Archive for the ‘Economy and Business’ Category

The stock market in 100-year perspective

August 26, 2015

 DowJones1914-2014-Constant-e1440525772683Source: American Enterprise Institute

The Dow Jones Industrial Average of 30 industrial stocks was at 54.6 at the end of 1914.  By the end of 2014, it was at 17,823.

But adjusted for changes in the Consumer Price Index, the gain is much more moderate—about 2.7 percent a year. The average dividend yield on DJIA stocks was about 4.1 percent.  So the total average annual gain was 6.8 percent.

What the chart shows is that there have been long periods when stock prices declined or were static.  You can’t count on stocks always going up.  The 1920s and 1990s booms were not necessarily typical.

I’m not smart enough or stupid enough to predict how the stock market will go, but you’d have to be very optimistic to think the boom will continue.

I don’t think the recent rise in stock prices reflects the real economy.  I think it is a result of the Federal Reserve Board holding down bank interest rates, so that savers are driven to buy stocks in order to get a yield on their money.

Many CEOs are buying back the companies’ stocks, thereby driving up the price, instead of investing in expanding their businesses, which would benefit the nation as a whole.

This is another example of Stein’s Law:  If something cannot go on forever, someday it will stop.   The recent stock price boom could not go on forever.

LINKS

The stock market in 100-year perspective by Alex J. Pollock for the American Enterprise Institute.

Wall Street Panic by Mike Whitney for Counterpunch.

Quick Thoughts on the Stock Market and the Economy by Dean Baker for Beat the Press.

Smoke and Mirrors of Corporate Buybacks Behind the Market Crash, an interview of Michael Hudson for the Real News Network.

∞∞∞

Update 8/27/2015.  I made some changes in wording that didn’t change the meaning of this post.

There never was an “economic stimulus”

August 24, 2015
blog_govt_spending_recession

Source: the Wall Street Journal

All the recessions since World War Two were followed by an “economic stimulus”.   The current one is the exception.  As the chart above indicates, government spending—combined local, state and federal government spending—has actually declined.

The idea behind “economic stimulus” was that increased government spending would put people to work and put money in circulation so that the recession would not have a domino effect and develop into a full-fledged recession.

Of course some of this was not intentional.  Spending for unemployment insurance and other safety net programs automatically increases in hard times.

For the idea to work, there has to be deficit spending.  There is no economic stimulus if governments take as much money out of the economy through taxes as they inject through spending.   Keynesian economists think this should be offset by government budget surpluses when the economy is booming and needs to be cooled off.

You could argue about whether this is justified and how much effect it really works.  I personally think that the severity of the Great Recession is due to the long-range decline of American wages in inflation-adjusted terms.

But it is interesting to note that the current recession is the worst since the Great Depression of the 1930s and that it is the only one followed by an actual decrease in government spending.

LINK

Chart of the Day: Here’s Why the Recovery Has Been So Weak by Kevin Drum for Mother Jones.

The passing scene – August 19, 2015

August 19, 2015

On the elementary structure of domination: The Bully’s Pulpit by David Graeber for The Baffler.

Schoolyard bullies typically believe they have a right and duty to punish and humiliate those who manifest vulnerability, fear or deviance, and they retroactively justify their actions by the inappropriate ways in which their victims resist, Graeber wrote; this reflects the structure of domination in the larger society.

Algorithms can be a digital star chamber by Frank Pasquale for Aeon.

An algorithm fed into a computer can determine whether you get a job, get credit or get insurance, or what kind.  Probably you don’t know about it.  Probably you can’t appeal the result because arbitrary assumptions processed through a computer are considered “objective.”

Climate Change Threatens Economic Development, World Bank President Jim Yong Kim Says by Julia Glum for International Business Times.   (Hat tip to Hal Bauer)

We’ll see whether he puts the World Bank’s money where his mouth is.

(more…)

The passing scene – August 8, 2015

August 8, 2015

Republican Assault on Trump May Only Make Him Stronger by Matt Taibbi for Rolling Stone.

Trump’s Triumph: Billionaire Bloward Exposes Fake Political System by Mike Whitney for Counterpunch.

How Pathetic: Why Donald Trump May Be the Best Thing Going by Andrew Levine for Counterpunch.

The Republican Candidates Agree that the System Is Rigged for the Rich by William K. Black for New Economic Perspectives.

720x405-GettyImages-483208910I still can’t take Donald Trump seriously as a Presidential candidate, but he has said things that need to be said, especially about how he and other billionaires have the power to buy politicians.

Other Republican candidates also point out that the political system is rigged in favor of Wall Street and the large corporations.

