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EMU posturing provides no durable solution

Today I have been looking over documents from the EMU which emerged from last week’s summit in Brussels. Within the plush environs of their meeting halls and probably over very sumptuous dinners the best they could come up with was a half-baked plan to stop the daily headlines which have been indicating impending Greek default. Such a default would damage the Eurozone monetary system and probably show the way for other nations, which are being similarly bullied by the EU bosses into impoverishing their nations. Given some reporting today they may have succeeded … in stopping the headlines … for the moment. But the approach of the EMU leaders will do nothing to address the fundamental structural flaws in the their whole system. With the prospect of an extended period of austerity throughout the zone, they are really just making it more certain that the next major global downturn sinks them for good. That is, if social instability doesn’t do it beforehand.

Despite all the posturing by the Germans and other bullies within the EMU, the EU summit in Brussels last week decided on a so-called “rescue package” for Greece, which, in theory, will permit bi-lateral loans from other member states and also allow the IMF to get their grubby fingers involved in the mess – the proportions of the bailout would be 2/3 (EMU) 1/3 (IMF). The latter move, alone, will make the prospects for the Greek people worse than otherwise.

You can read the final statement of the Euro government leaders HERE.

The President of the European Council was fairly categorical in his quoted press comments:

We hope that it will reassure all the holders of Greek bonds that the eurozone will never let Greece fail … If there were any danger, the other members of the eurozone would intervene

You can see his Press Conference (in French) – HERE. You can also read the statement of the President of the European Commission – HERE.

But the fact is that the EMU bosses have no intention of following through on this plan. They are just buying time and trying to appease the bond markets. The plan in itself is nonsensical as we will see.

The EU summit also said:

Furthermore, we commit to promote a strong coordination of economic policies in Europe. We consider that the European Council must improve the economic governance of the European Union and we propose to increase its role in economic coordination and the definition of the European Union growth strategy.

Originally, the wording sought by France and Germany used to term “economic government” but, apparently, the UK prime minister persuaded the summit participants into changing to “economic governance” (Source) because he “feared a backlash from the eurosceptic press if such an inflammatory phrase entered the final communique”. The FT article quoted a British diplomat as saying “There’s no question of powers being ceded to Brussels or sovereignty being affected whatsoever.”

Well they don’t have any sovereignty anyway so what is the difference?

Further examination of the final statement of the heads says:

The current situation demonstrates the need to strengthen and complement the existing framework to ensure fiscal sustainability in the euro zone and enhance its capacity to act in times of crises. For the future, surveillance of economic and budgetary risks and the instruments for their prevention, including the Excessive Deficit Procedure, must be strengthened. Moreover, we need a robust framework for crisis resolution respecting the principle of member states’ own budgetary responsibility.

This is the German agenda to make the Stability and Growth Pact conditions even more onerous. It reinforces the fact that they want to hamstring fiscal policy which means that only nations with strong export positions (read: Germany) have any chance of sustained growth. But even Germany had trashed the wages and conditions of their industrial workforce to ensure they can make beggars of the other EMU member nations via trade superiority.

So a Pyrrhic victory? Who ultimately in Germany is benefiting from all of this? Comments from those who know the nation better than I do are welcome.

What this proposal for increased “governance” is really about is making sure they don’t get embarrassed again by nations that breach their ridiculous fiscal rules. They are prepared to impoverish millions of European citizens just so they can hang onto some ill-conceived neo-liberal rules that make no sense in a complex economic world subject to major demand and supply shocks – which, in turn, are asymmetric in their regional impacts.

Given the diversity of the EMU member nations this asymmetry is lethal to the weaker nations. It beggars belief that the citizenry in those weaker countries would ever tolerate this entrenched austerity for very long.

What benefits do the workers in these nations gain from being subjected to a significantly higher risk of unemployment, declining real wages and working conditions; and diminished access to public infrastructure?

