Austerity begets austerity

It is Friday and in Newcastle today it feels like Winter is back although I am aware that complaining about 19 degrees centigrade is somewhat disingenuous to the Northern Hemisphere and temperate region dwellers. But still we complain – more than one person today has said “isn’t it freezing”. So I have been bunkered down reading a lot. Which isn’t that much different to any other day real – hail, rain or shine. The European laboratory is dominating the daily news though and providing us with scripts that no professional playwright could conceive. This week we have seen the European Commission release its latest gee-whiz (you-beaut) plan to save Europe from itself and like all the previous announcements lots of speeches and photos were taken but the substance is missing. The only development that these plans seem to be leading to is a suppression of national democracy. That is my assessment of the EC’s latest proposal. From an economic perspective it maintains the rule – austerity begets austerity.

There was an article on the ABC News Drum site (November 24, 2011) – Germany stung by Europe fear factor – which had the usual statements about the failed German auction and how the “PIIGS acronym might soon be joined by another ‘g'” which led me to wonder how we might also fit F into the acronym.

The article is mainly about the hopeless EU leaders who have staged “multiple summits and demonstrations of unity” which have “amounted to little more than photo opportunities” and how the “political muddling and dithering makes a recession in Europe possibly the best case scenario”.

It warned Australians to control our celebrations as the RBA is almost certainly going to cut rates again because our lower mortgage payments are just a sign of the “consequences that a generation of debt is wreaking on the world”.

When I read that I wished that the world was actually focusing on that point – the world is enduring the consequences of a generation of excessive (private) debt.

Questions that arise include – What led to the credit binge? Were governments acting in our best interest when they allowed financial markets to virtually take over economies? What are we going to do about this power grab? And more questions along those lines.

But these issues are silent in the daily and increasing maelstrom that has become the “crisis”. Somehow the neo-liberal elites that got us into this mess have contrived not only to stay out of prison but also to keep their positions of power – whether in corporations or governments – and continue on, virtually as before.

Except now they have a different agenda. They have worked out that to advance the interests of the financial markets who reward them in various ways it is better to focus attention on blighting the capacity of governments to act according to their democratic remits rather than make deregulation the flavour of the month.

Well they are proposing tightening regulations on government while refusing to re-regulate the financial sector in any coherent manner.

The private debt crisis (which was real) has now become the sovereign debt crisis (which is largely a total fabrication or voluntary accession). Even in the flawed EMU, the leaders could simply pressure the ECB to support growth by funding the deficits of the member states.

I don’t advocate that as the best way forward. It clearly doesn’t address the key flaws that will haunt the EMU every time there is a negative aggregate demand shock. The solution to the Euro problem is to abandon the Euro and restore full currency sovereignty for each member state. A coordinated dismantling would be a difficult but superior path to follow compared to the chaotic mess that they are finding themselves in now which is damaging the growth outlook for all of us.

I was thinking about all that the other day when I was reading the documents accompanying the recent Federal Constitutional Court hearing in Germany which heard a challenge against the bailout packages.

By way of background, several notable Germans challenged the so-called “Monetary Union Financial Stabilisation Act” (Währungsunion-Finanzstabilisierungsgesetz) which gave the German government the power to “provide aid to Greece” and make guarantees to the EFSF, as being unconstitutional because in their view it compromised the budget autonomy of current and future Parliaments.

Here is the complete text of the Grundgesetz für die Bundesrepublik Deutschland (the Basic or Fundamental Law of Germany – Official English translation). It came into effect on May 23, 1949 and acts as the constitution of the Federal Republic.

The Germans embedded budget rules in their Basic Law (Article 110 deals with the Federal Budget). Articles 104-115 deal with financial matters generally. A key section relates to the budget autonomy of Parliament which the constitution considers to be an indispensable aspect of national democracy.

You can follow the case – blow by blow – at the case home page of the German Federal Constitutional Court. Here is the English Press Release that accompanied the decision.