Their answer appears to be lower taxes, less regulation and a minimal role for government, on the theory that the less government does, the less it matters whether corporations and wealthy individuals can manipulate government.

My problem with this is that some large corporations have grown so large and powerful that they are the next thing to governments themselves.

Hillary’s Libyan Torturers by Daniel McAdams for The Ron Paul Institute.

hillary-tortureThe achievement of Barack Obama and Hillary Clinton in foreign affairs was to find a way to find a way to continue the policies of George W. Bush without large numbers of American casualties.

The attack on Libya is an example of this.  The U.S. government supported an attack on a country that did not threaten the United States, based on lies, and reduced it to bloody chaos in which terrorists such as ISIS flourish.

The problem with Bernie Sanders by Joseph Cannon of Cannonfire.

Bernie Sanders is like many democratic socialists of the 1950s and 1960s—a defender of the interests of working people, a defender of civil rights, but also a cold warrior.

He thinks the United States should support Saudi Arabia and Turkey against ISIS, when these two governments are interested only in fighting the enemies of ISIS—Syria for Saudi Arabia and the Kurds for Turkey.   Likewise he favors confrontation of Vladimir Putin over Ukraine, which puts the United States at risk of nuclear war.

(more…)

Pro-TPP companies, groups bankroll Clinton

August 7, 2015

CLQEBW4XAAAMhhvSource: LittleSis.

Hillary Clinton in her book, Hard Choices, endorsed the Trans Pacific Partnership.  If she makes any statements appearing to back off from that position, I’d read them like a lawyer looking for loopholes.

She’s been paid more than $2.5 million—actually, more than $2.7 million—in speaking fees by companies and organizations that lobby in favor of the TPP.

Bernie Sanders and Martin O’Malley, two other Democratic candidates for President, are opposed to the TPP, as are Republican candidates Mike Huckabee and Donald Trump.

Republicans Jeb Bush, Ted Cruz, Rand Paul and Rick Perry support the TPP.

I think the TPP is a terrible idea because, based on information now available, it appears to lock in a corporate wish-list as international law.  International corporations, but no other entities, would have the right to appeal to a special tribunal against laws they deem unfair, and the tribunal would have authority to fine governments for allegedly unfair laws.

At the very least Congress should have time to discuss and debate it fully rather than having it rushed through on fast track.

LINKS

Groups lobbying on trade paid Hillary Clinton $2.5 million in speaking fees by Julianna Goldman for CBS News.

TPP Agreement: Where Do 2016 Presidential Candidates Stand on the Trans Pacific Partnership? by Howard Koplowitz for International Business Times.

Donald Trump slams Pacific free trade deal by CNN Money.  Trump appears to be right for wrong reasons.  Like some TPP supporters, he talks as if the TPP is mainly about free trade.

(more…)

Greece and the economic hit men

August 3, 2015

Like many people, I once naively believed that banks made a profit by lending money to people who would pay them back.  I’m sure that is still true of the many honest bankers still left in the world.

But it can be more profitable for banks to lend money to people who can’t pay them back.  The lender collects higher interest rates.  Sometimes the loans are securitized and sold to suckers.   Foreclosures are profitable if the value of the underlying asset is greater than the loan.

And last, but not least, if the lender is large enough and politically powerful enough, a government will bail him out.

John Perkins, author of Confessions of an Economic Hit Man (which I haven’t read), gave an interview to a Greek radio station explaining how this works.

Essentially, my job was to identify countries that had resources that our corporations want, and that could be things like oil – or it could be markets – it could be transportation systems.  There are so many different things.

2014_911_perkins_st

John Perkins

Once we identified these countries, we arranged huge loans to them, but the money would never actually go to the countries; instead it would go to our own corporations to build infrastructure projects in those countries, things like power plants and highways that benefited a few wealthy people as well as our own corporations, but not the majority of people who couldn’t afford to buy into these things, and yet they were left holding a huge debt, very much like what Greece has today, a phenomenal debt.

And once [they were] bound by that debt, we would go back, usually in the form of the IMF – and in the case of Greece today, it’s the IMF and the EU [European Union] – and make tremendous demands on the country: increase taxes, cut back on spending, sell public sector utilities to private companies, things like power companies and water systems, transportation systems, privatize those, and basically become a slave to us, to the corporations, to the IMF, in your case to the EU, and basically, organizations like the World Bank, the IMF, the EU, are tools of the big corporations, what I call the “corporatocracy.”

via TruthOut.

The so-called “bailout” of Greece is not a bailout of the Greek people and does not reduce the Greek debt burden.  It is a bailout of banks by European governments and the International Monetary Fund.

