Bill Mitchell — Jacques Delors – a failed leader not a champion of a prosperous Europe

It is amazing how history is revised when it is convenient. It is also amazing how the same events, that from my perspective are rather clear, can be diametrically interpreted by others, who want to run a different agenda. A good example of these phenomena can be found in a recent UK Guardian article (August 11, 2017) – Jacques Delors foresaw the perils of austerity. How we need his wisdom now. When I saw the headline I thought it must have been an article seeking to elicit some sort of deep irony. Jacques Delors – perils of austerity – wisdom – all in the same title. Ridiculous. Through the lens I view the work of Jacques Delors I can only see the abandonment of a progressive social vision, the unnecessary surrender to neoliberalism, and then, a bit later, as an inevitable consequence of these shifts – the disastrous and dysfunctional creation of the Eurozone with all its embedded and destructive austerity biases. The unfortunate fact is that the UK Guardian article was deadly serious. Oh dear!

Bill Mitchell – billy blog
Jacques Delors – a failed leader not a champion of a prosperous Europe
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Brian Romanchuk — Monetary Disorder: Some Views From France – Book Review

One of the entertaining part of economics is the divergence of views on a national basis. Within a country, partisan political views create a spectrum of opinion, but we can usually identify an "establishment view." But those establishment views can be quite distinct across countries. As an example, the French establishment has a fixation upon exchange rate regimes, and an interpretation of the current monetary system which bears little resemblance with mainstream American views on the topic. This was apparent from reading Désordre dans les monnaies [Monetary Disorder]: L'impossible stabilité du système monétaire international?.…

Bond Economics
Monetary Disorder: Some Views From France
Brian Romanchuk

Dirk Ehnts — Flassbeck Economics says the Greeks are under pressure – are they?

One wonders what kind of construct will replace the troika. European institutions dictating policy to member countries will not increase the image of the European Union, especially if they force countries to give up on public goods like health care, education, etc. The political survival of the EU is more uncertain than ever, it seems.

A bad idea whose time has come.

econoblog 101
Flassbeck Economics says the Greeks are under pressure – are they?
Dirk Ehnts | Berlin School for Economics and Law

Ann Pettifor — The ECB Has Shaken The Eurozone’s Utopian Foundations

The 4th February late-night decision by the European Central Bank to reject Greek bank collateral for monetary policy operations will, I confidently predict, precipitate not just a run on Greek banks; not just greater price instability across the Eurozone – but ultimately, the collapse of the fantastic machinery that is the ‘self-regulating’ economy of the Eurozone. 

As is well known, the primary duty of the ECB is to promote price stability. Subject to price stability it has a duty to promote the union’s Treaty objectives that include: 

"balanced economic growth… full employment, social progress and solidarity amongst member states." 

Before the decision of 4th February, the ECB had failed lamentably in its primary duty: to maintain price stability and to do so at a self-imposed target, at or close to 2%. In December, eleven out of eighteen Eurozone countries were in annual deflation. This is not just lamentable monetary policy failure, it is technocratic misconduct on a grand scale.… 

But this arrogance, this disregard for the governments and the political will of the Greek people in particular and the peoples of Europe in general – is wholly in line with the Maastricht Treaty’s utopian vision for the Eurozone. As Wynne Godley argued way back in 1992, the architecture of the Eurozone is premised on the notion that economies are 

"self-righting organisms which never under any circumstances need management at all." 

This machinery was made to fit a financier-friendly ideology based on contempt for democratic government. According to this ideology governments are ‘rent-seeking’ and should be marginalized. Economic policy (monetary and fiscal) must be privatized in the hands of financial markets that, surprisingly, are regarded as having no such ‘rent-seeking’ instincts. 

The ECB’s mandate, as Godley argued, is premised on a belief that 

"governments are unable, and therefore should not try, to achieve any of the traditional goals of economic policy, such as growth and full employment."

Instead the fantastic machinery of invisible, unaccountable capital markets is entrusted with the task of managing and above all, disciplining Eurozone economies, governments and peoples.… 

The crisis in turn demolished the mythology of the free market. Instead financiers socialized losses and extracted government and taxpayer guarantees to protect them from risk.

But just as in the 1930s, the ideologues that laid the foundations of the Eurozone, and those that have against all odds upheld it, were not prepared for the Greek election result. They were not prepared for the fact that, as Karl Polanyi once argued, society would take measures to protect itself from the fantastic, unaccountable and ruthless machinery of capital markets.…

Today’s Eurozone’s architecture and associated economic policies are not different in intent from the “fetters” or “corset” that was the Gold Standard, and that regarded the role of governments with the same contempt. They are the same policies that led 1930s Europe into unbearable degradation, poverty, and misery. Today these policies once again threaten to unleash dangerous tensions. Society – locally, nationally, and internationally – is making ‘concerted efforts to protect itself from the market’. History is repeating itself. Current resistance to market liberalism echoes past resistance. As Karl Polanyi argued in his great, and increasingly relevant, work, The Great Transformation, the second ‘great transformation’ of the 20th century, the rise of fascism, was a direct result of the first ‘great transformation’ – the rise of market liberalism. 