If there is a convincing argument which says that the average person gains from having their national governments tied up in a straitjacket like this then I haven’t seen it. I have read a lot over the last 20 odd years about “fiscal sustainability”, “restoring fiscal discipline”, “reigning in rogue spending” and all the rest of the catch-cries but never has there been a convincing case to explain why the stagnant Eurozone growth and persistently high unemployment is beneficial to the workers.

So my current assessment is that the Eurozone leaders haven’t really learned anything from the crisis at all. Their system has failed to meet the first crisis it faced. Some might say that it succeeded because no government has defaulted. That is so far true and probably will not happen now – but they have breached the strict intent of the “no bailout” rules as an ad hoc response and are prepared to allow access to the IMF – which is typically a sign of failure to govern.

It is now forgotten but the ECB also took advantage of hundreds of billions of US dollars provided by the Federal Reserve via swap lines which helped prevent an entire collapse of the European banking system.

Further, the only sustained fiscal response to the crisis by the EMU has been to pressure member governments to employ pro-cyclical policies to get back within the “rules” even though the rise in the budget deficits was driven significantly by the automatic stabilisers. Pro-cyclical fiscal policy is the exemplar of bad policy practice and defies the concept of sustainable fiscal intervention.

Please read my suite of blogs on fiscal sustainability for more on this issue – Fiscal sustainability 101 – Part 1Fiscal sustainability 101 – Part 2Fiscal sustainability 101 – Part 3.

Thus, it is for all these reasons that I consider the EMU system to have failed to withstand the crisis – pragmatic bailout agreement or not.

Wolfgang Münchau’s column in the Financial Times yesterday (March 28, 2010) suggests that Europe has resolved nothing over Greece.

He says:

Another knife-edge summit in Brussels, another late-night agreement, followed by self-congratulatory poses from European leaders: the “emergency funding agreement” for Greece sounded like a significant deal on Thursday night. But then you wake on Friday morning, examine the details and realise it was mostly smoke and mirrors. They had you fooled for a minute.

The aspect that puzzled me most was the announcement that a rescue would come in the form of a loan at market interest rates. This surely must imply that the market would not be willing to lend money to Greece at market interest rates. That is an absurd proposition.

The point is that if the bailout was invoked it would mean that market interest rates had risen so much that the Greek government could no longer fund itself. So what use will a non-subsidised “bailout” be anyway.

Münchau rightly considers the announcement to be a con job to give “psychological support for the market” which he thinks is “a dangerous confidence trick” and “will backfire, perhaps not right away, but at some point”.

I also agree with him that the immediate problem for the Greeks is that its funding rate is “too high given the likely trajectory of its economy”. As noted above, the only way the Greeks can stay in the EMU is by engineering a very severe and protracted recession. That sort of future provides no growth funds (the automatic stabiliser reversals) which allow a nation to pay down outstanding government debt and service existing debt obligations without default.

I am talking here about a non-sovereign government. For a sovereign government like Japan or Australia or the UK or the US insolvency is never an issue in relation to obligations in their own currency.

Münchau considers that, given this harsh trajectory:

… there may come a point when the Greek government concludes that default is the financially superior option, especially since 70 per cent of Greek debt is held by foreigners. If they are smart, they will take the EU money and then default. In any case, default is still the true backstop, not the emergency loan. Bond market investors should be well aware of that.

As regular readers will know I advocate Greece leaving the EMU immediately. Please read my blog – A Greek tragedy … – for more discussion on this point.

That would require a default on all Euro-denominated obligations. I outline some of these issues in this blog – Exiting the Euro?. But given the foreign exposure the defaulting strategy puts all the balls in the court of the Greek government.

Münchau is correct in his conclusion that:

the combination of no bail-out, no default and no debt monetisation is logically inconsistent.

But the inconsistency lies in the very essence of the Eurozone monetary system structure. It can only be healed by a fundamental abandonment of that almost moronic structure. They either have to abandon national sovereignty and cede fiscal responsibilities to a European government or exit. Under the first option, the resulting supra-national government would have the capacity to engage in fiscal redistributions to offset the impact of asymmetric shocks on different member nations.

The chances of this happening are zero.