I’d guess that’s the reason the Russian government turned down a Greek plea for help.   The Russians would get no benefit from providing funds to Greece that would flow through to European governments that support the Ukrainian government’s fight against pro-Russian separatists.  Far better, from the Russian standpoint, to wait until Greece defaults and disconnects from Europe, and then step in.

Ukraine itself will soon be in the same situation.  It has greater debts than it ever can repay, and rich assets, especially in agricultural land, that speculators would like to acquire.

∞∞∞

An Economic Hit Man Speaks Out: John Perkins on How Greece Has Fallen Victim to “Economic Hit Men”, an interview by Michael Nevradakis for Dialogos Radio in Greece.

Bailout Money Goes to Greece, Only to Flow Out Again by Jack Ewing and Liz Alderman for the New York Times.

Who Really Benefits From Bailouts? by Barry Ritholtz for BoombergView.

Jack Bogle on why the financial sector is too big

August 3, 2015

Jack Bogle is the founder of the Vanguard group of mutual funds and a pioneer of the concept of investing in no-load index funds with low expense ratios rather than trying to outguess the market.

Vanguard has the largest share of fund assets in the industry, and two-thirds of that is in index funds.  I myself have put my retirement savings in Vanguard and T. Rowe  Price funds.

This is from an interview of Jack Bogle in the August issue of Money magazine.

Q: You’re concerned that the financial sector is too big. Why?

Jack Bogle

Jack Bogle

A: The job of finance is to provide capital to companies. We do it to the tune of $250 billion a year in IPOs and secondary offerings. What else do we do? We encourage investors to trade about $32 trillion a year. So the way I calculate it, 99% of what we do in this industry is people trading with one another, with a gain only to the middleman. It’s a waste of resources.

via Money.com.

Mitch Tuchman of MarketWatch pointed out that $32 trillion is nearly double the size of the U.S. economy.  Merely moving this from one pocket to another during the course of a year is at best useless and at worst destabilizing to the U.S. economy.  Yet a lot of people get rich collecting fees just for moving the money around.

There should be a transaction tax of some fraction of 1 percent.  This wouldn’t affect serious long-term investors, but it would slow down speculators.

LINKS

Jack Bogle Explains How the Index Fund Won With Investors, an interview by Pat Regnier for Money magazine.

Why 99% of trading is pointless by Mitch Tuchman of MarketWatch.

Failing to learn from the Great Depression

July 30, 2015

The Great Depression of the 1930s was made worse than it needed to be because European governments prioritized balanced budgets and stable currencies over putting people back to work and putting money into circulation.

As Matthew Yglesias noted—

In Germany, for example, the [ruling socialist] SPD took the view, roughly speaking, that capitalism was an inherently flawed system and the Depression just proved that.  But short of a revolution and a total transformation of the political universe, there was just nothing to be done to alleviate unemployment.

Similarly, in 1929 Ramsay MacDonald’s Labour Party swept into power in the United Kingdom and proceeded to … enact spending cuts necessary to keep the country on the gold standard.  As this led to left-wing defections, MacDonald eventually made up lost ground by forming a coalition with Conservatives that eventually ended up being mostly backed by conservative MPs.

Sweden was an exception where the local social democrats took bold steps to bolster employment. But mostly it was left to other parties with less worthy overall agendas — Hitler, for example — to step in and say that if the rules of the game led to prolonged spells of mass unemployment then the rules of the game had to be changed.

via Vox.com.

Brad  DeLong, an economist at UC Berkeley, said that he used to joke that governments would never again make the mistakes that prolonged the Great Depression, but instead would make new mistakes.  Now he admits he was wrong.  Governments are making the same old mistakes.

austerity-depressionEurope’s governments are held back by fear of fiscal imbalance and undermining the Euro standard, just as they once were held back for fear of undermining the gold standard.  But, as in the 1930s, there are nationalist parties waiting in the wings to do the things that the mainstream parties fear to do.

The European public may well turn to parties such as the United Kingdom Independence Party, the National Front in France or the neo-Nazi Golden Dawn party in Greece.   As far as that goes, similar movements will arise in the United States if Democrats and Republicans fail to act.

LINKS

Depression’s Advocates by J. Bradford DeLong for Project Syndicate.

I don’t want to go back there by Matthew Yglesias for Vox.com.

Why did Germany abandon the good path?

July 29, 2015

A decade ago, looking at the state of the union the Bush administration, it seems to me that it was the European Union, and Germany in particular, had replaced the USA as the last, best hope of earth.  As recently as five years ago, I posted an article on Germany as an Economic Role Model.

