Tag: Economy

Insanity: doing the same thing over and over again and expecting different results.

~Albert Einstein~

Europe losing battle against debt crisis

Europe is fighting losing battles on two fronts. The debt crisis which began in Greece almost three years ago has spread to other countries. The recovery from the global financial crisis is ending, and the region will be in recession during the rest of the year. To combat the debt crisis, Greece, Ireland and Portugal have received bailout funds from the EU, European Central Bank and the International Monetary Fund (the “troika”), but are required to reduce borrowing through cuts in spending and higher taxes. To offset the recessionary impact of the fiscal tightening, the ECB has repeatedly eased monetary policy to encourage lending to the private sector.

Neither measure has worked as intended. The eurozone’s latest unemployment figure of 11.1 per cent in May is the highest in the euro era. Spain, the country recording the region’s highest unemployment rate of 24.6 per cent, announced a €65bn fiscal tightening programme this month. The new austerity measures will result in a deeper recession and even higher unemployment.

On the monetary front, the ECB implemented two repurchase agreements totalling €1tn with the region’s banks. While the aim was to ease the liquidity crisis that the banks experienced in November, the ECB move had the perverse impact of making those banks the principal purchasers of their own governments’ debt as foreign investors exited. This raises the risk for banks in case their governments default on their debt, or restructure payments. After a cut in the deposit rate the ECB pays the banks to zero on July 5, the central bank expected the banks to increase loans. Instead, they appear to be sitting on the funds.

The austerity measures that Germany has insisted on imposing on financially strapped countries as a requirement for bailing out the banks that caused it all, is coming back to bite the hand that fed it.

Germany Under Cloud From Euro Zone Woes

FRANKFURT – Germany’s stellar credit rating has been thrown into doubt because of the cost of holding together the euro zone, potentially making it more difficult for Chancellor Angela Merkel to muster political support to aid Greece and Spain.

Moody’s Investors Service said late Monday that it was changing the outlook on Germany, as well as on the Netherlands and Luxembourg, to “negative,” citing what it said was an increased risk that those countries will have to bear the cost of propping up Spain and Italy.

That helped push up borrowing costs Tuesday for both Germany and Spain ahead of talks late in the day between the finance ministers of both countries in Berlin.

While Germany’s bond yields remain near record lows, Spain’s have reached levels that are considered unsustainable for long, raising fears that it will have to ask for aid that its European partners cannot afford.

Austerity’s Big Winners Prove To Be Wall Street And The Wealthy

Governments in Europe, most notably the United Kingdom, have also pursued tax cuts for the rich while imposing austerity measures on the working classes. And the European financier class has benefited even more directly than their American counterparts from these budgets.

Every time the European Union has reached a crisis point on the debt carried by Greece or Spain, EU leaders, especially German Chancellor Angela Merkel, have come to the rescue with bailout funds. That money goes to the banks that own Greek and Spanish debt, whose holdings would take a hit if either country were unable to repay. But the bailout comes with harsh austerity requirements intended to encourage budgetary discipline, so it’s ordinary citizens who end up taking the hit. The most vulnerable populations are harmed by the bailouts, while the well-paid financial professionals who made the deals to finance Greek and Spanish deficits in the first place continue profiting handsomely.

“Imposing pain on Greeks is … a blood price for the ever-repeated bailouts whose actual beneficiaries are said to be Greeks, but are in fact French and German bankers,” said (James) Galbraith.

Eventually it will all come to an end. Then what?

Austerity is not going well for Europe or the US.

U.S. Stocks Post Longest Slump in 1 Month on Europe Woes

by Rita Nazareth and Julia Leite

U.S. stocks fell, giving benchmark indexes the longest slump in more than a month, after a jump in Spanish bond yields above 7 percent intensified concern about Europe’s crisis and as investors awaited Alcoa (AA) Inc.’s results.

The Standard & Poor’s 500 Index slid 0.2 percent to 1,352.45 at 4 p.m. New York time, according to preliminary closing data, paring an earlier loss of as much as 0.6 percent. The benchmark index dropped 1.6 percent over three days.  [..]

Stocks joined a global slump as the yield on Spain’s 10- year bond rose above the threshold that prompted bailouts in Greece, Ireland and Portugal. German Finance Minister Wolfgang Schaeuble dismissed a rapid move toward direct bank recapitalization by the European rescue fund, limiting the tools for shoring up Spanish banks as the euro-area crisis simmers.

