marry. The result is deepening economic austerity as a result of the debt overhead.

Meanwhile, defaults on student loans to for-profit colleges are projected as rising toward 40%. Is it worth it to say that to prevent giving these impecunious students a “free lunch,” it is worth keeping a large swath of the population poor and unmarried?

The first defaulters are victims of junk mortgages and student debtors, but by far the largest victims are countries borrowing from the IMF in currency “stabilization” (that is economic destabilization) programs.

It is moral for creditors to have to bear the risk (“hazard”) of making bad loans, defined as those that the debtor cannot pay without losing property, status or becoming insolvent. A bad international loan to a government is one that the government cannot pay except by imposing austerity on the economy to a degree that output falls, labor is obliged to emigrate to find employment, capital investment declines, and governments are forced to pay creditors by privatizing and selling off the public domain to monopolists.

The analogy in Bronze Age Babylonia was a flight of debtors from the land. Today from Greece to Ukraine, it is a flight of skilled labor and young labor to find work abroad.

No debtor – whether a class of debtors such as students or victims of predatory junk mortgages, or an entire government and national economy – should be obliged to go on the road to and economic suicide and self-destruction in order to pay creditors. The definition of statehood – and hence, international law – should be to put one’s national solvency and self-determination above foreign financial attacks. Ceding financial control should be viewed as a form of warfare, which countries have a legal right to resist as “odious debt” under moral international law.

The basic moral financial principal should be that creditors should bear the hazard for making bad loans that the debtor couldn’t pay — like the IMF loans to Argentina and Greece. The moral hazard is their putting creditor demands over the economy’s survival.

I wrote “And forgive them their debts” as Volume One of an economic history of how societies have handled debt and finance through the ages, and what the logic was behind the Bronze Age and early Iron Age structuring of economies.

Malcolm Lightbody

A Better Way to Think about the “Twin Deficits”

Published by Anonymous (not verified) on Wed, 14/11/2018 - 1:59am in

(These remarks will be delivered today at the UBS European Conference in London.)

Q: These questions about deficits are usually cast as problems to be solved. You come from a different way of framing the issue, often referred to as MMT, which—at the risk of oversimplifying—says that we worry far too much about debt issuance. Can you help us understand where fears may be misplaced?

Wray: First let me say that I think the twin deficits argument is based on flawed logic.

It runs something like this: the government decides to spend too much, causing a budget deficit that competes with private borrowers, driving interest rates up. That appreciates the currency and causes a trade deficit.

The budget and trade deficits are unsustainable as both the private sector and the government sector rely on the supply of dollars lent by foreigners. At some point the Chinese and others will demand payment and/or sell out of dollars causing US rates to rise and the dollar to crash.

While that’s a simplified summary, I think it captures the main arguments.

Here’s the way I see it:

  1. Overnight rates are set by the central bank; deficits raise them only if the central bank reacts to deficits by raising them.
  2. Budget deficits result in net credits to bank reserves and hence put downward (not upward) pressure on overnight rates that is relieved by bond sales by the Fed and Treasury—or by paying interest on reserves. In other words, there’s no crowding out effect on rates. (Inaction lets rates fall.)
  3. Budget deficits result from the nongovernment sector’s desire to net save government liabilities. So long as the nongovernment sector wants to net save government debt, the deficit is sustainable.
  4. Current account deficits result from the rest of the world’s (ROW’s) desire to net save US dollar assets. So long as the ROW wants to accumulate dollars, the US trade deficit is sustainable. So there is a symmetry to the two deficits, but not the one usually supposed.
  5. The US government does not borrow dollars from China. China’s net exports lead to accumulation of dollar reserves that are exchanged for higher earning Treasuries. If China did not run current account surpluses, she would not accumulate many Treasuries. All the dollars China has came from the US.
  6. If the US did not run current account deficits, the Chinese and other foreigners would not accumulate many Treasuries. This shows that accumulation of Treasuries abroad has more to do with the trade deficit than with Uncle Sam’s borrowing. (Compare the US with Japan—where virtually all the Treasuries are held domestically.)
  7. A sovereign government cannot run out of its own liabilities. All modern governments make and receive payments through their central banks. Government spending takes the form of a credit by the central bank to a private bank’s reserves, and a credit by the receiving bank to the account of the recipient. You cannot run out of balance sheet entries.
  8. Affordability is not the question. The problem with too much government spending is that it diverts too many of the nation’s resources to the public sector—which causes inflation and leaves the private sector with too few resources.
  9. So, no, I don’t worry about sovereign government debt if it is issued in domestic currency—although I do worry about inflation, and about excessive private sector debt as well as non-sovereign government debt.
  10. To conclude: We’ve reversed the twin deficit logic and emphasized quantity adjustments. The twin deficits are the residuals that accommodate the desired net saving of the domestic private sector and the ROW, respectively.
  11. Usually the domestic nongovernment sectors want to accumulate dollars so the only sector left to inject dollars is the US government. This means Uncle Sam runs a deficit because others want to accumulate dollars. The government also accommodates the portfolio desires of the nongovernment by swapping dollar reserves and bonds on demand.
  12. Finally, if the ROW does not want dollars anymore, it can buy goods and services in the US. That will reduce the external deficit, stimulate domestic demand, and thereby reduce the fiscal deficit.