Germany had seemingly created an economy based not on cutting costs, but on creating value, investing in people and worker participation in decision-making.  The Germans had learned how how to hold their own in international trade and still enjoy high wages, generous social benefits and excellent public services, without sacrificing civil liberties.

Or so I thought at the time.  But the Greek debt crisis shows Germany as much in the grip of a financial oligarchy as the USA was.

Germany.austerity16678The German leaders have embraced the idea, very familiar to us Americans, that the purpose of an economic system is not cooperation for mutual benefit, but to reward winners and punish losers.

The best way to help Greece’s creditors is to promote Greece’s economic recovery, so at least a portion of the debt can be repaid.  The austerity measures being imposed by the European Central Bank, European Commission and International Monetary Fund are driving Greece deeper into economic depression.  They are being imposed as a punishment and a deterrent.

The German leaders also have made the mistake of allowing central banks, rather than the public, to determine economic policy.   The problem with this is that bankers have different priorities than the public.

Broadly speaking, bankers want zero inflation and debts to be repaid in full.  All other things being equal, these are desirable goals, but not at the cost of rising unemployment, falling wages and non-functioning government services.

Unfortunately the European Central Bank is in charge of European monetary policy, and the public has nothing to say about its policies.   It is governed by a committee consisting of 19 national central banks and a six-member executive board appointed by the European Council.   I looked up “accountability” on the bank’s web site, and found that this consists of regularly issuing reports.

The best way to enforce accountability for the Greek debt crisis would be to investigate the Greek public officials and their banker advisers who created it, and determined whether they should be charged with malfeasance.  Instead the banks have been bailed out, and the public officials escape blame—much the same as in the 2008 financial crisis in the United States.

(more…)

How NAFTA drove poor Mexicans north

July 22, 2015

If not for NAFTA, the United States probably wouldn’t have the issue it does with unauthorized immigration from Mexico.

The North American Free Trade Agreement, enacted in 1993, was part of a strategy by the Bill Clinton administration, continuing the policy of previous administrations, to increase U.S. exports.

ImageGen.ashxThe government gave up trying to preserve the family-operated farm.  Instead it favored large-scale operations that could produce food for export.  Farmers were told: “Get big or get out.”

NAFTA, although it eliminated government subsidies for many products, preserved U.S. subsidies for corn and dairy products.  The corn subsidy was also in effect a subsidy for meat, since meat animals are fed subsidized corn.

Small Mexican farmers, especially corn farmers, could not compete against the cheap food imports that flooded into Mexico.  Many left the land, and joined the migrant stream into the United States.

U.S. government policy was successful in increasing exports of corn.  The unintended result was increased imports of unauthorized workers.   I think NAFTA should be amended or repealed, but, sadly, this will not change the results of NAFTA.

LINKS

Under Nafta, Mexico Suffered and the United States felt its pain by Laura Carlsen for the New York Times.

Corn Sales to Western Hemisphere Surge by the National Corn Growers Association.

NAFTA and US farmers—20 years later by Karen Hansen-Kuhn for the Institute for Agriculture and Trade Policy.

Mexican Farmers Affected by Agricultural Subsidies from NAFTA, Other International Agreements by Susana G. Baumann for the Huffington Post.

Corn Subsidies at Root of U.S.-Mexico Immigration Problems by Anthony B. Bradley of the Acton Institute.

How U.S. Policies Fueled Mexico’s Great Migration by David Bacon for The Nation.

Free trade: As U.S. corn flows south, Mexicans stop farming by Tim Johnson for McClatchy Newspapers.

Greece’s debt and the Wiemar Republic analogy

July 14, 2015

Historical analogies don’t necessarily hold, but Germany in the 1920s and early 1930s, like Greece today, had a dysfunctional democratic government and was saddled with war debts beyond the nation’s ability to pay.

All well-informed people understood the situation, but the demands of the creditor nations on the Wiemar Republic were uncompromising.  Then Hitler came to power, and the debt was forgiven.

I wouldn’t be surprised if the fascist Golden Dawn party came to power in Greece, and I wouldn’t be completely surprised if the creditor nations relaxed their demands for debt repayment.

(more…)

Banks get bailed out, Greece doesn’t

July 13, 2015

Joseph Cannon came across this information on a comment thread on the Moon of Alabama blog.  It compares the amounts of the U.S. government bailouts of banks to the bailout needed to save Greece.