You might like to read this interpretation of the ruling – Casenote – Euro Rescue Package Case: The German Federal Constitutional Court Protects the Principle of Parliamentary Budget.

On September 7, 2011 the Federal Constitutional Court of Germany made their decision which rejected the petition. They said:

Article 38 GG demands, in connection with the tenets of the principle of democracy (Article 20.1 and 20.2, Article 79.3 GG), that the decision on revenue and expenditure of the public sector remain in the hand of the German Bundestag as a fundamental part of the ability of a constitutional state to democratically shape itself.

The principle that a national government should have budget autonomy to fulfil its socio-economic mandate in response to its democratic election is one I would agree with. We can quibble about what democracy actually means and who influences the voting process until the cows come home. But having a vote is better than not having one!

The Federal Constitutional Court also said:

When establishing mechanisms of considerable financial importance which can lead to incalculable burdens on the budget, the German Bundestag must therefore ensure that later on, mandatory approval by the Bundestag is always obtained again. In this context, the Bundestag, as the legislature, is also prohibited from establishing permanent mechanisms under the law of international agreements which result in an assumption of liability for other states’ voluntary decisions especially if they have consequences whose impact is difficult to calculate. Every larger scale aid measure of the Federation taken in a spirit of solidarity and involving public expenditure at international or European Union level must be specifically approved by the Bundestag. Sufficient parliamentary influence must also be ensured with regard to the manner in which the funds that are made available are dealt with.

Again, when we elect Parliaments we expect them to call the shots and not take orders from some other group.

I also liked this part of the Federal Constitutional Court’s assessment:

The German Act Approving the Treaty of Maastricht in the version of the Treaty of Lisbon still guarantees in a manner that is sufficiently definite under constitutional law that the Federal Republic of Germany is not subjecting itself to an incalculable automatism of a liability community which follows a course of its own that can no longer be steered.

Incalculable automatism sounds to me like budget rules that are applied without regard to the circumstances and only justified because they are “the rules” and whose impacts on community welfare cannot be calculated in advance although we know from logic and experience that they will be extremely damaging.

I consider the German constitution in this regard to be uncontroversial. Governments should act in the interests of the community and avoid compromising the general welfare to advance the interests of a few.

The principle the Federal Constitutional Court confirmed was that in their view the sovereignty over a national budget represents a fundamental component of a working conception of national democracy.

So how does that square with the recent utterances from the European Commission boss José Manuel Barroso who wants national governments to be subjugated by various fiscal commissions and the bureaucrats in Brussels (and presumably Frankfurt)? The answer is that the latest mad plan that is being proposed by the leadership in Europe (or one part of it) would compromise and violate national democracies right across Europe.

Europe has swung to the extreme right before. There is history.

On Wednesday (November 23, 2011) José Manuel Durão Barroso, President of the European Commission, gave a speech in Brussels outlining the – 012 Annual Growth Survey and economic governance proposals.

On the same day the EC released a document outlining their proposed – New action for growth, governance and stability.

The Germans and French leaders seemed to hate the plan, which is probably a good reason to like it. But their judgement was correct (although for all the wrong reasons).

Barroso said that the emphasis of the EC was on “stability and further strengthening economic governance” and about the “currency”.

He admitted that the latest “Growth Survey” showed “the economic picture is much bleaker than in January” when they conducted the last survey. All the signs were bad and private confidence was lower (from an already plunged base!).

Question: Doesn’t this suggest that the dominant policy agenda being pursued (since 2008) is not working? Answer: yes to anyone but Barroso and his cronies.

He then announced the five key priorities:

1. Fiscal austerity (read: further growth-damaging cuts to discretionary net public spending only to observe the automatic stabilisers biting their a’s and pushing the deficits up).