A Better Way to Think about the “Twin Deficits”

Published by Anonymous (not verified) on Wed, 14/11/2018 - 1:59am in

(These remarks will be delivered today at the UBS European Conference in London.)

Q: These questions about deficits are usually cast as problems to be solved. You come from a different way of framing the issue, often referred to as MMT, which—at the risk of oversimplifying—says that we worry far too much about debt issuance. Can you help us understand where fears may be misplaced?

Wray: First let me say that I think the twin deficits argument is based on flawed logic.

It runs something like this: the government decides to spend too much, causing a budget deficit that competes with private borrowers, driving interest rates up. That appreciates the currency and causes a trade deficit.

The budget and trade deficits are unsustainable as both the private sector and the government sector rely on the supply of dollars lent by foreigners. At some point the Chinese and others will demand payment and/or sell out of dollars causing US rates to rise and the dollar to crash.

While that’s a simplified summary, I think it captures the main arguments.

Here’s the way I see it:

  1. Overnight rates are set by the central bank; deficits raise them only if the central bank reacts to deficits by raising them.
  2. Budget deficits result in net credits to bank reserves and hence put downward (not upward) pressure on overnight rates that is relieved by bond sales by the Fed and Treasury—or by paying interest on reserves. In other words, there’s no crowding out effect on rates. (Inaction lets rates fall.)
  3. Budget deficits result from the nongovernment sector’s desire to net save government liabilities. So long as the nongovernment sector wants to net save government debt, the deficit is sustainable.
  4. Current account deficits result from the rest of the world’s (ROW’s) desire to net save US dollar assets. So long as the ROW wants to accumulate dollars, the US trade deficit is sustainable. So there is a symmetry to the two deficits, but not the one usually supposed.
  5. The US government does not borrow dollars from China. China’s net exports lead to accumulation of dollar reserves that are exchanged for higher earning Treasuries. If China did not run current account surpluses, she would not accumulate many Treasuries. All the dollars China has came from the US.
  6. If the US did not run current account deficits, the Chinese and other foreigners would not accumulate many Treasuries. This shows that accumulation of Treasuries abroad has more to do with the trade deficit than with Uncle Sam’s borrowing. (Compare the US with Japan—where virtually all the Treasuries are held domestically.)
  7. A sovereign government cannot run out of its own liabilities. All modern governments make and receive payments through their central banks. Government spending takes the form of a credit by the central bank to a private bank’s reserves, and a credit by the receiving bank to the account of the recipient. You cannot run out of balance sheet entries.
  8. Affordability is not the question. The problem with too much government spending is that it diverts too many of the nation’s resources to the public sector—which causes inflation and leaves the private sector with too few resources.
  9. So, no, I don’t worry about sovereign government debt if it is issued in domestic currency—although I do worry about inflation, and about excessive private sector debt as well as non-sovereign government debt.
  10. To conclude: We’ve reversed the twin deficit logic and emphasized quantity adjustments. The twin deficits are the residuals that accommodate the desired net saving of the domestic private sector and the ROW, respectively.
  11. Usually the domestic nongovernment sectors want to accumulate dollars so the only sector left to inject dollars is the US government. This means Uncle Sam runs a deficit because others want to accumulate dollars. The government also accommodates the portfolio desires of the nongovernment by swapping dollar reserves and bonds on demand.
  12. Finally, if the ROW does not want dollars anymore, it can buy goods and services in the US. That will reduce the external deficit, stimulate domestic demand, and thereby reduce the fiscal deficit.