Adherence to this utopian vision of how economies work explains the ECB’s crude and inept handling of the democratically elected Greek government’s attempt to resolve its debt crisis. Their actions will shake the foundations of the Eurozone.…

Let's see. The EZ is in deflation, social unrest is rising, there's a hot war on the eastern border of Europe. What could go wrong? Let's throw some gasoline on the fire and see what happens.

Social Europe

The ECB Has Shaken The Eurozone’s Utopian Foundations
Ann Pettifor

My podcast from yesterday

This podcast was cut short for some reason so here it is again.

-Mike Norman

Podcast for Dec 3, 2014

Bill Mitchell on "Innocent Hypocrites": Those Blithely Unaware That Hypocrisy Has No Limits In Ideology-Land.

   (Commentary posted by Roger Erickson)

The Best Way To Succeed In Life Is To Consistently Act On ALL The Advice We Give To Other Populations ... So We'd Soon Stop Preaching To Them So Much (and vice versa)

Eurozone battle lines being drawn again with Germany on the other side

"It all goes to show ... what a sorry, failed enterprise the Eurozone actually is."

There are 53 mentions of Germany and 52 mentions of "Commission" in this post, most having to do with ongoing hypocrisy, within the entire EU Parliament and all of it's Commissions.

Structural reforms, anyone? Top down?

ECB's "liquidity injections" just reinforcing deflationary forces already in place

The ECB's balance sheet (total assets) is now up to $3.5 trillion. That's 25% larger than the Fed's. (All this "money printing" eh? So where's the inflation? Why is gold falling?)

When the ECB expands its balance sheet, it buys bonds from the public and replaces those bonds with reserves (denominated in euros). Those reserves pay 25 basis points, however, the bonds paid far more. (Case in point: Italian bonds pay near 7%.)

So you can see how this “liquidity” operation is stripping a HUGE amount of interest income from the private sector in Europe. HUGE! If you sold an Italian bond to the ECB you just lost 675 basis points of income!

So rather than being inflationary or “stimulative,” the whole thing is massively deflationary because of the interest income reduction that is going on. This will exacerbate already weak economic trends in the Eurozone in 2012!

Draghi giveth and Draghi taketh away

Draghi giveth and Draghi taketh away.

First the monetary part...

Today the ECB/Draghi came out with extending nearly free, unlimited euros for banks for three years (a bit longer than expected), looser collateral rules (lower rated, riskier assets can be used) and a cut from 2% to 1% capital requirements. There was an initial relief rally.

But then Draghi followed it up with this...

Statements in which he basically implied that no major sovereign buying by the ECB is forthcoming. In addition, he said that "lending money to IMF to buy Euro bonds is not compatible with the treaty."

So where does that leave us?

It leaves us in an environment where European leaders truly believe that the problem is with the deficits and that the deficits have to be brought down to “normalize” national bond markets. Their prescription is more of the same—austerity—which has done nothing but collapse economic output and INCREASE the size of deficits.

With these policies it is safe to say that Europe has entered in a vicious circle down, which will eventually culminate with “blood in the streets” as all economic collapses do.

Wasn’t it Barron Rothschild who said, “Buy when there’s blood in the streets?”

But not before!

As for the U.S. there is strong reason to believe that we are decoupling from Europe as deficit spending remains high enough to sustain economic growth around the 2% level. In addition, households’ rising propensity to take on debt and banks’ willingness to provide that credit, can help sustain momentum in the economy. If we can get the payroll tax extension and unemployment insurance extension out of the way, it looks like 2012 can be a decent year and that's likely to help Obama.

Market looks like it's getting it wrong again on S&P move

So, the market is omniscient? The market never lies? The market is an efficient allocator of capital?

Hmmm...let's see.

When S&P downgraded the US there was a huge, negative reaction in the market. That was irrational because there is no risk of default for the US, a sovereign currency issuer. If you sold on the US downgrade, you're currently underwater.

Now S&P puts the Eurozone nations on Credit Watch Negative (meaning actual downgrades are likely) and the market rallies?? This time the downgrades actually mean something because none of the Eurozone countries are currency issuers and, therefore, they're all are credit sensitive.

Bottom line: the market is not always omniscient, honest and efficient as the neo-liberal economists would have you believe. It can be affected by bad beliefs just like anything else. (Remember the belief that Quantitative Easing was hyperinflationary?)