Stocks Retreat as Spanish 10-Year Bond Yield Exceeds 7%

By Stephen Kirkland and Rita Nazareth

U.S. stocks fell for a third day as Spain’s 10-year debt yield topped 7 percent, fueling concern the debt crisis is worsening, and investors awaited the start of the earnings season. Corn and soybeans surged on forecasts for more dry U.S. weather. Treasuries rose.

The Standard & Poor’s 500 Index slipped 0.2 percent at 4 p.m. in New York and the Stoxx Europe 600 Index fell 0.4 percent. Ten-year Spanish yields jumped 11 basis points to 7.06 percent after rising as high as 7.108 percent. The euro climbed 0.2 percent to $1.2319, rebounding from a two-year low of $1.2251. Corn rose as much as 5.8 percent and soybeans jumped to a four-year high. Oil added 1.8 percent to $85.99 a barrel and natural gas rallied as a strike threatened supplies from Norway.

E.U. Seeks to Dispel Doubts About Bank Bailouts

by Paul Geitner and Stephen Casstle

BRUSSELS – With borrowing costs for Spain and Italy climbing again to critical levels, European officials sought Monday to dispel doubts about a deal struck last month to break the “vicious circle” between shaky banks and weak governments.

Spain, suffering through its second recession in three years, was also expected to win more time to rein in its budget deficit even as euro zone finance ministers haggled in Brussels over terms of a bailout for its troubled banks.

Amid the unrelenting market pressure, the European Central Bank reaffirmed that it stood ready to do more to stem the crisis – within the limits of its mandate – while urging euro zone governments to press ahead with closer integration.

Even here in the US, the Federal Reserve admits that they may be reaching there limits on their ability to fix unemployment and are at odds as to what to do next.

Fed’s Lacker Says U.S. May Be Close to Maximum Employment

By Kathleen Hays and Jeff Kearns

Federal Reserve Bank of Richmond President Jeffrey Lacker said the U.S. may already be close to maximum employment from a monetary policy standpoint and that policy makers can’t do much more to cut the jobless rate.

“Given what’s happened to this economy, I think we’re pretty close to maximum employment right now,” Lacker said today in a Bloomberg radio interview on “The Hays Advantage” with Kathleen Hays and Vonnie Quinn. “That might be shocking. That might be surprising.”

Fed policy makers believe the U.S. central bank has limited control over the jobless rate because the employment level is driven by “non-monetary factors that affect the structure and dynamics of the labor market,” according to the January statement from the Federal Open Market Committee. The jobless rate was unchanged at 8.2 percent in June.

Lacker, who has dissented from all four FOMC decisions this year, is at odds with colleagues on what the Fed should do to boost the economy. He said in a June 22 statement that he opposed the FOMC’s $267 billion extension of its Operation Twist program because it may spur inflation and won’t give the economy a significant boost.

San Francisco Fed President John Williams said today the U.S. central bank must maintain “extraordinary vigilance” to see if the slowing economy requires additional monetary stimulus. “If further action is called for, the most effective tool would be additional purchases of longer-maturity securities, including agency mortgage-backed securities,” Williams said in a speech in Coeur D’Alene, Idaho.

While all the PTB debate how to save banks and the markets, the 99% are getting poorer putting an even bigger drag on the economy. For most the recession never ended.

While the attention was on the SCOTUS ruling on the affordable Care Act, this is what was going on under the radar at the Federal Reserve:

Federal Reserve, Regulators Arguing for More, Quicker Foreclosures

by David Dayen

The Federal Reserve has decided to put their thumbs on the scales of justice, explicitly attempting to overturn state-based anti-foreclosure laws on the spurious grounds that they hurt the economy.

This story by Tim Reid in Reuters cites the Fed arguing against the kind of laws in states like Nevada – and soon, California – that have saved hundreds of thousands of homes from foreclosure.

   “State and federal laws enacted to protect homeowners from eviction in the wake of the 2008 housing crash may be extending the slump, according to a growing number of economists and industry experts.

   Foreclosures have all but ground to a halt in Nevada, which passed one of the stiffest borrower-protection laws in the country last year. Yet the housing market is further than ever from recovery, local real estate agents say, with a lack of inventory feeding a “mini-bubble” in prices that few believe is sustainable.

   A recent U.S. Federal Reserve study found that in states requiring a judicial review for foreclosure, delays associated with the process had no measurable long-term benefits and often prolonged the problems with the housing market.”

There’s been a concerted effort to overturn due process in these judicial foreclosure states, on the theory that foreclosures must be quickly flushed through the system so the market can “clear.” Incredibly, house organs like the Fed still express this opinion even after years of documented evidence of illegal foreclosures using false and forged documents in court. The explicit recommendation from the Federal Reserve is to react to systematic foreclosure fraud by closing the courthouse doors to troubled borrowers.