2. Repairing the bank system (read: not reforming them in any way).

3. Structural reforms (read: accelerated privatisation, deregulation of private sector activities etc).

4. Fight unemployment – removing rigidities in welfare systems which “have the perverse effect of perpetuating unemployment and reinforcing poverty” (read: Can you believe that? There are plenty of jobs but the unemployed are choosing not to take them because of perverse welfare systems).

5. Modernise public administration – to stop them hindering private entrepreneurship (read: hand over even more power to the private elites).

If I was to write out an economic model which reflected the way the system operated and then simulated the likely policies that would accompany these five key priorities I would end up with:

(a) recession.

(b) rising unemployment and poverty.

(c) increased private sector bankruptcies.

(d) a demolition of public infrastructure and public services.

(e) declining private sector productivity as firms exploit falling wages and entitlements and lose their incentive to invest in high productivity capital.

(f) increased inequality.

(g) social riots and political instability leading to extremism.

He then went on to describe the new “proposed Regulations aimed at further improving the economic governance of the euro area”, which presumably are intended to advance the five key policy priorities.

So the EC is proposing:

  • that all euro area countries send their draft budget plans to the Commission, and at the same time publish them, by 15 October each year
  • that the Commission be able to request a new draft if it should have serious divergences between the draft budget and the Member State’s Stability and Growth Pact commitments
  • that the Commission carry out closer monitoring of Member States under Excessive Deficit Procedure
  • that the Commission have the right to decide on enhanced surveillance of Member States facing severe threats to their financial stability and of the Euro Area as a whole
  • that the Council be able to recommend to a Member State that it request financial assistance
  • and that all euro area Member States be required to have in place independent fiscal councils and to prepare their budgets on the basis of independent forecasts

He claimed that while “National budgets will of course be prepared by Governments and voted on by national Parliaments” the “Commission will have the right to issue an opinion and may request changes”.

And what if the national parliament refuses? They will be sanctioned with damaging penalties which undermine the welfare of their citizens. So what right of refusal would there be?

He also unveiled the – Green Paper on the feasibility of introducing Stability Bonds – which I will discuss another day.

Clearly Barroso is aware that the EC proposals seem to be anti-democratic. He tried to skip around that criticism by inventing a new level of democracy – “the democracy of the European Union”.

He claimed that:

… if we want to preserve democracy also for the global order, we need to complement the democracy of the nation state with the democracy of the European Union. Otherwise, we will hand over material sovereignty, the real sovereignty, to markets and financial speculators, who are not subject to any kind of democratic scrutiny. That is why we need a strong European democracy as well as strong national democracies.

What exactly is the democratic dimensions of the “European Union”? What correspondence with the right to vote does the cabal at the EU level have? Not much is the answer.

Further, the way to deal the “markets and financial speculators” out of the game is to ensure there is an adequate regulative environment and that national governments are not dependent on funding from the private sector. That is:

1. Restore full currency sovereignty at the national level.

2. Educate governments at that level that they issue the currency that they borrow back which means they don’t have to borrow it back to spend. There might be other reasons they want to issue debt (central bank liquidity management operations, for example) but these are unrelated to the necessity to fund themselves in the currency they issue.

3. Ensure non-productive financial speculation which means about 95 per cent of all financial transactions are declared illegal or tightly controlled.

4. Make sure citizens elect governments not prevent the cabal of Euro elites interfering and installing their own cronies when the elected representatives appeal to the citizens for guidance in difficult times (by, for example, proposing a referendum).

The trend in Europe is clearly to undermine national democracies. I have some sympathy for the EC boss. The system they designed essentially is unworkable if a member government endangers the rest of them with poorly crafted fiscal policies.

We can clearly see what has been the effect of the German government’s decisions to push through the Hartz reforms which effectively undermined the capacity of workers in Germany to enjoy appropriate real wage increases. The suppression of consumption in Germany and the reliance on capital export to the “south” to maintain growth has been very damaging to the member states in the south.

That sort of unilateralism is not sensible in a monetary union.

