Mark Weisbrot's article (sent by Mike Gurstein below), like several others
I have read in the last few days, is the reason why the EMU-US's trillion
Euro-Dollar rescue plan failed -- barely more than 24 hours after its
announcement at 2.00am on Monday morning a week ago. The rescue plan was so
huge that it was seriously thought it could give the EMU a few months in
which to institute strict budgetary control from Brussels over profligate
governments such as Greece.
The stock markets rallied for one day before reality started to percolate.
The situation today is, if anything, far worse than last week. The stock
markets and the Euro are already sliding. As the New York Times headline
says this morning: "Fears intensify that Euro crisis could snowball".
No matter how the EMU politicians try to explain that the plan was not
Quantitative Easing it has been recognized as such. It's yet another scam
on taxpayers -- or, more accurately, on taxpayers' children -- for years to
come.
The banks and hedge funds were blamed for the Credit Crunch but this latest
crisis can be much more directly placed at the door of governments. Paper
documents such as Collateralized Debt Obligations (CDOs) and
derivatives-on-derivatives such as Credit Default Swaps (CDSs) are
essentially no different from the paper documents that governments brought
about in stages over the past century, finally ended by Nixon in 1971, when
they detached their currencies from any sort of immediate underlying value.
This is why, in the original credit Crunch, and now with Brussels' Euro
"remedy", governments (whatever they may say) have had to protect banks
(rather than taxpayers) first or pretend to try and regulate hedge funds
(which they dare not outlaw, however much politicians get steamed up about
them). Governments, and then banks in turn, and then hedge funds, have all
been involved in foisting paper documents on the public, and then on one
another, which have only indirect connection with value.
This is why China, Russia, India and some oil-rich Middle East countries
have been calling for a stable world currency for some time. They are all
dependent on the economic viability of the West and have become
increasingly worried by the way that all advanced governments are getting
into serious debt and that the Dollar and the Euro are increasingly
see-sawing about.
My guess is that last week was the beginning of the end-game of the Dollar
and the Euro and that this week will be the beginning of the middle part.
How long this middle part will last -- days. weeks, months? -- before the
recession to end all recessions begins and sanity finally dawns is
anybody's guess.
Keith
At 12:38 16/05/2010 -0700, you wrote:
-----Original Message-----
From: [email protected] [mailto:[email protected]] On Behalf Of
Sid Shniad
Sent: Sunday, May 16, 2010 11:48 AM
Subject: The European Union's Dangerous Game
<http://mrzine.monthlyreview.org/2010/weisbrot120510p.html>http://mrzine.monthlyreview.org/2010/weisbrot120510p.html
The European Union's Dangerous Game
by Mark Weisbrot
Perhaps the wild swings in financial and stock markets over the last week
will make people give closer scrutiny to what is going on in Europe, which
would be a good thing for the world. According to most news reporting,
markets are worried about a potential default by Greece on its sovereign
debt, and the possibility of this spreading to other countries, including
Portugal, Spain, Ireland, and Italy.
The agreement by the European Union and International Monetary Fund to
provide up to $960 billion of support to the weaker economies, as well as
to financial markets, has appeared to calm investors worldwide for now.
But this does not resolve the underlying problem, even in the short
run. The problem is one of irrational economic policy. The Greek
government has reached an agreement with EU authorities (which include the
European Commission and the European Central Bank) and the IMF that will
make its economic problems worse.
This is known to economists, including the ones at the EU and IMF who
negotiated the agreement. The projections show that, if their program
"works," the country's debt will rise from 115 percent of GDP today to 149
percent in 2013. This means that in less than three years, and most
likely sooner, Greece will be facing the same crisis that it faces today.
Furthermore, the Greek finance ministry now projects a decline of four
percent of GDP this year, down from less than one percent last
year. However these projections are likely to prove overly
optimistic. In other words, the Greek people will go through a lot of
suffering, their economy will shrink and the debt burden will grow, and
then they will very likely face the same choice of debt rescheduling,
restructuring, or default -- and/or leaving the Euro.
There are lessons to be learned from this debacle. First, no government
should sign an agreement that guarantees an open-ended recession and
leaves it to the world economy to eventually pull them out of it. This
process of "internal devaluation" -- whereby unemployment is deliberately
driven to high levels in order to drive down wages and prices while
keeping the nominal exchange rate fixed -- is not only unjust, it is
unviable. This is even more true for Greece, given its initial debt
burden. The tens of thousands of Greeks in the streets have it right, and
the EU economists have it wrong. You cannot shrink your way out of
recession; you have to grow your way out, as the United States is doing
(albeit too slowly).
If the EU/IMF will not offer a growth option to Greece, it would be better
off leaving the Euro and renegotiating its debt. Argentina tried the
"internal devaluation" strategy from mid-1998 to the end of 2001,
suffering through a depression that pushed half the country into
poverty. It then dropped its peg to the dollar and defaulted on its
debt. The economy shrank for just one more quarter and then had a robust
recovery, growing 63 percent over the next six years. (By contrast, the
"internal devaluation" process promises not only indefinite recession but
a long, very slow recovery if it "works" -- as we can see from the IMF's
<http://www.cepr.net/index.php/publications/reports/latvias-recession-cost-of-adjustment-internal-devaluation/>projections
for Latvia and
Estonia. <http://mrzine.monthlyreview.org/2010/weisbrot280410.html>These
countries are projected to take 8 or 9 years to reach their pre-recession
levels of output.)
The EU authorities sent markets crashing last Thursday by saying that they
had not discussed using "quantitative easing" -- i.e. the creation of
money, as the U.S. Federal Reserve has done to the tune of $1.5 trillion
in the last couple of years -- to help resolve the situation. They also
made statements that more deficit reduction is needed by countries that
are still in recession or barely recovering. The new agreement reached
over the weekend partially reverses these statements, but not enough.
The pundits are quick to blame Greece and the other weaker European
economies (Portugal, Italy, Ireland, Spain) for their problems. Although
they did -- like most of the world -- have excesses such as asset bubbles
during the boom years, they didn't cause the world recession that sent
their deficits skyrocketing. Most importantly, the real problem now is
that the EU/IMF is still offering them the medieval medicine of
<http://www.guardian.co.uk/commentisfree/cifamerica/2010/jan/15/latvia-economy-eu-imf>bleeding
the patient. Until that changes, expect a lot more trouble ahead.
----------
<http://www.cepr.net/index.php?option=com_content&view=article&id=81/81>Mark
Weisbrot is co-director of the <http://www.cepr.net/>Center for Economic
and Policy Research, in Washington, D.C. He received his Ph.D. in
economics from the University of Michigan. He has written numerous
research papers on economic policy, especially on Latin America and
international economic policy. He is also co-author, with Dean Baker, of
Social Security: The Phony Crisis (University of Chicago Press, 2000) and
president of <http://www.justforeignpolicy.org/>Just Foreign Policy. This
article was first published in the
<http://www.nytimes.com/2010/05/13/opinion/13iht-edweisbrot.html>New York
Times/International Herald Tribune on 12 May 2010 and republished by CEPR
under a Creative Commons license. !DSPAM:2676,4bf03df9177551401915921!
_______________________________________________
Futurework mailing list
[email protected]
https://lists.uwaterloo.ca/mailman/listinfo/futurework
Keith Hudson, Saltford, England
_______________________________________________
Futurework mailing list
[email protected]
https://lists.uwaterloo.ca/mailman/listinfo/futurework