The entire premise that judicial foreclosure states are prolonging the housing slump is completely spurious. Nothing furthers the housing slump more than a spate of foreclosures flooding the market, increasing the supply of distressed homes that sell cheaply and bringing down property values in a particular area. That’s what the Fed is arguing for.

Yes, they’re serious. This is basically siding with the banks, giving fraud as pass and screwing the homeowners and housing market with a flood of foreclosures. And Reuters and other trade publications have decided to publish the propaganda that keeping people in their homes is causing the market to slump and the solution is more foreclosures.

Freelance writer and attorney who helped expose the foreclosure fraud, Abigail Field takes on the Reuters “b.S.” sentence by sentence, shredding the propaganda that the housing crisis was caused by homeowners but by the banks themselves who created the shadow market of foreclosed homes and the underwater crisis. She makes these four points:

First, en route to committing mass securities fraud the banks dishonored their contracts and failed to document the mortgage loans as they promised investors they would. As a result, they’ve had to fabricate nonsensical, obviously fraudulent and often sworn statements to try to foreclose. It’s that swamp of fraud that’s causing the delays.

Second, banks are manipulating housing market inventory, letting properties they own rot, not listing them for sale, and when auctioning them, sometimes outbidding third parties.

Third, bankers’ securities fraud broke the secondary market for non-government backed mortgages. As a result, there’s a lot less capital to lend wannabe homeowners.

Fourth, lender-driven appraisal fraud led to such inflated prices that the underwater problem is directly attributable to them.

Rather than deal in the reality that our housing crisis is banker driven and dare push the meme that bankers must be held accountable, Reuters is helping bankers (and their government allies) push the idea that if only we made it easy for bankers to use their fraudulent documents, the housing market would heal quickly.

There’s even more that exposes not just the Federal Reserve’s pass on bank fraud but the how the Obama administration’s so called homeowner bail out is just more hand outs to the banks:

Sentences ten and eleven:

“The increasing doubt about the impact of anti-foreclosure laws on the long-term health of the housing market calls into question a basic principle of the Obama Administration’s approach to the housing crisis.

Many Democrats, including Obama, say struggling homeowners should get more time to make good on their mortgage arrears, or have the breathing room to renegotiate their loans with lenders, especially in the wake of the “robo-signing” scandal in which banks were found to have falsified foreclosure paperwork.”

How I wish the Obama Administration’s approach had really been about helping struggling homeowners. Instead it has been mostly theatrics with gifts to the banks thrown in. Most recent example – the latest refinancing program has become a fee/profit center for the big banks. Moreover, if homeowners did “make good”, that would be better for everyone involved, including the broader market, but in the era of maximally predatory servicing, it’s not easy. Ditto with mortgage mods that work – and when they include principal reduction that’s meaningful, they work.

Hey, look! In sentence 11 we get the first whiff of banker wrongdoing. And wow, he not only uses the misleading “robo-signing“, but he also says “falsified foreclosure paperwork.” Foreclosure “paperwork” doesn’t sound that serious, though, does it? How about “falsified documents affecting property title”? Or, “lied under oath about how much borrowers owed and to whom?”

And as Yves Smith at naked capitalism notes in her article the lies get repeated ad nauseum:

The way Big Lies get sold is by dint of relentless repetition. In the wake of the heinous mortgage settlement, foreclosure fatigue has set in. A lot of policy people want to move on because the topic has no upside for them. Nothing got fixed, the negotiation process took a lot of political capital (meaning, as we pointed out, it forestalls any large national initiatives in the near-to-medium term), and Good Dems don’t want to dwell on a crass Obama sellout (not that that should be a surprise by now). But the fact that this issue, which ought to be front burner given its importance both to individuals and the economy, is being relegated to background status creates the perfect setting for hammering away at bank-friendly memes. When people are less engaged, they read stories in a cursory fashion, or just glance at the headline, and don’t bother to think whether the storyline makes sense or the claims are substantiated.

Just look at the headline: “Evidence suggests anti-foreclosure laws may backfire.” First, it says there are such things as “anti-foreclosure laws.” In fact, the laws under discussion are more accurately called “Foreclose legally, damnit” laws. Servicers and their foreclosure mill arms and legs have so flagrantly violated long-standing real estate laws in how they execute foreclosures that some states have decided to up the ante in terms of penalties to get the miscreants to cut it out. [..]