But the solution is not to take away the fiscal flexibility of the states given that there is no coherent desire to establish a proper fiscal authority at the federal level. That would be a solution and would be compatible with democracy as long as the citizens elected the “federal government” which also had powers over the ECB – as in most federations.

The EC proposals do not lead Europe down that path but do further suppress democracy.

This UK Guardian article (November 24, 2011) – It is not inevitable that the EU – or democracy – will survive this mess – captures this sentiment well.

Simon Jenkins says of Barroso’s proposal of “enhanced surveillance” that:

Today’s European crisis was brought about by widespread popular revolt against the straitjacket of an unrealistic European monetary union. Barroso’s solution is apparently an even tighter straitjacket, and no nonsense about popular elections or national referendums. He wants Europe ruled by Aristotle’s aristocrats, by people like him …

Who is laughing? Dictatorial China, while Europe grovels for money at its feet. Moscow’s oligarchs, just two decades after suffering the greatest humiliation in Russian history. Laughing too are the kleptocrats of Africa and Asia. So are Europe’s unelected patricians as they slide effortlessly into the seats of power, handing down daily bromides and diktats to the miserable helots of Euro-democracy.

It bears thinking about quite apart from all the economic hocus-pocus that these elites peddle.

They are blaming individual governments but those same governments were co-opted by the very same elites that are now criticising them. While neo-liberals were boasting and asserting that the the “business cycle was dead” and the only remaining policy agenda for governments was to free up markets and hand over more power to the financial sector – the EC bosses were making that agenda happen.

Why else did they refuse to create a meaningful fiscal capacity at the federal level? The reason is that they thought by putting governments in a straitjacket (the Stability and Growth Pact) that they could control what they did.

But no SGP could cope with the collapse of aggregate demand that hit the union in 2007-08. The cyclical swings in budget outcomes (via the automatic stabilisers) swamped the rules and rendered them meaningless and dangerous.

The only response the elites have it to tighten the rules and enforce them more rigorously. What do you think would have happened if they really did start punishing governments at the onset of the crisis for overseeing cyclical budget deficits that went well beyond the 3 per cent of GDP?

The only logic would have been to introduce austerity earlier. The outcomes now would have been much worse if they had have done that. They are bad enough already and will get worse given the austerity that is being enforced but under the new proposals the situation would be unthinkable now.

Simon Jenkins says that:

The present eulogising of technocracy, of the power of economic technique unsullied by the mob, has always been the harbinger of dictatorship. We should remember how many Britons admired the efficiency of 1930s Germany and lauded Mussolini’s trains running on time …

Greece is now talking of a “German protectorate”. The technocrat Italian prime minister, Mario Monti, warns his people that “the management of the crisis has suffered from a deficiency of government, and must be overcome with action at a European level”. We need not reproduce the Greek magazine’s cover of a swastika on the Acropolis to shudder at the phrases “deficiency of government” and “action at a European level”. We heard those phrases before.

The Euro crisis is taking that continent into places that it has been before and where the whole “European Project” was designed to prevent a recurrence. The economic aspects of the “Project” has failed and should be abandoned. Perhaps then the leaders can concentrate on ensuring the extremes of the past are kept at bay.

That requires national democracies to be functioning. And like the German Basic Law – that requires budget autonomy.

Interesting graph for today

I was looking at the latest National Accounts data for Japan yesterday, which showed that the real GDP growth has bounced-back strongly in the September 2011 quarter after being savaged by the tsunami and flooding earlier in the year.

There has been a strong bounce-back in exports, private investment and consumption and the support that the public spending was giving growth since the beginning of the year has been withdrawn.

A longer look at the balance between private and public spending and growth in Japan is interesting.

A recent article in the Economist magazine (November 19, 2011) – Whose lost decade? – challenges the “lost decade” idea and says that if we look “dispassionately at Japan’s economic performance over the past ten years, though, and “the second lost decade”, if not the first, is a misnomer”.