Put the Planet and the People First and the Fiscal Deficit Will Look After Itself

Published by Anonymous (not verified) on Sat, 03/11/2018 - 4:50am in

Gold coins with £ sign on each oneImage: © Chrisharvey – Dreamstime

The Chancellor of the Exchequer, Philip Hammond, delivered his Autumn Budget on Monday. Hammond took an upbeat tone, congratulating the public for its hard work and sacrifice which were now paying off, he said, allowing the economy to recover. Reassuring the House that austerity had always been about necessity and never ideology, ‘Spreadsheet Phil’ indulged himself at length in his introductory words in the classic but false framing of household budget economics focusing on tax windfalls, borrowing, deficit and debt narratives.

It was a budget that had no connection with the real world. Conveniently, the targets to eliminate the deficit (which have faded repeatedly into the distance and national debt has ballooned) were set aside. After eight years of punishing cuts and service closures which has caused economic and social distress to so many, the narrative is stuck in the myth where money for investment in the common wealth of the nation is still limited. It must be cautiously doled out, as gifts or rewards for good behaviour, not as the necessary spending of a government taking proper responsibility for the nation’s security and wellbeing.

Austerity is not over by any means.

Tax and Pay

Wealthy earners have benefited disproportionately from the income tax threshold increase. Hidden in the small print and left unmentioned in the Chancellor’s speech was an increase in National Insurance which diminished the income tax gains. Nonetheless, The Resolution Foundation has calculated that 84% of the gains related to the income tax cut will still flow to the top half of the income distribution and 37% to the top 10%.
There is substantial evidence that inequalities in income distribution have a direct relationship with inequalities to access essential services. There is a wealth of evidence that Universal Credit is having a seriously damaging impact on people’s lives and that people with disabilities are suffering disproportionately in cuts to their income and from cuts in services.
This budget does nothing at a time when wealth disparities are at their highest and people with low incomes and employment insecurity are already struggling to make ends meet. It would make far better economic and business sense to improve living standards of the lowest income section of society as they are the people who spend their additional income, unlike the richer sections of society who have a greater tendency to save.

Universal Credit and Social Security

The Conservative flagship policy Universal Credit has been coming under increasing pressure over recent months because of the suffering and hardship that has been caused. In 2017 The Resolution Foundation called the current design of Universal Credit ‘not fit for purpose’ in 21st century Britain. The UN rapporteur on extreme poverty and human rights is due to come to Britain in November to examine the impact of austerity, including Universal Credit.
The Chancellor has responded by allocating an additional £1bn to ‘smooth’ its roll out. He has made it clear, however, that Universal Credit won’t be slowed or stopped, and the cash injection will do little to deal with the inherent structural problems causing suffering and hardship often rendering people homeless and hungry.
The Treasury purse may have opened a crack but it will do nothing to make up or restore the losses of the last eight years of austerity. This is window dressing of the worst kind.

Environment

Three weeks on from the publication of the IPPC report the Chancellor did not mention climate change once in the budget. Caroline Lucas has challenged this inadequacy pointing out that it is in complete denial of the reality facing the country in our immediate future. Compare this to the Spanish Government’s recent announcement that they are closing coal mines and retraining the miners to develop sustainable energy.
Philip Hammond, by contrast, tinkered around the edges announcing a new tax on the manufacture of plastic packaging. For the ninth year running there is no increase in fuel duty but an allocation of £30bn for roads. This demonstrates a preference for cars over a strategic plan for developing an ecologically sound public transport system. Fossil fuel subsidies will continue. The Chancellor has allocated £60bn for tree planting, but environmentalists have questioned the value of this in the face of government support for environmentally damaging fracking over renewable energy.