And that is perhaps the most remarkable bit, the failure to consider that gutting the protections to the parties to a contract undermines commerce. Borrowers in judicial foreclosure states paid higher interest rates due to the greater difficulty of foreclosure. So now they are to be denied what they paid for because the banks recklessly disregarded the procedures they set up and committed to perform? What kind of incentive system is it when we reward massive institutional failure with a bank-favoring settlement and supportive messaging from central bank economists? As Dayen stated:

   “So when these officials argue against laws like those in Nevada, which merely criminalize a criminal practice, or California, which provides due process for people having their homes taken from them, they’re arguing in favor of what amounts to a dissolution of justice.”

I don’t think you’ll read anything like this at Reuters. Shameful

The heads of state of the EuroZone countries met in Brussels today for a two day summit to  try to come to an agreement on how to bail out two of its biggest members, Italy and Spain:

The 27 government chiefs will discuss buying Spanish and Italian government bonds to bring down borrowing costs that are near euro-era records, Finnish Prime Minister Jyrki Katainen said. He also proposed that bailout funds buy collateralized government debt in primary markets.

“I’ve come for very rapid solutions to support countries in difficulty on the markets,” French President Francois Hollande told reporters as he arrived in Brussels. Without specifying Spain or Italy, he said they “have made considerable efforts to deal with their public accounts.”

Leaders will consider short-term measures to stem the sovereign debt turmoil as EU President Herman Van Rompuy’s road map to strengthen the bloc’s common currency and financial oversight ran into immediate opposition from Germany. German Chancellor Angela Merkel has become increasingly isolated as Hollande, Italian Prime Minister Mario Monti and Spanish Premier Mariano Rajoy unite to push for quicker action to ease the crisis that emerged in Greece in late 2009.

Apparently all did not go German Chancellor Merkel’s way as she canceled her scheduled evening press conference. Or maybe she was watching her country’s football team get trounced by the Italians.

Euro 2012 Live Blogging: Italy 2 Germany 0

“Irrational exuberance”, “unrealistic expectations” accurately describe some of the reports about the alleged rebound in the housing market, such as this report on the increase in housing prices:

Home prices rose in nearly all major U.S. cities in April from March, further evidence that the housing market is slowly improving even while the job market slumps.

The Standard & Poor’s/Case-Shiller home price index shows increases in 19 of the 20 cities tracked. That’s the second straight month that prices have risen in a majority of U.S. cities.

And a measure of national prices rose 1.3 per cent in April from March, the first increase in seven months.

San Francisco, Washington and Phoenix posted the biggest increases. Prices fell 3.6 per cent in Detroit, the only city to record a drop.

The month-to-month prices aren’t adjusted for seasonal factors. Still, prices in half of the cities are up over the past 12 months.

Then there was this news in Bloomberg about the increase in demand for new homes:

Demand for new U.S. homes rose more than forecast in May as mortgage rates dropped, bolstering the residential real-estate market while other parts of the world’s largest economy cool.

Purchases climbed to a 369,000 annual rate, the most since April 2010 and up 7.6 percent from the prior month, the Commerce Department reported today in Washington. The median estimate in a Bloomberg News survey of 67 economists was 347,000. The number of houses on the market held near a record low.

The problem with this rise in housing prices and an increase in new home sales is that its a poor indicator of the real “health” of the housing market. Even Yale Prof. Robert Shiller, co-creator of the quoted Case-Shiller house price index, takes a cautious view of these optimistic predictions of a housing recovery:

MUCH hope has been pinned on the recovery in home prices that began about a year ago. A long-lasting housing recovery might provide a balm to households, mortgage lenders and the entire United States economy. But will the recovery be sustained? [..]

The most obvious reason for hope is that, unlike stock prices, home prices tend to show a great deal of momentum. Correcting for seasonal effects, home prices as measured by the S.&P./Case-Shiller 10-City Home Price Index increased each month from June 1995 to April 2006, then decreased almost every month to May 2009. Since then, they have risen through January, the latest month for which data is available.

So, because home prices have been climbing of late, isn’t it plausible that they’ll keep doing so?

If only it were that simple.

Home price booms and busts do end, sometimes quite suddenly, as was the case for the boom of 1995 to 2006 and the bust of 2006 to 2009. Today, we need to worry about strong headwinds, as the government begins to withdraw its support of a still-troubled lending industry and as foreclosures are dumping millions of homes onto the market.

Michael Olenick explains at naked capitalism:

Yale Prof. Robert Shiller, co-creator of the well-known Case-Shiller house price index, takes a more sober approach. Shiller argues in the New York Times until meaningful principal reductions are put in place that house prices are hosed. Pricing may bump up on artificial scarcity caused by the relatively low number of foreclosures after the robo-signing scandal, but in the long run underwater borrowers are likely to drown. Further, because of sky-high loss severities in foreclosures – my own data shows it is not at all uncommon for investors to lose the entire face value of a mortgage in a foreclosure – principal reductions make good business sense.