Citigroup – Citigroup $2.513 Trillion

Morgan Stanley – $2.041 Trillion

Merrill Lynch – $1.949 Trillion

Bank of America – $1.344 Trillion

Barclays PLC – $868 Billion

Bear Sterns – $853 B

Goldman Sachs – $814 B

Royal Bank of Scotland – $541 B

JP Morgan Chase $391 B

GREECE $370 BILLION

Deutche Bank – $354 B

UBS – $287 B

Credit Suisse – $262 B

Lehman Bros – $183 B

Bank of Scotland – $181 B

BNP Paribas – $175 B

Wells Fargo – $159 B

Dexia – $159 B

Wachovia – $142 B

Dresdner Bank – $135 B

via Moon of Alabama.

What these figures show—I haven’t verified them, but I take them to be correct—is that a rescure of Greece is not beyond the realm of fiscal possibility.

Now you could argue that these comparisons are unfair because the banks paid back their TARP funds.  That’s true, but, as Cannon pointed out, they paid them back largely with other government money.

greece_2457626aThe real reason that the comparisons are unfair is that the bulk of the Greek debt has been transferred from private banks to quasi-public entities.  Greece is not comparable to Citigroup or Morgan Stanley.  Rather the people are Greece are comparable to the people who lost their homes to mortgage foreclosures.

(more…)

As Greece goes, so go other debtor nations

July 13, 2015

The Greek debt burden is more than the people of Greece can ever repay.

But evidently the creditor nations will not accept this until Greece is bled dry.

Their “austerity” plan is for higher taxes, lower wages and higher prices and the sale of Greek national assets at bargain prices.

Greece is being treated like a nation defeated in war, and, like a defeated nation, it will never prosper until it can free itself from the power of its conquerors.

A trust fund created by Greece’s creditors will sell off 50 billion Euros worth of Greek national assets, with half the money to be used to pay Greece’s debt and half to recapitalize Greek banks.   Greeks will not have a voice in what is sold or at what price.

greece-debt-crisisHeather Stewart of The Guardian recently listed 23 nations that, like Greece, are in an external debt crisis, and 14 at high risk of an external debt crisis.

The 23 nations also in external debt crisis are Armenia, Belize, Costa Rica, Croatia, Cyprus, the Dominican Republic, El Salvador, The Gambia, Grenada, Ireland, Jamaica, Lebanon, Macedonia, Marshall Islands, Montenegro, Portugal, Spain, Sri Lanka, St. Vincent and the Grenadines, Sudan, Tunisia, Ukraine and Zimbabwe.

The 14 high risk nations are Bhutan, Cape Verde, Dominica, Ethiopia, Ghana, Laos, Mauritania, Mongolia, Mozambique, Samoa, Sao Tome e Principe, Senegal, Tanzania and Uganda.

My guess is that Ukraine is the next country in line to lose its national sovereignty to creditors; this is likely as soon as the government no longer needs financing to crush the rebellion in Donetsk and Lugansk.

We Americans should remember that the United States is a debtor nation like Greece, not a creditor nation like Germany, Japan or China.  What happens to Greece today and to Ukraine tomorrow could happen to the USA someday, too, when our debts are in yuan or some other currency instead of dollars.

LINKS

Beyond Greece, the world is filled with debt crises by Heather Stewart for The Observer.

Global Debt Can’t Be Paid by Briton Ryle for WealthDaily.

The rich are richer, the rest of us are poorer

July 13, 2015

inequality1108k_0Source: The Economist.

Americans of all stripes, from the Tea Party to the Occupy movement, are angry.  They think government doesn’t represent them.

Rep. Alan Grayson, a Florida Democrat, thinks they’re right about that.  He said he knows congressional representatives whose mail was running 1oo to 1 against “fast track” approval of trade agreements who  nevertheless voted for it.

But, he explained, the reason for their anger is more deep-seated—

For most Americans, life simply is getting harder.  This was painfully obvious from a Sage Foundation study last year, following up on an article in the Annals of the American Academy of Political and Social Science.  The study looked at changes in the wealth of American households over a decade, from 2003 to 2013.  The study found that median net worth had dropped by 36 percent, from $87,992 to $56,335.

Rep. Alan Grayson

Rep. Alan Grayson

Let me repeat that: The net worth of the average American household dropped by more than one-third in ten years.  The decline from the 2007 peak was almost 50 percent, in just six years.  (Most of that loss was in the value of one’s home — home is where the heartache is.)

That’s why everyone is so angry.

The net worth decline of someone at the 25th [75th] percentile (meaning that three-quarters of all household are richer than you) was even more extreme — from $10,129 to $3200.  And among the bottom five percent, whose net worth is negative, their debt tripled.

Only the top 10 percent of all Americans improved their standards of living during that decade.  As the study summarized, “wealth inequality increased significantly from 2003 through 2013; by some metrics inequality roughly doubled.”

via Rep. Alan Grayson.