Health

The NHS continues to suffer as it not only faces the continued real squeeze on its finances but also on-going privatisation. The Chancellor’s award of extra money for mental health services by 2023-24 is not extra funding and will come from the £20.5bn announced by the government in June this year. This is too little and too late. The crisis in mental health is happening now.
Furthermore, funding for public health services, training doctors and nurses, buying equipment and building new infrastructure will be cut by £1bn next year. The NHS is under increasing pressure in real terms as it tries to cope with picking up the slack after eight years of cuts to social care. The £650m increase to the budget for social care is only a sticking plaster.
There is an extraordinary piece of double-speak in the budget as the Chancellor announced he would abolish the Private Finance Initiative. However, he pledged that existing PFI contracts would continue to be honoured thus locking the hospitals into repaying their substantial debts until 2050. The future direction of who runs public services is also sealed as he indicated that he was firmly ‘committed to the [continued] use of public-private partnership.’ PFI is dead, long live PFI.

Conclusion

The Institute for Fiscal Studies has warned that as a result of the Budget the public finances could deteriorate and that an increase in spending could push the national debt higher.
The current reality in the UK is that we have both unmet need in terms of provision of services and unused resources in the number of people who are currently in low paid work which does not sustain them, or have given up looking in despair. A respectable and responsible budget should address those needs first and foremost if we are to have a successful economy.
This budget continues to frame government debt as a burden which must be dealt with. What is more it makes it the overriding concern well ahead of any real life public purpose such as addressing human suffering or the urgent need to combat the effects of climate breakdown.
A political illusion has been created that government has to finance its spending through borrowing or that it needs tax before it can spend. On the contrary it is the government’s duty as an elected body to assess the real resources that it requires to deliver its public and social purpose policy.
The Chancellor prefers to couch his budget in the narrative of fiscal discipline because it enables him to present spending as a kindly act and careful budgeting as a prudent one. This enables the continued dismantling of the NHS and the welfare state. Indeed, it reframes spending as an act of Victorian philanthropy rather than as the creation of common wealth for the benefit of people and a sustainable planet.

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The post Put the Planet and the People First and the Fiscal Deficit Will Look After Itself appeared first on The Gower Initiative for Modern Money Studies.

Crashed: How a Decade of Financial Crises Changed the World

Published by Anonymous (not verified) on Sat, 03/11/2018 - 3:39am in

Book Review

Adam Tooze. Crashed: How a Decade of Financial Crises Changed the World. Viking. New York. 2018

The global economic crisis is now more than a decade old, and is far from definitively behind us. Indeed, many fear, with good reason, that the recent, uneven and lethargic global recovery may soon come to an end, and that the next crisis of global capitalism could be even worse than that of 2008.

The financial crisis and resulting crisis of the real global economy triggered by the collapse of Lehman Brothers and other major Wall Street banks has already prompted the release of a small library of books. ( The best, to my mind, is Martin Wolf’s, The Shifts and the Shocks.) But Adam Tooze provides us with the first truly comprehensive account. It is the work of a contemporary historian who draws on political and economic theory to frame a compelling and disturbing narrative, and is likely to become a standard and indispensable reference.

Over more than six hundred pages, Tooze looks at the origins and implications of the financial crisis around the world, proceeding both chronologically, geographically and thematically. In an extraordinary work of scholarship, he surveys the global political economy and financialized capitalism of the pre crisis period, the unfolding of the financial crisis in the United States and Europe, the spread of the crisis to developing countries and Eastern Europe, the extraordinary response of China, the euro zone crisis and the agonies of Greece and Southern Europe, and the political implications of the crisis.

He offers a coherent account of how the crisis set the stage for the rise of right-wing populism around the world, and speculates on how the global economy may evolve in a new age of explicit and escalating rivalry between the United States and China. What is at stake is the possible collapse of the “neo liberal” global economic and political order.

One relatively novel argument made in the book is that the global economy has to be seen, not so much as a set of discrete national economies trading with each other, as a vast “macro financial” web of corporate balance sheets and financial flows. In such a world, states can rapidly experience an exit of capital and economic collapse without necessarily running large trade or public finance deficits, while the hegemonic power, the United States, can readily finance such deficits by virtue of the unique status of the US dollar as the global reserve currency.

Tooze does not look in detail at the underlying contradictions of the pre crisis period, but he does note the key point that growth in an age of rising inequality and redistribution of income from labour to capital was dangerously reliant upon the growth of private debt, speculative bubbles, and the recycling of global trade surpluses to deficit countries, notably from China to the United States.

He broadly endorses the view that neo liberal capitalism has been associated with “secular stagnation” due to inadequate demand, offset only by the massive expansion of debt. As he notes, the fear was that crisis would result from a collapse of the US dollar, but instead it came from the collapse of global finance due to a massive accumulation of bad debts dispersed across the world. In response to the crisis there was, somewhat ironically, a flight to the US dollar as US government bonds were seen as the safest asset available.