They rightly point out that “Japan’s economy grew at half the pace of America’s between 2001 and 2010. Yet if judged by growth in GDP per person over the same period, then Japan has outperformed America and the euro zone”. Further “Japan’s unemployment rate is higher than in 2000, yet it remains about half the level of America and Europe”.

This graph shows real GDP growth (blue line) and private demand (sum of consumption and spending – red line), and public demand (green line) since the March 1990 quarter, which was just before the property collapse and the so-called lost decade began.

If you examine the dynamics you will see that while real GDP growth declined in the early 1990s after a dramatic decline in private demand, the economy only went into recession for two quarters (June and September 1993) and then only just.

The reason was the dramatic (and appropriate response of the Government) which drove growth. Export growth was modest and declined a little in the early 1990s. Overwhelmingly, the growth in public demand saved Japan from a worse fate.

The graph also shows the recovery was relatively robust between 1994 and 1997. By mid-1996, real GDP was growing at 3.6 per cent per annum and the prospects looked good.

Then the conservatives went to work. The logic then was the logic that the Euro cabal is talking now. Fiscal consolidation, budget cuts etc were forced onto the government via a major political offensive and the results are very obvious.

Note the decline in public spending led the decline in real GDP growth, which in turn, led to a collapse in private demand (which in the recovery process had been growing nicely).

What followed was a recession that was much more severe than the early 1990s downturn. Negative real GDP growth was recorded from June quarter 1997 until the September quarter 1999 (with four quarters in-between showing temporary returns to growth).

The downturn was swift and was a direct result of the premature withdrawal of public spending support. Real GDP growth resumed as soon as the public demand reversed which also brought renewed private confidence and increased private spending.

Japan then enjoyed (with some bumps) a longish period of real GDP growth with declining public spending support and increased private spending growth up until the crisis hit in 2008.

You can also see that public demand reacted in 2007 and early 2008 as real GDP growth started to slow. This had the effect of reducing the severity of the crisis for Japan and helps explain the comparisons in the Economist article noted above.

The lesson for Europe is clear. They have to restore growth and that will not happen any time soon if they are hacking into public spending.

Austerity begets austerity.

Conclusion

It has been a big week following the daily events in Europe. One would find it hard to write a better script than that which is being provided by the real events.

For a researcher like me the daily unfolding is fascinating and exciting. They are “observations” in a fast-moving dynamic laboratory which is providing a very tough testing ground for my ideas. On the prediction front the score is mainstream economics 0, Modern Monetary Theory X (where X = the number of predictions we have made as a group over the last 15 or more years).

The group is getting larger – we used to laugh that we could count ourselves on one hand – but the ideas are standing scrutiny.

But I have to continually remind myself that this is a human tragedy and the values of free citizens are being compromised by an elite cabal who seek only to reinforce their own hegemony. That tempers my enthusiasm about having a fast-moving, data-rich, real life laboratory to research in each day.

Saturday Quiz

The Saturday Quiz will be back sometime tomorrow – about as hard as last week!

That is enough for today!

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    25 Responses to Austerity begets austerity

    1. Stephan says:

      Indeed. Slowly the acronym EU is becoming a misnomer. It should read EUSSR. The irony is, that the same people who waxed lyrical in the past about the demise of the Soviet Union and the superiority of democracy and the free market are now enthusiastically calling for a European Central Committee. Our Central Committee will then elect its own Politburo stuffed with technocrats (mostly bankers) and economists and decree its Five Year Three Step Plan for the member states. Which is:

      Step #1: Fiscal Austerity
      Step #2: More Fiscal Austerity
      Step #3: Much More Fiscal Austerity

      An unbreakable union of free republics,
      Great Rus’ has welded forever to stand!
      Created in struggle by the will-of-the-people,
      The united, the mighty Soviet Union.