So the only other option is to break up the whole system and re-align monetary (and currency) power with the fiscal power and allow exchange rates to float. Then each nation would be sovereign and responsible to its citizens for the economic fortunes it finds itself in. The Greeks would have to then take measures – such as reforming their tax base to ensure stable growth was achievable.

The latter reform, by the way, would have nothing to do with “raising funds” because as a sovereign government there would be no revenue-constraints on public spending. Rather, the tax reforms would give it more flexibility to control aggregate demand and align it better with real output capacity. As noted below, the flexible exchange rate would also allow it to realign its traded-goods sector with those of its trading partners without having to scorch the domestic economy and impoverish its workforce.

On the choices facing Greece, the four German academics who took their own government to court in 1998 challenging the Germany’s entry into the EMU wrote in the Financial Times last week (March 25, 2010) that – A euro exit is the only way out for Greece.

Writing before the bailout offer the four said:

Greece faces the threat of state bankruptcy. No longer is there any illusion that membership of Europe’s economic and monetary union provides protection from harsh realities. Since it entered the euro area in 2001, Greece has sacrificed competitiveness and amassed enormous trade deficits. Theoretically, to make up the economic ground lost in less than a decade, the Greeks would need to devalue by 40 per cent. But in a monetary union, that is impossible.

There is no shortage of proposals to help the Greeks, including assistance from other eurozone governments – a move that would contravene the “no bail-out” rule enshrined in the treaty setting up monetary union. There is, sadly, only one way to escape this vicious circle. The Greeks will have to leave the euro, recreate the drachma and re-enter the still-existing exchange rate mechanism of the European Monetary System, the so-called ERM-II, which they departed in 2001.

Well, first, the esteemed leaders have now violated that rule (by intent). But more importantly it is the Greeks that are being blamed for their own dilemma which in substance is a systemic failure.

I am not absolving the Greek government (or past governments) here. But the terminology “sacrificed competitiveness and amassed enormous trade deficits” gives away the lack of insight of these commentators.

A better way of putting it is that within the EMU (which has a fixed exchange rate and single monetary policy) the Greeks did not systematically erode the living standards of its industrial workers by introducing punitive anti-people policies like the Hartz reforms in Germany. As a result their real exchange rate fell against Germany.

Germany has had a long record of managing the DM (keeping it artificially low) to ensure it remained export-competitive which has increased the costs of imports to its citizens. Once that avenue was denied to them upon entry to the single currency they just shifted tack a little and attacked wage costs while maintaining work intensity (thereby reducing unit labour costs growth relative to their trading partners).

Further, as we have reported in previous blogs the Germans haven’t been backward in pushing millions of euros of military sales onto Greece, knowing that the latter is a trifle paranoid about Turkey. Please read my blog – The bullies and the bullied – for more discussion on this point.

The view of the German Four is that the bailout to Greece (now agreed) “contravenes the no bail-out rule” and they plan further legal action “to enjoin Germany to depart from monetary union”. So that will be a bit of fun.

But while their German-centric view is apparent they make the following sensible point:

It is reasonably clear that Greece has run out of options. The country has adopted an austerity programme of near-unprecedented severity, cutting government spending, raising taxes and depressing salaries. This programme completely ignores Keynes’ dictum that states must face crises with counter-measures to support demand. The Greek action is painfully reminiscent of Germany’s ill-fated moves to slash spending in the 1930s slump, which taught the world that cutting budgets to appease creditors in a downturn generates mass unemployment and radicalises society.

The fact is that the austerity programs in Greece, Ireland, Portugal and elsewhere will make things worse for an extended period. As I noted above, to impose pro-cyclical fiscal policy onto a nation in the midst of the largest crisis since the 1930s is plain madness and is an abuse of economic policy.

There is no doubt it will cause social unrest in Greece and probably Portugal. There is a view around that the Irish will tolerate their declining fortunes because they have typically been impoverished. Any Irish readers are invited to comment on what is going on in social terms as a result of the very harsh austerity program in place there.

But our German friends are right. The options for Greece (and the other struggling nations) is extended poverty or leaving the EMU and facing some medium-term uncertainties including a fairly substantial depreciation in the newly-introduced drachma.