Where Tooze departs a bit from the standard account is in his understanding and insistence that this was not just a crisis of the US banks, but a crisis of global and especially North Atlantic finance. Tight links between the Wall Street banks, the City of London, and the major European banks produced a global systemic financial crisis, not a crisis of so-called Anglo-Saxon capitalism as many European critics have argued. The euro crisis was also the consequence of low quality debt and speculative housing bubbles in some countries (the UK, Spain) rather than the excessive growth of public debt. Indeed the fiscal problem of countries hit by crisis in southern and eastern Europe were mainly the result of the crisis of the real economy which increased government deficits and debts, and the decision of many governments (most notably Ireland) to transfer bad bank assets to the public sector.

Building on the historical analysis of Leo Panitch and Sam Gindin in The Making of Global Capitalism, Tooze argues that the global economy has been economically and politically dominated by the United States, which remained in 2008, and remains even more so today, the only power capable of providing global economic leadership. “The crisis had the effect of recentering the world financial economy on the United States as the only state capable of meeting the challenge it posed.” He recounts how the US Treasury and the US Federal Reserve were absolutely key to resolution of the crisis of the banks in 2008, extending liquidity (very low interest US dollar credit lines) to global and not just US banks.

Similarly, massive US government purchases of distressed financial assets to bail out the financial system through the TARP and other programs were extended from the US banks to major European and even developing country banks. Key officials like Larry Summers and Tim Geithner won the day when they argued for “big bazooka, shock and awe” tactics to stabilize the financial system.

While there was a lot of bungling, experimentation and political resistance along the way, the US Treasury and the US Federal Reserve were indeed able to stabilize the US financial system fairly quickly by a combination of outright injections of new capital and arm twisting to force mergers. “Hair cuts” for those who had caused the crisis by investing in high risk, low quality assets and through reckless speculation and outright fraud were modest at best.

These bail-outs have been widely criticized, with good reason, for saving financial capital at the expense of working people who had to endure high unemployment and a huge wave of home foreclosures. But the US political system, even progressive Democrats included, would not even contemplate nationalizing the banks. In that context, a viable financial system and normal credit flows had to be restored by socializing bad debts.

The alternative to bail outs was to experience what happened in the eurozone, a failure to deal with insolvent banks through “extend and pretend” half measures which postponed an outright collapse of the banking system but without dealing with bad debt. “The eurozone, through willful policy choices, drove tens of millions of its citizens into the depths of a 1930s style recession. It was one of the worst self-inflicted disasters on record.” Tooze argues that the euro area also effectively sidelined itself from any pretensions to global economic leadership.

Fortuitously, US leadership also extended to fiscal policy in response to the collapse of the real economy. The stimulus program of the Obama administration could and should have been far bigger and lasted far longer, as was understood by those who had learned the lessons of the Great Depression in the 1930s, but again it was much more significant than similar programs in the UK and Europe endorsed by a new global forum, the G20 as an immediate fix.. Here there was a quick return to fiscal austerity and deep spending cuts long before growth and employment had recovered, with Germany and smaller Northern European countries demanding harsh and indeed sadistic fiscal measure as the precondition for any help to heavily indebted countries. In the most troubled countries, there was a death spiral as insolvent banks became every more shaky as the real economy collapsed and interest rates soared well above those of Germany.

The euro zone as a whole failed to act until very late in the game, when the European Central Bank finally announced in July, 2012 that it was prepared to “do what it takes” to bring down interest rates on debt denominated in euros. This failure was partly due to institutional architecture (the narrow mandate of the ECB, tight rules on fiscal policy) and partly due to German insistence that recovery had to be based on austerity and wage discipline to restore global competitiveness, without heed to the immediate consequences. Greece was crucified as a salutary lesson to others. Today, the banking crisis is far from fully resolved, most notably in Italy, public debt has reached very high levels in some countries where the crisis has hit hardest, and output has grown little above pre crisis levels while unemployment remains very high.