    2. GLH says:

      I think you are doing an excellent job explaining MMT and I appreciate your effort.
      I must point out my only problem with MMT is that some of the people whose sites I read don’t seem to be concerned with where budget deficits are directed in the economy. I even read an article the other day where someone from CNBC was using MMT to justify tax cuts for the rich. It seems to me that tax cuts for the rich will only be used to buy more of the government bonds that are issued to offset the deficit. I must be missing something because I really can’t understand how giving the rich more tax cuts so they can buy more government bonds does any good except to allow someone like Pete Peterson to sleep better at night.

    3. Ikonoclast says:

      PIGS (Portugal, Ireland, Greece, Spain) could be followed by FIGS (France, Italy, Germany, Slovakia or Slovenia). Imagine the case of economic indigestion that this could bring about.

    4. Will Richardson says:

      Bill, it’s sunny and a balmy 8C in South Central Nottingham this morning, a great day for union siblings who have been leafletting for N30.

    5. NeilT says:

      THink there’s a typo here
      Bill

      Should that be “September quarter 2009” ? (below)

      “What followed was a recession that was much more severe than the early 1990s downturn. Negative real GDP growth was recorded from June quarter 2007 until the September quarter 1999 (with four quarters in-between showing temporary returns to growth).

    6. bill40 says:

      Bill.

      The ultimate aim is simple. Privatisation of money creation.

      That is the ultimate prize the financial elite seek, their Holy Grail.

    7. Wasabi says:

      GLH, if the rich use their money to buy more US government bonds, this could be a positive development, since at the moment congress forces the government to sell bonds to “fund” federal spending. This is not economically necessary, but it is the conservative political reality in the US. Within the parameters of this political reality, the rich, by buying bonds, would in effect be proving that claims of impending federal “bankruptcy” or “insolvency” are hogwash. By buying lots of government bonds, the rich would be making it possible to cheaply “fund” more deficit spending than is being done at the moment.

      Of course, if congress, especially the House of Reps, doesn’t use the popularity of government bonds as a reason to increase deficit spending, then the increase in bond sales is not productive. Right now the House is on a voodoo-economics ideological warpath to cut federal spending, so bond sales are ignored. But if the Democrats got their act together and stopped carrying water for Wall Street, they could use the increased purchases of government bonds to reassure voters that the US isn’t in any danger of going “bankrupt” and that the economic and social results of increasing deficit spending would almost certainly far exceed the amount paid to the rich as interest on their bonds, especially since the popularity of the bonds would lower yields even further than they are now. So against their will the rich would be underwriting increases in public spending.

      This doesn’t mean that the rich shouldn’t pay any taxes, only that the current overwhelming Democratic emphasis on raising taxes on the rich is not as progressive as it seems to be. It would be better to *use* the rich to increase deficit spending on social goods such as radically reducing unemployment. At least until congress decouples “funding” from government spending.

    8. Neil Wilson says:

      Throw Belgium in and you get BIGA PIGS.

    9. bill says:

      Dear NeilT (at 2011/11/25 at 20:18)

      It should be June quarter 1997. Thanks for spotting an error. I have fixed it now.

      best wishes
      bill

    10. Andrew says:

      “Bill, it’s sunny and a balmy 8C in South Central Nottingham this morning”

      Long, long time ago I used to live in the Meadowes, near the Town Arms. Must be a hot bed of MMT.

      County were first division….Killer Kilcline lopping off legs below the knees…..Good times.

    11. Tristan Lanfrey says:

      @GLH

      “someone from CNBC was using MMT to justify tax cuts for the rich”

      Are you referring to this http://www.cnbc.com/id/45402737 by John Carney?

      From what I understood, he was not justifying tax cuts for the rich, but he was rather saying that the idea of taxing the rich to maximise revenue is unsound due to the fact that taxes do not fund anything.
      The moving on the “fight the dreaded inflation” side, he says that taxing the wealthy is more likely to destroy financial assets that were intended to be saved rather than spent in the first instance. This means taxing the rich is likely to be less deflationary than taxing lower income populations.