Some people have been saying that the depreciation would be inflationary. It all depends. It would force a once-off adjustment to the terms of trade and so imported goods (like military equipment) would become more expensive. This doesn’t necessarily result in inflation if the consequences are sequestered from the distributional system and the nation takes the “real” cut in living standards that is implied. But the domestic non-traded goods suffer no impacts and form the majority of the consumption anyway.

Further, the real cut via the depreciation is likely to be of a much smaller magnitude than the austerity plan they have in place at present.

The Greek government would then be advised to cancel (default if need be) on all military purchases from Germany and France and redirect their public spending to welfare enhancing measures and enter dialogue with the US government to keep Turkey under control.

Finally, the improving terms of trade will make the Greek islands (and other exports) more attractive – although then they will be flooded with sun-burnt Germans.

The other point is that if the EMU does introduce its new “governance” scheme which will make it even harder for EMU member governments to run their economies, the next time a major negative demand shock occurs, things will be even worse (and more quickly worse) than they were in this crisis. So by muddling through and scorching the domestic economy, the Greek government is just prolonging the agony rather than taking out structural insurance that will protect its people from future ravages.

This applies to all the EMU nations. They are just shortening the plank that they have to walk down every time there is a crisis.

The four German academics conclude that:

… the Greeks have no way out but through the exit door. Restoring the drachma at a lower exchange rate would help exports and lift revenues from tourism. It would also send a message to other countries that they have to take serious steps to avoid landing in a similar predicament. Loss of confidence in Greek economics imperils all of Europe. Removing Greece from the euro provides a way of preventing a drama from becoming a tragedy – and of ensuring the survival of monetary union.

I agree but far from sending a message to the other EMU nations, a decision by the Greek government to leave the Eurozone provides a blueprint of leadership to the other nations and points them in the right direction. Then German can have the Euro to itself.

Digression: Tony Abbott finishes ironman

Many of you will know that I play a lot of sport (cycling and surfing). I wouldn’t say I have work-life balance (or whatever the buzz term is) but I value the physical side of things given I spend hours doing nothing but reading and tinkering in front of a computer which is wrecking my eyesight.

So while I have very little to agree with the Federal Leader of the Opposition in Australia Tony Abbott (who is a right-wing neo-liberal Catholic conservative) I admire his efforts yesterday to complete the Port Macquarie Ironman (3.8-kilometre swim, 180km cycle and 42km marathon) in just under 14 hours.

The point is that the leading government members, who themselves don’t look to be in the best of physical shape, have admonished Abbott for spending too much time training and not enough time working. Abbott says he trains about 10 hours a week which is hardly anything.

Australians face increasingly longer working hours (and an increasing portion of that are unpaid-bullied hours) as labour market deregulation has been introduced by successive governments. That is, the workers who are not underemployed – they are increasing too. So we have a bi-modal hours distribution here. Workers at both ends of the distributions are disadvantaged.

So where does the Labor government (which had origins as the political arm of the trade union movement – long forgotten) get off criticising Abbott when it is overseeing a child obesity problem (with rising incidence of diabetes and other related health issues) and workers are being coerced into ever longer working days. Where does the self-promoting pro-family government get off arguing against a person taking 10 hours of leisure per week!

I liked Abbott’s comment to ABC news where he said the “the most effective workers”:

… have a life If you’re chained to the desk eventually you go very, very stale …

Conclusion

Time to go and do something physical!

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    This Post Has 19 Comments
    1. Small point on the digression:

      I too admire Tony’s personal physical achievements. I was very athletic myself for many years and still manage some training most days.

      However, while I am still strong and can run 5km and go several rounds on the bag with no difficulty I am no longer “super-fit”. And there is a good reason.

      Along came children and with them, greater responsability to those other than myself. I came to the conclusion that I had to put aside the maxmising of my own individual self-interest – maximising my personal physiscal prowess – and devote more time to a higher purpose.

      And this is the way it should be.