My friends who are content to always vote for the “lesser evil” are correct in one respect.  Things could be worse—a lot worse—than they are now.

But I don’t believe the present situation is sustainable.   The anger of the American people will boil over at some point.  If change for the better seems impossible within the current political and economic system, democracy and constitutional government will be at risk.

∞∞∞

Why Is Everybody Angry?  I’ll Tell You Why by Rep. Alan Grayson for the Huffington Post.

The Typical Household, Now Worth a Third Less by Anna Bernasek for The New York Times.

Wealth Levels, Wealth Inequality and the Great Recession by Fabian T. Pfeffer, Sheldon Danziger and Robert F. Schoeni for the Russell Sage Foundation.

Why is the economic recovery so weak?

July 13, 2015

weakrecoverySource: Sentier Research

Why is the current economic recovery so much weaker than in the previous two recoveries?

www-usnews2I don’t claim a profound knowledge of economics, but here’s what I think.

During the time of peak prosperity, the American economy was based on a benign cycle—high wages supported a mass consumer market, which supported high employment.

Since the 1980s, American wages have been stagnant or falling, and Americans maintained their purchasing power by means of borrowing.  But since the 2008 recession, they have reached the limits of their power to borrow and spend.

Big financial institutions and holders of financial assets are investing more in debt instruments or in production overseas than in job-creating enterprises in the United States.  At the same time government at all levels has responded to hard times by cutting spending and employment.

Both the public and private sector are dis-investing in education and training, in scientific research and in the infrastructure necessary to a productive economy.

Barring a change of direction, I expect things to continue to worsen.

How can we the people turn things around?  Being honest about the situation would be the first step.  Government could stop doing harmful things, such as the no-strings bank bailout and pro-corporate trade agreements.  Corrente’s 12-Point Platform is the kind of thing we should be thinking about.

(more…)

Germany got a debt writedown: Why not Greece?

July 9, 2015

After World War One, the Allies were saddled with war debts to the United States that were beyond their ability to pay.

Herman Josef Abs, center, representing Federal Republic of Germany, signs a 1953 agreement cutting Germany's debts to foreign creditors in half.

Herman Josef Abs, center, representing Federal Republic of Germany, signs a 1953 agreement cutting Germany’s debts to foreign creditors in half.

They hoped to get the money out of Germany, which was obligated to make reparations payments beyond that nation’s ability to pay.

Eventually Germany defaulted on its obligations to the Allies, and the Allies defaulted on their obligations to the USA and its bankers—but not in time to prevent the onset of the Great Depression and the rise of Adolf Hitler.

After World War Two, the Allies learned their lesson.  They allowed the German government [1] to write off half its debts.

If this hadn’t been done, the postwar German economic miracle might not have taken place, and the recovery of Europe as a whole would have been delayed.

Today Greece has more debt than it can repay.  Eventually there is going to have to be a write-down of this debt.

The question is whether the Greek population will have to be reduced to poverty and Greek national assets sold off at bargain prices before this happens.

(more…)

Greece and the new cold war

July 6, 2015

The big banks in Germany and other countries lent money to the Greek government that they had good reason to believe would never be repaid, with the understanding that they would be bailed out either by squeezing the people of Greece or at the expense of European taxpayers in general.

greece_2457626a

Source: The Hindu newspaper in India

Their confidence was not misplaced.  As the chart shows, they have already been able to offload most of the Greek government debt.

The Greek leaders have spoken to the Russian government about a possible rescue.  The Russian government’s reply is that it won’t help as long as Greece is in the Euro currency zone—which, as Ian Welsh pointed out, is as good as saying it will help if Greece leaves.

Independent journalist John Helmer recalled that Victor Yanukovich, the president of Ukraine, accepted a similar bailout offer from Russia and was quickly removed from power.   Helmer reported that Victoria Nuland, the Assistant Secretary of State for European and Eurasian Affairs, who engineered the regime change in Ukraine, is now working for regime change in Greece.

All this raises the question of just whose interests the U.S. government—and Germany’s—serve.

∞∞∞

Nuland’s Nemesis: Will Greece Be Destroyed to Save Her From Russia, Like Ukraine? by John Helmer for Dances With Bears.

Consequences of the Greek Oxi (No) Vote by Ian Welsh.

Greece Rejects the Troika by Michael Hudson for Counterpunch.

Behind the Greek Crisis by William R. Polk for Consortium News.

There are more TPPs in the pipeline

July 1, 2015

The Trans-Pacific Partnership is just the beginning.

POLITICO reported that four more trade agreements are now being negotiated.