      Also to be pendantic, he is saying that following MMT would tend to tax the rich less than what Krugman advocates, again he’s not justifying any tax cuts.

      INMHO, taxing the rich for the sake of it is wrong. Taxation needs to be used for the good reasons, not out of spite or bitterness for the rich. For example, I would agree with heavily taxing economic rents. If it so happens that many of the wealthy get wealthier thanks to economic rents, then this would be equivalent to taxing the rich. But here the intent would be to desincentivise economic parasiting, and therefore incentivise productive activities.

    12. Tristan Lanfrey says:

      @Neil Wilson,

      With France you get BIG FA PIGS! With (what I believe to be) a street London accent where people don’t pronounce the consonant “T” :)

    13. Talvez... says:

      Abyssus abyssum invocat

    14. Andy says:

      Almost a manifesto Bill.
      Ever thought of going into politics?

    15. Dan Kervick says:

      … if the rich use their money to buy more US government bonds, this could be a positive development, since at the moment congress forces the government to sell bonds to “fund” federal spending.

      By buying lots of government bonds, the rich would be making it possible to cheaply “fund” more deficit spending than is being done at the moment.

      Wasabi, this doesn’t make much sense to me. If the public sector eliminates taxes on the rich and replaces them with borrowings from the rich, even at a zero rate of interest, there is no way that the public comes out a winner. If the public either taxes a billion dollars or borrows a billion dollars at 0% interest, the income to the public treasury is the same. But in the latter case the public has a billion dollar liability and the rich lenders have a billion dollar asset.

    16. Micky9fingers says:

      apropos NeilT:I pondered;
      “If you examine the dynamics you will see that while real GDP growth declined in the early 1990s after a dramatic decline in private demand”
      and searched for a declining blue line( real GDP) in the early 90’s but finally gave up and realized it must be of the graph.
      Makes no difference though and why am I even commenting on such trivialities.

    17. Neil Wilson says:

      “But in the latter case the public has a billion dollar liability and the rich lenders have a billion dollar asset.”

      Which is exactly the same as not issuing bonds and not taxing.

      It all boils down to the same thing in the end. Do you accommodate the excess savings of the rich, or do you confiscate them?

      I prefer accommodation, but by restoring the wage share so that they have to fight harder to earn it in the first place.

    18. bill says:

      Dear Micky9fingers (at 2011/11/26 at 5:29)

      Remember these are indexes based at 100 at March 1990. So a flattening of the line indicates slower growth. The blue line does decline in the early 1990s as explained but just briefly.

      best wishes
      bill

    19. Andrew says:

      Generally speaking the more capital you acquire, the easier it becomes to accumulate more capital. Mainly because income exceeds material needs.

      There is a threshold of income at which “happiness” (whatever that is) plateaus. It’s not a very big number.. Upper middle class, able to buy a nice home, have two cars and a few holidays.

      As a logical distribution of happiness mechanism. Tax rates should start getting steeper beyond this number. It’s largely selfish irrational greed beyond this level.

      There is so much inherited wealth around and the super rich generate so much income from their capital. We will eventually have to tax wealth or have a handful of individuals owning everything. It’s not all about moral values or envy. We just don’t want the corruption and abuse that stems from absolute power.

    20. S. D. Bess says:

      Mr. Mitchell,

      I appreciate the vast amount of free information you make available on your blog. I have learned so much and am still learning from what you write here. I wish we had some economists like you in the U.S. who could get on television and academically decimate some these NeoCONS and NeoLibs we have running around spewing nonsense.

      Very much off topic I know, but I noticed that you have written about the OWS movement and I know there are protests going on in Australia as well as many places world wide.

      I wrote a poem on my website: http://politiwrap.com/ in solidarity with the many protestors world wide, I thought I might direct your attention to it as I think you might like it.