      So while members of the government could – unlike Tony – stand to lose a few pounds at a bare minimum, they are right in saying that anyone who aspires to the awesome responsability of leading a nation of 22 million people should have higher priorities than flexing their muscles for the camera.

    2. “Who ultimately in Germany is benefitting from all of this?”

      Hmmm … I would say the bourgeoisie and their underlings (managers, bankers, …) “Since 2000, income inequality and poverty have grown faster in Germany than in any other OECD country. They increased by more in five years (2000-2005) than in the previous 15 combined (1985-2000).” This is not my assessment, this is official OECD wording in their country note “Growing Unequal?” about Germany.

      * Labour market changes have been a main driver of rising inequality. First, the distribution of gross wages widened significantly after 1995, after a long period of stability. Second, the share of jobless households has increased to 19%, the highest level across OECD area.

      * More German adults and children are living in poverty – that is, living in a household with less than half the median income – today than in 1985. For the total population the income poverty rate increased from 6% to 11% while for children it increased from 7% to 16%.

      * Wealth is distributed much more unequally than income: the top 10% hold more than half of total net worth. For comparison, the richest 10% have a quarter of total disposable income.

    3. Dear Lefty

      He was just playing some sport on a Sunday … an opportunity now denied to millions of workers as a result of the abandonment of penalty rates and non-standard/standard work week distinctions.

      Sundays are now commodity days like every day and sport and other leisure activities are being commodified and squeezed.

      And if the government ran the country properly – without spending hours lying to cameras about this and that and attending stupid summits that do nothing – they would have more time for sport or whatever. Work is for the trolls (and I give them 60 or more hours of it a week!).

      best wishes
      bill

    4. Just to give an impression what’s going on here in Germany. The following is a recent column from the Financial Times Germany. Not exactly known for having a hidden communist agenda. The column is called “Das Kapital” and comments regularly on financial markets. (I’ve translated it – so it might not be up to FT standards.)

      “It’s well known that life requires a correct balance. That means dealing with nutrition as well as the workload, the child rearing or financial planning. But just as in private life, the right balance matters also in public life. Ideally, policymakers should pursue a program that takes into account the interests of all social groups. But today any sort of balancing seems out of question.

      On the contrary, political camps seem to be more radical. On one side of the spectrum are those who believe a neo-socialist counterrevolution had happened. This believe is gaining traction beside: In Germany, the share of wages on national income in the fourth quarter of 2009 is by 5.6 percentage points lower in the last quarter of 1999. The corporate tax rates have almost halved since the 90s. The media is full of reports on Hartz IV, mini- or one-euro jobs. And corporate executives who earn millions. On the streets you can see old women who rummage in garbage cans to get hold of a couple of bottles.

      Notwithstanding the market radicals want a continuation of the developments of recent years: companies should not only earn its cost of capital, but double it. And as usual they will not use their excess returns for investment, but for dividends or acquisitions. And certainly the companies and the top earners should not contribute more to much-needed public spending in areas such as education or culture. It’s better to take a division of society into account and incidentally undermine also the own position. For not only will the number of 16- to 25-year-olds in 2020 decrease by around 15 percent, no, the offsprings will probably also be pretty poorly educated.”

    5. Hallo Stephan,
      hast Du noch die Adresse fuer den FTD-Artikel? Ich moechte es meinen Deutsche Freunden schicken. Ich weiss, dass sie die FTD nicht lesen.
      Gruss
      Graham

    6. Oh I agree with all of that Bill, don’t worry.

      Just saying, that’s all.

      Anyway as luck would have it, being seen to compete in a marathon soon after his very poor performance in the health debate has distracted that negative press away.

      What a happy coincidence for him.

      Maybe next time he f***s up in the public eye, he can straightaway schedule a fight with Danny Green (or whoever is in his weight division) and everyone will stop saying “what a clown” and start cheering “onya Tone!”.