Toooze further notes and details that China was an absolutely key player in resolving the crisis through massive fiscal stimulus, and continued willingness to retain and expand its enormous holdings of US dollars. “China’s response to the financial crisis it imported from the West was of world historic importance, dramatically accelerating the shift in the global balance of economic activity towards East Asia.” To give an idea of the scale, between 2008 and 2014, China built 10,000 kilometres of rail capable of running trains at 360 km per hour, in the process gaining a massive technological advantage. And health care coverage was extended from 30% to 90% of the population through expansion of subsidies and a massive construction program for health care facilities.

Tooze endorses and details the argument that the bail outs of finance, massive unemployment and fiscal austerity set the stage for a major discrediting of centre left neo liberal parties and the rise of right-wing populism in the US, the UK in the form of Brexit, and much of Europe. In the United States “in the name of economic nationalism and the American dream, the right wing claimed the cause of systemic change, while the Democratic Party establishment filled the middle ground the Republicans vacated. “ Trump explicitly challenges the global capitalist order in the form of America first economic nationalism and rejection of global institutions like the WTO.

More widely, “(s)ince 2007 the scale of the financial crisis has placed the relationship between democratic politics and the demands of capitalist governance under immense strain. Above all, this strain has manifested itself … in a crisis of the political parties that have mediated the two.” Moderate parties of the centre left which championed global capitalism and did little to alleviate the impacts of the global crisis on working people have paid a high political price, threatening the future of the global system as is it still exists. Social democracy in the eurozone has massively retreated as the populist right has rejected globalism and even the European Union itself in favour of economic nationalism and racial xenophobia.

Looking to the future, Tooze notes with many others that the recent global recovery has been built on the fragile base of continued growth in debt with very limited reform of global finance. Future crises are hard to predict, but are inevitable. He could, perhaps, have said more about what a stable and equitable growth model might look like. What he instead stresses, rightly, is the crisis of global political capacity to regulate the system. “With Trump as president and the Republicans dominating Congress, it is an open question whether the American political system will support even basic institutions of globalization let alone any adventurous crisis fighting at a national or global level”

The eurozone is seemingly incapable of resolving its own problems, as not just the UK but also Italy and the right in France look to the exits. Meanwhile, “China’s economic triumph is a triumph for the Communist Party. This is still the fundamental reason for doubting the possibility of truly deep co-operation with China in global economic governance. Unlike South Korea, Japan or Europe, China is not a subordinate part of of the American global network.”

We indeed live in profoundly dangerous times. Fortunately Adam Tooze has given us a narrative and analysis that illuminates where we have been, though he has no clear view of how progressive forces should and could re-shape the crisis prone and deeply inequitable global capitalist system created in the run-up to 2008.

Crashed: How a Decade of Financial Crises Changed the World

Published by Anonymous (not verified) on Sat, 03/11/2018 - 3:39am in

Book Review

Adam Tooze. Crashed: How a Decade of Financial Crises Changed the World. Viking. New York. 2018

The global economic crisis is now more than a decade old, and is far from definitively behind us. Indeed, many fear, with good reason, that the recent, uneven and lethargic global recovery may soon come to an end, and that the next crisis of global capitalism could be even worse than that of 2008.

The financial crisis and resulting crisis of the real global economy triggered by the collapse of Lehman Brothers and other major Wall Street banks has already prompted the release of a small library of books. ( The best, to my mind, is Martin Wolf’s, The Shifts and the Shocks.) But Adam Tooze provides us with the first truly comprehensive account. It is the work of a contemporary historian who draws on political and economic theory to frame a compelling and disturbing narrative, and is likely to become a standard and indispensable reference.

Over more than six hundred pages, Tooze looks at the origins and implications of the financial crisis around the world, proceeding both chronologically, geographically and thematically. In an extraordinary work of scholarship, he surveys the global political economy and financialized capitalism of the pre crisis period, the unfolding of the financial crisis in the United States and Europe, the spread of the crisis to developing countries and Eastern Europe, the extraordinary response of China, the euro zone crisis and the agonies of Greece and Southern Europe, and the political implications of the crisis.

He offers a coherent account of how the crisis set the stage for the rise of right-wing populism around the world, and speculates on how the global economy may evolve in a new age of explicit and escalating rivalry between the United States and China. What is at stake is the possible collapse of the “neo liberal” global economic and political order.