Shiller embraces an idea being floated about lately; having municipalities use eminent domain to “take” mortgages at fair market value. Databases like the one I’ve been compiling clearly show the loss severity of similar mortgages in similar ZIP codes, allowing municipalities to ascertain fair market value of the mortgages, as opposed to the houses. In bubble-states, where negative equity issues are most pronounced, fair market value of most mortgage would be no more than 20-percent of the face value of the first mortgages – and oftentimes far less; no more than a few cents on the dollar – while second liens would be worthless.

Assuming this approach is only used with the consent of the homeowner, I’d suspect that one last call the servicer before implementation would magically result in an almost immediate modification: no lost paperwork, no transfers to the offshore call center, no capitalized interest.

That’s too rational for anyone to heed.

Other than the names and faces of the actors, not much is different in either Greece or Egypt after much analyzed and anticipated elections this weekend. In Greece, the center right is still faced with the dilemma of forming and holding together a coalition government to deal with the economic crisis that threatens to take down the Eurozone. While is Egypt, despite the historic election of an Islamic president, the military still maintains a tight control and all the power.

Greek elections: Antonis Samaras faces tough task to forge unity

The fault lines are so deep that even if a government is formed, many believe it will be a miracle if it survives for long

[..]The ambitious politician faces the Herculean labour of forging a government of “national salvation” at a time of unprecedented crisis. Not since the collapse of military rule has the country come so close to resembling a failed state. Following almost three months of political paralysis – before and after an inconclusive poll in May – Greece’s public finances are in tatters, its public administration is in disarray and its austerity-weary people are beaten down. It is now for Samaras to pick up the pieces. [..]

Late on Monday Samaras announced he had agreed with the head of Pasok, Evangelos Venizelos, to build a coalition, with negotiations expected to be concluded by Tuesday. Once bitter political rivals, the socialists, who came in with 12.3% of the vote, say the creation of a government of “national co-responsibility” is vital if Greece is to be steered through the crisis.

Combined, the two parties would control a comfortable majority of 162 seats in the Greek parliament. [..]

But fault lines in Greek society are so deep that even if a government is formed many believe it will be a miracle if it survives for long. To secure further rescue loans Athens has agreed to pass an extra €12bn in budget cuts, measures seen as vital if its economy is to reclaim competitiveness. And on Monday creditors led by Germany appeared in little mood to relent.The fiscal adjustment programme might be relaxed but “only marginally,” several officials said. “Greek society simply cannot endure any more measures,” insisted (New Democracy MP Kyriakos) Mitsotakis. “It’s not a question of what party is in office, it is a fact.”

German Chancellor Andrea Merkel, emboldened by the Greek center right narrow victory, has continued her hard line stand on enforcing the Greek deal

“The Greek government will and must naturally follow through on the commitments that were made,” Ms. Merkel told reporters at the Group of 20 meeting in Los Cabos, Mexico, disappointing those in Athens who hoped for a signal of new flexibility toward Greece in the wake of the vote. “There can be no loosening of the reform steps.”

At least Greece has a Parliament. Egypt on the other hand is once again on the verge of revolution as the Muslim Brotherhood threatens to take to the streets once again in protest over the military usurpation of power:

The ruling generals sought for the first time to sell the public on the decision to dissolve the Brotherhood-led Parliament on the eve of the vote. In a nearly two-hour news conference that was edited before it was televised, two members of the military council insisted that they regretted dissolving Parliament, but that they had been forced by a court ruling from judges appointed by former President Hosni Mubarak.

And although they have now issued an interim Constitution keeping legislative and much of the executive power for themselves – and even said later Monday that they would appoint a general to run the new president’s staff – the generals promised to hold a “grand celebration” when they turned over power as promised at the end of the month. [..]

In their news conference, the generals acknowledged they would have a monopoly on all lawmaking powers as well as control of the national budget. But they said that the new president – they did not name Mr. Morsi – would retain a veto over any new laws and could name the prime minister as well as other cabinet officials.

The generals have not backed away from the initial charter that removed the military and the defense minister from presidential authority and oversight and defended the imposition of martial, arresting and detaining civilians for trials in military courts. They also took it upon themselves to appoint the new president’s chief of staff and revived a special national defense council packed with loyal military officers, charged with overseeing matters of national security. This is not going over very well with the Egyptian people.

The bright spot in all of these travails, the French who gave newly elected president François Hollande a majority in Parliament on Sunday, which is likely only to embolden his drive for more growth-oriented spending and a retreat from German-style austerity. But if everything you hear about Greece and Egypt sound familiar, it is.