Following Congress’ hard-fought approval of “fast-track” trade authority last week, U.S. Trade Representative Michael Froman vowed not only to complete the 12-nation Trans-Pacific Partnership but an even bigger pact with the European Union and three other major trade deals — all in the 18 months remaining in President Barack Obama’s term.

It could add up to the biggest trade blitz in history, transforming the rules under which the world does business.

sw0625cd_590_356“We’ve got a lot of pots on the stove,” Froman told POLITICO while watching senators cast their final votes to send the legislation to the president. We want to get TPP done and through Congress. We want to get TTIP negotiated. We’re going to finish ITA. I’m hoping to finish EGA and TISA.”

Those would be, in order: the Transatlantic Trade and Investment Partnership agreement with the European Union, an even bigger pact than the TPP in terms of economic size; the World Trade Organization’s Information Technology Agreement, which covers about 97 percent of world IT trade; the Environmental Goods Agreement, accounting for 86 percent international commerce in green goods; and the 24-party Trade in International Services Agreement, which involves three-quarters of the United States’ gross domestic product and two-thirds of the world’s services, such as banking and communications.

via POLITICO.

I’d heard of the Transatlantic Trade and Investment Partnership (TTIP) and the Trade in Services Agreement (TISA), but not the Information Technology Agreement or the Environmental Goods Agreement until now.

(more…)

Technology primarily benefits those who own it

June 29, 2015

jobs.5x650I can remember 50 and 60 years ago when people worried about what Americans would do with all the affluence and leisure time that would result from automation.   Today that seems like a cruel joke.

Technology primarily benefits those who own it.  Applied science primarily benefits those who fund it, or at least reflects what the funders are interested in.  There can be spillover effects that benefit everyone, but these don’t necessarily happen of their own accord.

I came across a good article on this topic in Technology Review.  The lesson I draw from it is (1) technology is not a substitute for social and economic reform and (2) there is a need for scientific and technological research outside the domains of for-profit corporations and the military.

LINK

Who Will Own the Robots? in Technology Review.  (Hat tip to naked capitalism}

Wall Street as the co-government of the U.S.

June 23, 2015

I’ve written many posts about the revolving door between Wall Street and Washington, and how the U.S. government puts the interests of the financial oligarchy above the interests of the American public.

I’ve just finished reading a book that shows how far back in American history this goes.

 ALL THE PRESIDENT’S BANKERS: The Hidden Alliances That Drive American Power by Nomi Prins (2014) is a narrative history showing the interdependence of the Presidents and the Wall Street banking and financial community from the early 20th century to the present day.

Nomi Prins showed how American Presidents from 1910 to 1970 had to take the interests of Wall Street banks into account in implementing their policies, and then how, from 1980 on, the banks freed themselves from governmental restrictions to engage in ever-bigger speculations, from which they had to be bailed out.

Her story begins with the Panic of 1907 with President Theodore Roosevelt standing by helplessly while J. Pierpont Morgan summons bankers to his mansion and arranges a bailout to prevent financial collapse.

The Federal Reserve System was created in 1913 in order to prevent such a situation from recurring.

This was a major turning point in American history.  It gave the United States a financial stability and financial resources without which it could not have been a world power.  It made possible U.S. participation in the world wars, the projection of American global power and the great expansion of federal government activity—none of which could have been paid for on a pay-as-you-go basis or with foreign loans.

At the same time, it formalized the position of the great American banks as a kind of fourth branch of government.

(more…)

The real U.S. strategic rivalry with China

June 18, 2015

Don’t look back. Something might be gaining on you.
==Sachel Paige

   The big issue that we Americans have with China is not who controls the Spratley Islands in the South China Sea.

It is the shifting of U.S. manufacturing jobs to China and the U.S. trade deficit with China.

The United States probably does have legitimate economic grievances against China.  Some American economists, for example, think the Chinese government keeps the exchange rate for its currency artificially low in order to make its exports cheaper in world markets.

But the main problems we Americans have with China are due to things we have done to ourselves.

The Chinese never forced U.S.-based companies to give up domestic manufacturing capability. It never forced us Americans to neglect our physical infrastructure—our Internet service, our roads and bridges, our dams and levees. It never forced us to neglect our human resources—our higher education, our industrial research. It never forced our financial elite to invest in debt rather than invest in production.

Trying to substitute a military rivalry for an economic rivalry may or may not hurt China. It will not do us Americans any benefit because our problems do not originate in China.  They originate at home.

China has its own problems—labor unrest, ethnic conflict, corruption, air pollution, suppression of dissent.  Whether any of these problems are potentially fatal, I do not know.   What I do know is that it would be foolish for us Americans to count on China self-destructing.