Most likely, selling into this optimism will prove to be as correct as buying into last August's pessimism.

Euro crisis is over.

The Euro crisis is over and from what I can see that view is being embraced more broadly.

Yields on Italian gov’t bonds are down sharply again today. The markets and more importantly—the ECB—are coming to realize that the ECB is the rate setter in the Eurozone, just as the Fed is the rate setter in US dollar bond markets and the BOJ is the rate setter in yen. And the mechanism by which the central bank, in this case the ECB, sets rates is by buying or selling the securities of the government in the secondary market. NOT DOING SO would be an abrogation of their role. Just as the Fed can set rates anywhere along the term structure or, even on mortgages, the ECB can set rates on Italian, Greek, Irish, Spanish, German, French or any other debt in the Eurozone. That is its role even if it is reluctant to do it. It is finally coming to terms with that and doing it as needed.

So this removes the solvency issue entirely at this point. As the markets come to realize this, and I believe it will be rather quickly now, there can be a huge relief rally.

Where we go from here depends on policy measures related to ongoing austerity. Austerity deflates economies and that means weaker growth, higher unemployment, not just in the Eurozone, but here as well. That will take time to play out because it is a political process, however, I see nothing in terms of policy that would suggest austerity will not be the norm going forward.

One final note, this is NOT MONEY PRINTING and NOT INFLATIONARY as some analysts are saying. That’s because the buying of bonds by the ECB is merely the removal of one asset from the public—the bond—and replacing it with a cash balance at the ECB. The only thing that has changed is the interest rate and the duration. The public is stripped of a bond interest coupon that pays a pretty high rate and gets a cash balance at the ECB that pays 1.25%. It is therefore stripped of income. This is not inflationary. The duration of the public’s assets has shifted from longer term to zero term (cash). That’s all that happened.

To the extent that markets perceive this as money printing or inflationary they will buy gold or commodities or sell bonds or whatever, but those moves are not likely to hold up.

S&P puts its stupidity on display once again

Over the past few years we've seen numerous examples of S&P stupidity, from the toxic assets rated AAA (although that might have just plain, fraud not stupidity) to the downgrade of the US credit rating even though there is ZERO risk of a US default because it's a currency issuer, to this...a statement by S&P on Europe's EFSF fund:

""In our opinion, there is an "almost certain" likelihood that the EFSF's 'AAA' rated member governments would provide timely and sufficient extraordinary support to the EFSF if needed."

And who might that support come from? France? Germany? Those nations are all credit sensitive themselves and are, therefore, constrained due to the fact that none of them are currency issuers.

By establishing the EFSF as the mechanism by which the situation gets "resolved" and precluding ECB support, they have all gone into "Ponzi," a fact you'd think S&P would recognize. But then again, S&P doesn't think it just issues proclamations based on ignorance.

Michael Pettis on euro failure

Pettis concludes what I have suggested from the beginning of the crisis — Germany need to leave the EZ and go back to the DM, and political realities will force it to do so. This would save the euro, and then after the crisis is in the past, the EZ could be reconsidered. Otherwise, the asymmetry is too great for a workable solution, and there is no political will to take on the powerful financial industry that is largely responsible for the crisis.

Read the whole post at China Financial Markets, The euro once again

European treasury needed to avoid Depression-Soros

(Reuters) - Billionaire investor George Soros has warned Europe's debt crisis risks triggering another Great Depression unless euro zone leaders adopt a series of radical policy measures, including the creation of a common treasury. Soros, in an article for the New York Review of Books and Reuters.com, says policymakers must prepare for the possibility that Greece, Portugal and perhaps Ireland will have to default and leave the euro zone. (link.reuters.com/qap73s)

"It appears the authorities have reached the end of the road with their policy of 'kicking the can down the road'," he says.

"Even if a catastrophe can be avoided, one thing is certain: the pressure to reduce deficits will push the euro zone into prolonged recession. This will have incalculable political consequences."

Read the rest at Reuters, European treasury needed to avoid Depression-Soros

Greek government: "Enough austerity!"

Greece has had enough. Enough of this insane, devastating, austerity. That's what their leaders are telling the IMF and other lenders. "We're done!"

“It’s killing us,” says one Greek cabinet minister. Athens can’t force through another round cuts to pay pensions and social services: “An angry population will take matters into its own hands, the government will collapse and we may end up with political crisis in a near-bankrupt euro-zone country which nobody will know how to control.”

The Greek government realizes that any more of this insanity and there won't be a government anymore. You can only whip the people so much, otherwise you'd better just kill them because the ones who are left will rise up and fight.

We may be getting a lot closer to Greece leaving the euro.

Read article here.

Euro debt crisis migrating to the core

German and French credit default swaps starting to blow out now.

Germany 5yr sovereign CDS

France 5yr sovereign CDS