One relatively novel argument made in the book is that the global economy has to be seen, not so much as a set of discrete national economies trading with each other, as a vast “macro financial” web of corporate balance sheets and financial flows. In such a world, states can rapidly experience an exit of capital and economic collapse without necessarily running large trade or public finance deficits, while the hegemonic power, the United States, can readily finance such deficits by virtue of the unique status of the US dollar as the global reserve currency.

Tooze does not look in detail at the underlying contradictions of the pre crisis period, but he does note the key point that growth in an age of rising inequality and redistribution of income from labour to capital was dangerously reliant upon the growth of private debt, speculative bubbles, and the recycling of global trade surpluses to deficit countries, notably from China to the United States.

He broadly endorses the view that neo liberal capitalism has been associated with “secular stagnation” due to inadequate demand, offset only by the massive expansion of debt. As he notes, the fear was that crisis would result from a collapse of the US dollar, but instead it came from the collapse of global finance due to a massive accumulation of bad debts dispersed across the world. In response to the crisis there was, somewhat ironically, a flight to the US dollar as US government bonds were seen as the safest asset available.

Where Tooze departs a bit from the standard account is in his understanding and insistence that this was not just a crisis of the US banks, but a crisis of global and especially North Atlantic finance. Tight links between the Wall Street banks, the City of London, and the major European banks produced a global systemic financial crisis, not a crisis of so-called Anglo-Saxon capitalism as many European critics have argued. The euro crisis was also the consequence of low quality debt and speculative housing bubbles in some countries (the UK, Spain) rather than the excessive growth of public debt. Indeed the fiscal problem of countries hit by crisis in southern and eastern Europe were mainly the result of the crisis of the real economy which increased government deficits and debts, and the decision of many governments (most notably Ireland) to transfer bad bank assets to the public sector.

Building on the historical analysis of Leo Panitch and Sam Gindin in The Making of Global Capitalism, Tooze argues that the global economy has been economically and politically dominated by the United States, which remained in 2008, and remains even more so today, the only power capable of providing global economic leadership. “The crisis had the effect of recentering the world financial economy on the United States as the only state capable of meeting the challenge it posed.” He recounts how the US Treasury and the US Federal Reserve were absolutely key to resolution of the crisis of the banks in 2008, extending liquidity (very low interest US dollar credit lines) to global and not just US banks.

Similarly, massive US government purchases of distressed financial assets to bail out the financial system through the TARP and other programs were extended from the US banks to major European and even developing country banks. Key officials like Larry Summers and Tim Geithner won the day when they argued for “big bazooka, shock and awe” tactics to stabilize the financial system.

While there was a lot of bungling, experimentation and political resistance along the way, the US Treasury and the US Federal Reserve were indeed able to stabilize the US financial system fairly quickly by a combination of outright injections of new capital and arm twisting to force mergers. “Hair cuts” for those who had caused the crisis by investing in high risk, low quality assets and through reckless speculation and outright fraud were modest at best.

These bail-outs have been widely criticized, with good reason, for saving financial capital at the expense of working people who had to endure high unemployment and a huge wave of home foreclosures. But the US political system, even progressive Democrats included, would not even contemplate nationalizing the banks. In that context, a viable financial system and normal credit flows had to be restored by socializing bad debts.

The alternative to bail outs was to experience what happened in the eurozone, a failure to deal with insolvent banks through “extend and pretend” half measures which postponed an outright collapse of the banking system but without dealing with bad debt. “The eurozone, through willful policy choices, drove tens of millions of its citizens into the depths of a 1930s style recession. It was one of the worst self-inflicted disasters on record.” Tooze argues that the euro area also effectively sidelined itself from any pretensions to global economic leadership.

Fortuitously, US leadership also extended to fiscal policy in response to the collapse of the real economy. The stimulus program of the Obama administration could and should have been far bigger and lasted far longer, as was understood by those who had learned the lessons of the Great Depression in the 1930s, but again it was much more significant than similar programs in the UK and Europe endorsed by a new global forum, the G20 as an immediate fix.. Here there was a quick return to fiscal austerity and deep spending cuts long before growth and employment had recovered, with Germany and smaller Northern European countries demanding harsh and indeed sadistic fiscal measure as the precondition for any help to heavily indebted countries. In the most troubled countries, there was a death spiral as insolvent banks became every more shaky as the real economy collapsed and interest rates soared well above those of Germany.