European officials are weighing up a bailout programme for Spain that would aid its fragile domestic banking sector while imposing only “very limited conditionality” on Madrid, a concession that could make a reluctant Spanish government more willing to accept international assistance.

Unlike earlier bailouts for Greece, Portugal and Ireland, the proposed Spanish rescue would require few austerity measures beyond reforms already agreed with the EU and could even dispense with the close monitoring by international lenders that has proved contentious in Athens and Dublin, according to people familiar with the plans.

EU support would instead be contingent on increased external oversight and accelerated restructuring of the Spanish financial sector to address lingering concerns about political interference and cronyism in the cajas, the regional savings banks that loaded up on questionable real estate loans during the housing bubble.

Mario Draghi, president of the European Central Bank, added to the pressure building on EU and Spanish officials on Wednesday, after he left interest rates unchanged and put the onus to solve the eurozone debt crisis squarely on the continent’s politicians. While saying the ECB stood “ready to act”, Mr Draghi insisted that most of the problems befalling the eurozone have “nothing to do with monetary policy”.

The question has seemingly become one of when, and not if, Spain’s banks will receive assistance from European countries, with investors on Wednesday predicting an imminent rescue and pushing up stocks and bonds on both sides of the Atlantic.

Spain, the euro zone’s fourth-largest economy, is too big to fail and possibly too big to steamroll, changing the balance of power in negotiations over a bailout. Political leaders in Madrid are insisting that emergency aid to their banks avoid the stigma in capital markets that has hobbled countries like Greece, Portugal and Ireland after accepting tough rescue terms. They are also fighting to slow the pace of austerity and economic change that have pushed those smaller countries into deeper recessions.

Spain has the added advantage of seeking help in a changed political environment in which calls for growth have begun to outweigh German insistence on austerity. Unlike Greece, Spain’s government did not run large budget deficits before the crisis, giving it leverage to argue that European aid to its banks should not come weighed down with a politically delicate loss of decision-making power over its own economic and fiscal policies.

Yves Smith take on what to do about the teetering European Banks:

Although markets reacted as if a deal was imminent, the FT makes it sound as if quite a few details need to be ironed out. And no wonder: the ECB, the one institution that could act unilaterally, has indicated it will only play a limited role and is leery of making long-term loans to Spanish banks or buying their debt. In addition, Spain appears to be taking an unwise posture, of asking for as little money for its banks as it thinks it will need. Rumors from Spanish officials come in at €40 billion, while European officials are looking at numbers more than twice that large. The big rule of fundraising is always raise a good bit more than you think you need in the first round; it will be vastly more expensive if you need to come to the well later.

Given that the shape of a Spanish bank rescue is very much in play, posts by European experts may well influence the outcome. While some of these recommendations might sound like the banking versions of apple pie and motherhood, it’s important to recognize that few of these basic principles have been adopted in recent bailout programs.

Last week the Irish voted against their own (s)elf interest, which according to Yanis Varoufakis, professor of economics at the University of Athens, when they “voted in favour of the EU’s fiscal compact which specifies that which is both impossible to attain and catastrophic if it is attained“:

So, why did the Fine Gael-led Dublin government push so powerfully in favour of this piece of crippling idiocy? And why did the smart, decent Irish voters said Yes, despite their tradition of saying No to euro-silliness? The answer is simple: They were blackmailed. Ireland’s voters were told: Vote No and the flow of money from the troika will cease. And so they voted Yes, even though I suspect that no government minister, no rank and file Fine Gael or Labour Party member, no man or woman on the street believes that the Fiscal Compact they voted for makes sense. [..]

If on 17th June Greeks voted like the Irish did last week (that is, against their reasoning and guided by fear and blackmail), the Eurozone will become history, with terrible consequences for the global economy. This is not the case of the Philosopher Kings blackmailing the plebs to do what is right. This is the case of ‘madmen in authority’, to quote Keynes, who are not only steering the vessel toward the rocks but who are, in the process, punching holes in the life vests that may carry us to safety once the shipwreck is complete. [..]

To conclude, Europe’s peoples are being marched into a catastrophe. They know that this is their predicament. They can see their march is leading them off a mighty cliff. But they are too afraid to veer off, in case there are beaten back into line, in case they get lost in the woods, for reasons that sheep know best. However, the only way this hideous march can end is if someone summons up the courage and does it. And steps out, showing the others that this march can stop and must stop – for everyone’s benefit. Who is that someone? We, Europeans, do not have many options. As I wrote above, the Irish people had a chance but did not take it. In two weeks, the Greeks have their chance. Voting for Syriza would offer us (and by ‘us’ I mean all Europeans) a chance of this circuit-breaker. A chance to say: Enough! Time to change course in order to save the Eurozone, so as to prevent the Great Postmodern Depression which lurks once the euro-system fragments formally.