    7. Dear Bill et all,

      Greece just raised 5 billion euros on a 7 year bond at 6% which is over 300 points from the German reference bond. Obviously, the so called “bail out” plan had no impression effect upon the markets. Even markets realize that long term repayment capability is assured from revenue generation that austerity programs and VAT taxes constrain. So austerity and high tax measures have an effect that most fail to realize which is that it raises spreads as default risk probability rises from poor revenue prospects. In this case public debt and budget deficit increase more than otherwise as income declines and interest cost rises!

      Another point is that in a country with low private debt to GNP ratio and high tax evasion, austerity measures have a smaller effect than otherwise, until austerity raises private debt and tax policies reduce tax evasion. In any event raises of private debt will also increase the total debt burden as private debt has a higher cost than public debt. Furthermore, austerity measures reduce imports as is happening in Greece right now at the expense of German exports. It will be a prolonged spiral to crisis which is the only hope for the policies that we both propose!

    8. @Panayotis

      Dear Panayotis. I think you are overestimating the macro-economic thinking capabilities of bond-traders. I’m working with these guys for a long time. And I can assure you they give mostly a shit about macro-economic details and their thinking is very straight forward. It’s: Here we go. We’ve an opportunity to buy for 6% yield for no risk given that at the end of the day the EMU won’t let Greece default. If we continue to raise our concerns we might even get 7%. Wonderful. And most of them have a cozy office in an EU bank, which knows that her government won’t let her go South.

    9. Dear Stephan,

      I am not arguing against the speculator put! I am using an argument regarding a probability of default that the traders and other bankers are using. Their point is that after the clowns of the eurozone enacted such a useless program with many ifs and buts and veto powers fo members and the long term effects of austerity, they have serious doubts that the Germans and others will really bail out Greece. Look what your economists and your media are saying about Greece! If you are a banker/trader how much credibilty do you give to European leaders? Is the recent “show” giving you any confidence? Would they let Greece default? Just listen to what your politicians and your press is saying!

    10. bill: “I spend hours doing nothing but reading and tinkering in front of a computer which is wrecking my eyesight.”

      Eyestrain is a real cost of computer use. I have avoided it for many years simply by using large fonts. Sometimes online I have to reduce the font size to use forms or to keep the text on a page, but that entails only a quick adjustment. Switching to what at first seemed ridiculously large fonts has helped me avoid eyestrain. :)

    11. External debt eventually takes on the mode of a Ponzi Scheme. 6% now then 7% etc. The actual interest rate is of no consequence in the short term provided the bond sales continue. It is only when the bond sale fails will default occure. No money in no repayments out.

    12. There is a view around that the Irish will tolerate their declining fortunes because they have typically been impoverished. Any Irish readers are invited to comment on what is going on in social terms as a result of the very harsh austerity program in place there.

      Bill, Ireland’s economy has “fallen of a cliff” and has shrunk by nearly 25% from its peak, the unemployment rate has increased to 13.1%. It would be far higher only for the training courses. In total, the domestic economy fell by 11.3%, the largest-single decrease ever recorded. Emigration has once again returned. Wages are down probably 25%. There is no demand anywhere for anything. Ireland now is running a trade surplus with every other eurozone member, and soon also against every other country China/Japan Switzerland etc. I’d be more worried about Belgium we imported €924.7m and exported €14,644.2m to them.

      From my personal experience, last year a man knocked at the door with his child in the pissing rain and asked for any little money that you could give him and that he has never been in this situation before. Middle class respectively dressed. My brothers friend is an electrician and he got his gas disconnected and is going around the lanes looking for pallets for firewood. His car is sitting out the front of his house on the road with no tax or insurance. And he must have lost a couple of stone because he looks like shit. People aren’t even getting their windows cleaned, my window cleaner is coming around at weekends because people don’t have the money. Its pathetic here.