The euro zone as a whole failed to act until very late in the game, when the European Central Bank finally announced in July, 2012 that it was prepared to “do what it takes” to bring down interest rates on debt denominated in euros. This failure was partly due to institutional architecture (the narrow mandate of the ECB, tight rules on fiscal policy) and partly due to German insistence that recovery had to be based on austerity and wage discipline to restore global competitiveness, without heed to the immediate consequences. Greece was crucified as a salutary lesson to others. Today, the banking crisis is far from fully resolved, most notably in Italy, public debt has reached very high levels in some countries where the crisis has hit hardest, and output has grown little above pre crisis levels while unemployment remains very high.

Toooze further notes and details that China was an absolutely key player in resolving the crisis through massive fiscal stimulus, and continued willingness to retain and expand its enormous holdings of US dollars. “China’s response to the financial crisis it imported from the West was of world historic importance, dramatically accelerating the shift in the global balance of economic activity towards East Asia.” To give an idea of the scale, between 2008 and 2014, China built 10,000 kilometres of rail capable of running trains at 360 km per hour, in the process gaining a massive technological advantage. And health care coverage was extended from 30% to 90% of the population through expansion of subsidies and a massive construction program for health care facilities.

Tooze endorses and details the argument that the bail outs of finance, massive unemployment and fiscal austerity set the stage for a major discrediting of centre left neo liberal parties and the rise of right-wing populism in the US, the UK in the form of Brexit, and much of Europe. In the United States “in the name of economic nationalism and the American dream, the right wing claimed the cause of systemic change, while the Democratic Party establishment filled the middle ground the Republicans vacated. “ Trump explicitly challenges the global capitalist order in the form of America first economic nationalism and rejection of global institutions like the WTO.

More widely, “(s)ince 2007 the scale of the financial crisis has placed the relationship between democratic politics and the demands of capitalist governance under immense strain. Above all, this strain has manifested itself … in a crisis of the political parties that have mediated the two.” Moderate parties of the centre left which championed global capitalism and did little to alleviate the impacts of the global crisis on working people have paid a high political price, threatening the future of the global system as is it still exists. Social democracy in the eurozone has massively retreated as the populist right has rejected globalism and even the European Union itself in favour of economic nationalism and racial xenophobia.

Looking to the future, Tooze notes with many others that the recent global recovery has been built on the fragile base of continued growth in debt with very limited reform of global finance. Future crises are hard to predict, but are inevitable. He could, perhaps, have said more about what a stable and equitable growth model might look like. What he instead stresses, rightly, is the crisis of global political capacity to regulate the system. “With Trump as president and the Republicans dominating Congress, it is an open question whether the American political system will support even basic institutions of globalization let alone any adventurous crisis fighting at a national or global level”

The eurozone is seemingly incapable of resolving its own problems, as not just the UK but also Italy and the right in France look to the exits. Meanwhile, “China’s economic triumph is a triumph for the Communist Party. This is still the fundamental reason for doubting the possibility of truly deep co-operation with China in global economic governance. Unlike South Korea, Japan or Europe, China is not a subordinate part of of the American global network.”

We indeed live in profoundly dangerous times. Fortunately Adam Tooze has given us a narrative and analysis that illuminates where we have been, though he has no clear view of how progressive forces should and could re-shape the crisis prone and deeply inequitable global capitalist system created in the run-up to 2008.

Merkel’s Eurausterity

Published by Anonymous (not verified) on Fri, 02/11/2018 - 11:15pm in

Outgoing German chancellor Angela Merkel’s record as a champion of Europe has a nasty stain:

Like many national leaders, Ms. Merkel, time and again, catered to domestic political interests at the expense of broader European concerns, dismissing calls that Germany’s prodigious savings be put on the line to rescue debt-saturated members of the bloc….  She adamantly opposed debt forgiveness to Greece, even as it teetered toward insolvency, and even as joblessness exceeded 27 percent — a special source of outrage given that German banks were primary lenders in Greece’s catastrophic explosion of borrowing.

“She was at the heart of the design of the flawed Greek program, which not only imposed austerity, but most importantly resisted restructuring the debt in order to save the German and French banks,” said Joseph E. Stiglitz, a Nobel laureate economist at Columbia University in New York. “The rhetoric that she used suggested that the crisis was caused by irresponsible behavior by Greece, rather than irresponsibility on the part of the lender.”

Read more here.

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