Varoufakis gives his reasons for supporting Sariza: first, that Sariza is the only party that understands that Greece needs to stay in the EuroZone and that the Eurozone won’t survive if it doesn’t give up austerity; second, the economic team that will negotiate on Greece’s behalf are good and persuasive with a clear understanding of the situation; and third, Syriza will not be the sole arbiter of the Greek government. It will be a coalition, so there is no need to fear the party’s extreme leftism.

I hope the Greeks’ come to their senses unlike the Irish and Wisconsins.

The remainder of the title would not fit: “The destruction of language in politics”.  The series this is a part of has the labels:Anti-capitalist meet-up and anti-capitalism.  No better a way to introduce my topic.  Those are “buzz words” and have been around for a very long time.  What do they mean?  I would guess that the vast majority of the people who use these words along with “communism”, “socialism”, “democracy” , “freedom”, liberty”and many others have no real idea what they are talking about.  Political exchanges are the “good guys” and the “bad guys” just like in our Western movies.  But many of us are more sophisticated or at least we think we are.  Read the diaries here and you will be able to see what I am getting at.  Language is a very interesting thing.  We have dictionaries and now the Google and Wikipedia sources for word meanings.  The technology is racing ahead faster than we can comprehend.  Umberto Eco calls it the modern magic.  We use it like magic not really knowing how it works or where it originates.  This diary is meant to blow your mind.  It comes from the strange creature I am, a hybrid between scientist (but very unconventional), political activist (but very radical and unconventional) and citizen of the world rather than of a Nation.  Oh yes I am an American citizen because that’s the way things have to be at this point in time.  It will change, but I will be dead.  When I die I cease to exist. I am 76 now.  If I haven’t turned you off yet read on below.  I hope to shock you.

The economic crisis in Europe and the austerity response to it which has spread from Greece to other countries in Europe has dominated the news now for weeks. This past weekend the leaders of the G-8 met at Camp David where it was the main topic for discussion. While President Obama’s statement that encourages stimulus and growth as solutions to the EU problem, he did not discount austerity as one of the driving policies that has extended the downturn and caused social upheaval in Greece and now Spain. The reporting in the traditional mainstream media has been particularly lacking ion balanced analysis and, in some cases, some pretty sloppy and biased reporting.

William K. Black, an associate professor of economics and law at the University of Missouri-Kansas City, former litigation director for the Federal Home Loan Bank Board and a white-collar criminologist, takes reporters at the New York Times task for their profound ignorance on covering Europe’s financial, social, and political crises. He explains why they are so wrong:

Economists have known for roughly 75 years that adopting austerity in response to recession or depression will make the economic crisis grow and last far longer.  Austerity is to economics as bleeding was to medicine. [..]

The NYT article focuses on Alexis Tsipras, the Greek political leader whose party rose to prominence by promising to reject the loan-for-austerity program that the disgraced former Greek government agreed to at Berlin’s diktat. The article’s theme is that Tsipras is endangering all of Europe by demanding an end to austerity being imposed on Greece.  The reporters write, as if it were undisputed fact, that Tsipras has started “a high-stakes game of chicken with Europe’s leaders.”  But that reverses the facts.

The game that Berlin designed required the Greek to agree (1) to drive their economy off a cliff into a deepening Great Depression through increased austerity, (2) to force an enormous reduction in working class wages, (3) to sell Greek islands to private parties, and (4) to give up other aspects of sovereignty so that hostile, foreign, and private entities such as the IMF and the ECB could monitor its governmental actions.  The Greeks are now refusing to commit economic, political, and social suicide.  The Germans are demanding that they drive off the cliff because “a deal is a deal.”

If Greece were to drive off the cliff by adopting greater austerity it would likely destroy the EU.  Austerity would force Greece into a deepening depression, eventually lead to a default on Greek sovereign debt, and tear Greece apart.  Austerity has already generated a substantial neo-Nazi party in Greece.  Few Americans recall the Greek civil war between the right and the left that began in World War II and continued for several years after the war or the post-war coup.  Greeks recall the civil war and the coup and fear their resumption.  Proponents of the Berlin Consensus already have blood on their hands because of the suicides engendered by mass unemployment, small business failures, and hopelessness.  If the Berlin Consensus sparks a civil war or coup it could be fatal to the EU.