      I’m not sure we will get social unrest like in Greece. These are the year on year figures

      % change from 2008-2009

      Homicide offences are down 10.1%
      Sexual offences are up 4.1%
      Attempts or threats to murder, assaults, harassments and related offences down 7.9%
      Dangerous or negligent acts down 20.8%
      Kidnapping and related offences up 80.5% (new category)
      Robbery, extortion and hijacking offences up 8.1%
      Burglary and related offences up 8.5%
      Theft and related Offences unchanged
      Fraud, deception and related offences down 9.6%
      Controlled drug offences down 6.3%
      Weapons and explosives offences down 0.2%
      Damage to property and to the environment down 5.5%
      Public order and other social code offences down 7.8%
      Offences against Government, justice procedures and organisation of crime down 18.3%

      Ireland is a very corporate state, but if it gets pushed too far people have a breaking point, and you never know at what point that will come at. You can never question the euro or Europe.

    13. BFG,

      That sounds like a dire situation in Ireland. I hope a solution to these problems is found sooner rather than later for everyones sake.

      If the Howard Government was returned to power last election in Australia I could well imagine us here being in a similar situation.

    14. From where I sit in NW Ireland, the picture isn’t clear by any means. The Irish people have no vehicle with which to voice dissatisfaction bar the odd hospital downgrading/closure protest. These are by nature very local affairs. Irish society is fragmented and there is no coherent opposition to neo-liberal economic policies. Rural communities are green deserts in a pertpetual slurry, petro-nitorogen and silage cutting cycle – all heavily mechanised with the odd dollop of selling sites for one off homes. The almost complete lack of industrial infrastructure, or the disintegration of what remained and the wholesale employment of agency workers in remaining industries such as value-added food production, has sapped the numbers and quality of union membership.

      The wealthy and upper middle class haven’t been affected by the great recession as they park their cash in all the newly minted government debt. The middle classes (payers of mortgage debt, auto debt and credit card debt) are hunkering down (they had their first mortgage rate increase this year the very day before we find out the full financial implications of NAMA) and hope like hell they can somehow stay afloat. They young (under 25) had their dole payment severly cut inducing immigration (always a favourite policy of our nearly one party state) or are gearing up for our new and improved “knowledge” economy by continuing education.

      Many people, and always the MSM, point out Ireland’s outstanding export economy. For deeper understanding, one can access this article http://www.progressive-economy.ie/2010/03/lies-damn-lies-irish-economic.html which sheds a somewhat different perspective on the export economy.

      All in all, the vast majority of people, whatever their economic situation, want to believe that a return to normalicy is just around the corner. The MSM certainly pump this point ad nauseam. The poor or relative poor, who by definition of neo-liberalism, are losers who don’t count and are wholely fragmented won’t be protesting any time soon. The celtic tigger was always the other Ireland for them. The wage earning middle classes are the joker in the pack. If things don’t turn around for this cohort by 2012, we’ll have a change of government. A neo-liberal party/green party coalition (who cut public transportation, more so in working class areas) will be replaced by a neo-liberal party/labour party coalition. (?)

      On a brighter note, many of us in the 40-50 age cohort, who remember immigration and tight times, are slowly remembering how to do more with less and cut many ties with the debt culture. There is a nice wee upsurge in alt living, ecology, horticulture meetings and classes. In other words we are learning to live like we used to in the 1970s and 1980s.

    15. Fed up

      In the article follow the link ‘as i have written before’ to this diagram http://market-ticker.denninger.net/uploads/2010/Mar/Debt-Sector-1980.png to see what he is talking about.

      It shows quite nicely how all non-sovereign debt has risen in comparison to sovereign debt since the beginning of the chart until ca. 2008 when the automatic stabilisers and fiscal packages kick in. That is in line with everything Bill and the rest of MMT are saying. Problem is, he just puts them all in the same box and argues sovereign and non-sovereign together. I think that is the crux of the issue.

    16. Fed up

      I read through those lines again. The reason he comes to a different conclusion is because he (from an MMTpoint of view) confuses cause and effect. MMT would argue that the fiscal stimulus (automatic and other) is not large enough to fill the gap left by private delevering whereas this bloke sees private debt rising at the same time as GDP falling and concludes that the stimulus has a negative effect.

    17. … upon reading a 3rd time realises that Fed Ups’ question was of a completely different nature as was the link provided and promises to improve on his reading comprehension and concentration skills in future :-D. Sorry, bad day…

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