(more…)

The stupidity theory of organizations

June 13, 2015

This was originally posted on April 30, 2013.

dilbert1

Stupidity in big organizations is not a bug. It’s a feature. So say two scholars, Mats Alvesson of Lund University in Sweden and Andre Spicer of City University in England, in their recent paper, The Stupidity Factor in Organizations.

They say organizations need “functional stupidity,” which is a willful lack of recognition of the incompleteness of knowledge and a willful refusal to question the organization’s goals and policies. This builds confidence and loyalty which helps the organization to function smoothly.

Alvesson and Spicer discuss how managers use vision statements, motivational meetings and corporate culture as “stupidity management” to develop loyalty and suppress critical thinking. They discuss how employees use “stupidity self-management” to suppress doubt and get with the program.

In Herman Wouk’s novel, The Caine Mutiny, a recruit decides that the U.S. Navy is an organization designed by geniuses to be operated by idiots. When in doubt, he asks himself, “What would I do if I were a idiot?” That is a gross exaggeration, but an exaggeration of truth.

Managers want employees who are intelligent enough to carry out orders competently, but not so intelligent that they question the orders. Critical thinking creates friction that prevents the organization from running smoothly. Over time the organization’s tendency is eliminate that friction, and become more disconnected from reality.

You can see this in how Washington officials and journalists understand. They treat the processes of government, such as the 60-vote rule in the Senate or the revolving door between corporate and government employment, as if they were objective and unchangeable facts, like the laws of thermodynamics. They treat actual problems, such as unemployment or global climate change, as if they were matters of personal preference.

The trouble with ignoring reality is that sooner or later it catches up with you. Then crisis generates what Alvesson and Spicer call the “How could I have been so stupid?” syndrome.

Click on A Stupidity Based Theory of Organizations for a PDF of Alvesson’s and Spicer’s paper. If you read it with close attention, I think you will see the dry humor beneath their social science jargon.

Click on Understanding Organizational Stupidity for Dmitry Orlov’s summary of their paper and his comments.

(more…)

Economists, free trade and the TPP

June 12, 2015

Free-Trade-pg1-copyA writer named Michael Goodwin and an illustrator named Dan E. Burr have come up with a clear and complete explanation of the problems with free trade in general and the Trans Pacific Partnership in particular.  Click on Economix Comix to read it.

More toxic trade agreements are in the pipeline

June 11, 2015
Negotiators of Trans-Pacific Partnership Agreement

Scope of the proposed Trans-Pacific Partnership Agreement

Negotiators of Trade in Services Agreement

Scope of the proposed Transatlantic Trade and Investment Partnership

Negotiators of Trade in Services Agreement

Scope of the proposed Trade in Services Agreement

If Congress approves the Trade Promotion Authority, aka Fast Track, it will grease the way not only for the Trans-Pacific Partnership, but for two other toxic trade agreements now in the pipeline—the Transatlantic Trade and Investment Partnership and the Trade in Services Agreement.

The Transatlantic Trade and Investment Partnership is basically the same as the Trans-Pacific Partnership, except that it covers a different set of countries.

The Trade in Services Agreement is mainly about deregulation of financial services, but it also has a section on “movement of natural persons.”  In other words, TISA would cover immigrationtemporary visas for specialized workers, according to a draft released by Wikileaks.

Notice which countries are not in any of the three proposed agreements.  The BRICS countries—Brazil, Russia, India, China and South Africa—would retain sovereignty over their economies after United States, the European Union and their satellites give them up.

(more…)

It’s not just Wall Street

May 21, 2015

CFerbIKW8AACo-e

It’s not just the USA that allows bankers and financiers to break the law and get away with it.   Or regards the largest financial institutions as “too big to fail”.

This goes back to Prime Minister Tony Blair, who thought he could make London the world’s financial hub by freeing banks from all regulation.

As in the USA, the government’s priority is to protect the financial institutions rather than to protect the public.

Banking regulation is even weaker in Europe than in the United States, and one of the goals of the proposed Transatlantic Trade and Investment Partnership, the next international agreement in the pipeline after the Trans Pacific Partnership, is to set limits on financial regulation.

That would make banking and finance un-reformable, either in the USA, the UK or other TTIP signatories.

Update 5/22/2015.  The five banks that pleaded guilty to rigging interest rates and the exchange rate for foreign currencies are Britain’s Barclays and the Royal Bank of Scotland, the USA’s Citicorp and JP Morgan Chase and Switzerland’s UBS.

(more…)


Follow

Get every new post delivered to your Inbox.

Join 725 other followers