The EU crisis was also the topic of a heady discussion on this Sunday’s Up with Chris Hayes. Prof. Black was joined on the “Uppers” panel by Betsey Stevenson, former chief economist for the Obama Labor Department, Karl Smith, assistant professor of economics and government at the University of North Carolina at Chapel Hill; and MSNBC policy analyst Ezra Klein.

Mr Hayes’ assessment of the political situation in Greece was challenged by a commenter at his blog. Carol P Christ wrote with regards to the political and social responses to the crisis:

Since you are a member of the Progressive Left, you might reconsider calling Syriza the ‘far” Left in comparison to ‘far’ right Golden Dawn. There is no comparison between the 2. Syriza is a coaliton of parties to the left of centrist PASOk and to the “right” of KKE the Communist Party. You might be voting for them if you were in Greece, but you surely would NOT be voting for Golden Dawn. There is NO “comparison” between the 2. Continuing to compare the 2 parties makes it seem that all Greeks are irrational. There is nothing irrational about voting for Syriza. [..]

The “austerity” programs of the EU and banking systems have already destroyed our economy. To blame immigrants as Golden Dawn does is illogical. To ask voters to reject the terms of the second austerity package which is leading to massive unemployment and daily failures of small businesses is by no means irrational.

The Green Party is also against the austerity packages. And we are not “irrational” either.

The dualistic thinking of the west (ironically a legacy of Plato) leads to the demonization of the “other” as irrational. Unfortunately Greece has been portrayed as the “irrational” other within Europe for some time now.

Greece does need to change, but punishing the poor and middle classes is not a “rational” policy. [..]

Let me add that the European union and the Euro should not be confused. The Euro has only been in existence for 11 years. England with one of the largest economies in Europe is not a member of the Euro, nor is Sweden. They are still part of Europe and the European Union.

In Greece the Euro led to a massive rise in prices (a cup of coffee from $1 to $3-5, etc.) without a concomitant rise in wages. For example a tour bus driver makes E700 a month and a radiologist E1400, wages that are near poverty level in the US. depending on family size. Yet the cost of living is as high or higher than in the US, thanks to the price rises that the Euro brought. Gasoline is over $10 a gallon. Sales tax is 23%.

The European Union is a good thing, but the Euro was driven more by market forces and the desire to sell goods freely in Europe, than by a concern for world peace, the environmental protection, or any of the other good things the European Union is working on.

The Euro has not been a good thing for Greece, in my opinion.

(I have taken the liberty of posting most of Ms. Christ’s comments because I think they go straight to the heart of the misrepresentation that is taking place in the traditional news media.)

In another article at the New Economic Perspective, Prof. Black reports that the former head of the European Central Bank (ECB), Jean-Claude Trichet, thinks that by giving European politicians the power to declare a sovereign state bankrupt and take over its fiscal policy it would salvage the euro. To quote Prof. Black, “austerians have decided that since democracy is the problem, imperialism is the answer.”

Nor are fixing the problems of the euro a solution for the austerians:

Trichet, however, says that answer is impossible:  “For the European Union, a fully fledged United States of Europe where nation states cede a large chunk of fiscal authority to the federal government appears politically unpalatable, Trichet said.”  Democracy remains the stumbling block, but Trichet has an answer to that problem – crush democracy.  He proposes that the EU:

   “[T]ake a country into receivership when its political leaders or its parliament cannot implement sound budgetary policies approved by the EU. The action would have democratic accountability if it were approved by the European Council of EU heads of states and the elected European Parliament, he said.”

Of course, the “sound budgetary policies” he means are the suicidal, and failed policies of trying to balance the budget during a Great Recession.  He does not understand even now that a nation in a severe recession cannot simply decide to run a budget surplus.  It can try to do so, by cutting spending or raising taxes, but those policies are likely to reduce already sharply inadequate public and private sector demand, which increases unemployment, increases demand for public services, and reduces government revenue – all factors likely to increase the budget deficit.  I am sure that the Greeks will consider the loss of their sovereignty at the hands of hostile foreign powers who openly sneer at the Greek people to represent the epitome of “democratic accountability.”

And what was the reaction of Berlin to Trichet’s policy to force suicidal austerity on the Greeks and bleed their economy while removing their sovereignty and right to democratic rule?  You know the answer.

As Prof Black so aptly noted that that austerity is “a policy where you’re handed a gun and told to shoot yourself. Eventually people say, ‘Now exactly why should I do that?’. [..]

Whether Greece is the good or the bad, the policy is stupid.”

The United States is not Greece. It has its own sovereign currency and a bond market which it controls. We do not need to follow the EU and shoot ourselves with austerity.