      Best Regards,

    21. Micky9fingers says:

      S.D. Bess
      Check out http://neweconomicperspectives.blogspot.com/, this is from UMKC( University of Missouri, Kansas City)
      You do see William Black a lot on video and he spent some time at OWS demonstrations.
      I don’t think anyone can get through to these”NeoCONS and NeoLibs” though.

    22. @juanbeard says:

      I found your post so interesting that I took the freedom to translate it into spanish and posted it on twitter. I should have asked for permission first, but just forget about it. Hope you don’t mind. As you are mentioned as author, if you wish to read it and make any ammends this is the link http://t.co/k3cRRshq just say anything and i’ll make the changes or unpublish it.

    23. S. D. Bess says:

      Micky9fingers:

      I will check out the sight you linked to, I know of some of our MMT economists here in the U.S., they just don’t seem to get on television often enough and long enough to combat the nonstop misinformation, deficit fear mongering etc. I mean, sad as it sounds if you want the most bang for the buck and to reach the widest audience you have to be on television, everyone else is. And eventually, if enough people had enough basic konwledge about money and deficit spending etc. , then eventually these hack economists would be ashamed to show their faces for fear of being called out. That’s my hope anyway.

    24. Punchy says:

      One of these Links will get to a Mosler article about how the ECB can’t inflate no matter what.
      http://moslereconomics.com/2011/11/26/mmt-to-the-ecb-you-cant-inflate-even-if-you-wanted-to/
      if that link doesn’t work try. Hope this is of some interest.
      http://www.creditwritedowns.com/2011/11/ecb-cant-inflate.htm
      To blab on:
      If I was a lender/manager of large private funds and I had lent money to Greece, Spain, Portugal and Italy and I was forced to take a “haircut” of 50% on my Greek debt how would I act/react?
      I would assume a haircut of up to 50% was likely on my Spanish, Portuguese and Italian debt: acting in my own best interest I would get the hell out of the lot. That is what pushed up the bond yields and it wont get better no matter what they do. The 50% future haircut is locked in. And if I cant get out I will push for default and collect on my CDO insurance. So contagion will eventually be traced back to the forced 50% haircut. contagion is now.
      The Japanese real experience does not seem as dire as the press have made out for 10 years. Not good
      though if you were a Japanese retiring investor and watched your bank shares drop to 1982 levels.

    25. Hanns-Jürgen Hodann says:

      In relation to the ECB’s role in managing the Euro crisis, I came across some interesting comments made by the German executive member of its governing council, Jürgen Stark, who is resigning before his term runs out. His remarks were made in an interview published yesterday (26-11-2011) by the German newspaper Fankfurter Allgemeine Zeitung (FAZ) amidst speculation that the reason he is resigning is related to the controversy over the purchase of bonds in the secondary market by the ECB. In the interview Jürgen Stark, who is vehemently opposed to purchases of bonds of troubled EUM countries, was asked if rules should not be broken in extreme crisis situations. His answer was: ‘rules serveas an orienting guide and are particularly important to be observe in times of crisis’. His exact answer in German: “Regeln sind dazu da, gerade in Krisenzeiten Orentierung zu geben”. Later in the interview he repeats this saying that ground rules are valid especially in critical times (Grundätze gelten gerade in kritishen Zeiten).

      I believe his comments are very misleading and fallacious. All rules are necessarily based on a model of reality. In a crisis situation where the observed data indicates behaviour that is completely unexpected, this may well be an indication that the model for which the rules were developed is incorrect. Sticking blindly to the rules in such a situation may led to bad policy decisions. Not only does Jürgen Stark commit this error in his reasoning, he also conveniently ignores that article 123 of the treaty of Lisbon only prohibits the purchase of bonds in the primary market, but that it allows purchases of bonds in the secondary market for the specific reason of promoting stability and the survival of the monetary union.

      I believe that Jürgen Stark in this interview has done little to promote the functioning of the EUM which he says he is working to improve.

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