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Sovereign Debt Jubilee, Japanese-Style

Japan has found a way to write off nearly half its national debt without creating inflation. We could do that too. Let’s face it. There...
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Video: Who Benefits From Sovereign Debt Crises? (3/5)

Economist Jayati Ghosh continues her discussion of the 136-nation move to address sovereign debt in the context of global finance. Via Youtube
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Video: Who Benefits From Sovereign Debt Crises? (2/5)

Economist Jayati Ghosh continues his discussion of the 136-nation move to address sovereign debt in the context of global finance. Via Youtube
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Video: Who Benefits From Sovereign Debt Crises? (5/5)

Economist Jayati Ghosh continues her discussion of the 136-nation move to address sovereign debt in the context of global finance. Via Youtube
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Video: Who Benefits From Sovereign Debt Crises? (4/5)

Economist Jayati Ghosh continues her discussion of the 136-nation move to address sovereign debt in the context of global finance. Via Youtube
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Video: Who Benefits From Sovereign Debt Crises?(1/5)

Economist Jayati Ghosh discusses the 136-nation move to address sovereign debt in the context of global finance. Via Youtube

Sovereign debt for territory: A new global elite swap strategy

In recent decades, dozens of sovereign nations have fallen into ever-deepening trouble by becoming indebted with the “private megabank over-world” for amounts far, far...

Poland Confiscates Half Of Private Pension Funds To “Cut” Sovereign Debt Load

While the world was glued to the developments in the Mediterranean in the past week, Poland took a page straight out of Rahm Emanuel's...

Poland Confiscates Half Of Private Pension Funds To “Cut” Sovereign Debt Load

While the world was glued to the developments in the Mediterranean in the past week, Poland took a page straight out of Rahm Emanuel's...

S&P Issues an Upgrade of U.S. Sovereign Debt Along With a Warning

In the announcement by credit rating agency Standard & Poor’s on Monday that affirmed its AA+ rating of United States sovereign debt while revising upward...

US Treasury Bonds are Junk Bonds? Is America Defaulting on Its Sovereign Debt? Can...

Recently, I wrote an article explaining why US Treasury Bonds are junk bonds and why rating agencies cannot be trusted at all, because they...

S&P Issues an Upgrade of U.S. Sovereign Debt Along With a Warning

In the announcement by credit rating agency Standard & Poor’s on Monday that affirmed its AA+ rating of United States sovereign debt while revising upward...

Moody’s downgrades China’s debt rating

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Ukraine’s Strange Defence, to Russia’s $3 Billion Debt Claim

In parallel with Ukraine’s extraordinary decision to bar Mikhail Gorbachev from travelling to Ukraine, Ukraine has filed what is legally speaking an equally extraordinary...

Clash of the Ignobles: The IMF, the European Commission and Greek Debt

The International Monetary Fund has been at odds with other partners in the Greek bailout saga.  Its economists have wondered whether strangling a state...

IMF – Greek Debt Untenable

Stephen Lendman (RINF) - Overwhelming Greek debt is a time bomb sure to explode. It's unsustainable. It's just a question of when the Hellenic Republic...

3 Big Reasons Why The ‘Greek Debt Deal’ Is Really A German Trap

Michael Snyder (RINF) - Greece is saved? All over the planet, news headlines are boldly proclaiming that a “deal” has been reached which will give...

European Central Bank to speed up debt purchases

By Nick Beams (WSWS) - The European Central Bank (ECB) will accelerate asset purchases under its €1.1 trillion quantitative easing program, in a clear sign of growing...

The Debt To GDP Ratio For The Entire World: 286 Percent

Did you know that there is more than $28,000 of debt for every man, woman and child on the entire planet?  And since close to 3 billion of those people survive on less than 2 dollars a day, your share of that debt is going to be much larger than that.  If we took everything [...]

The post The Debt To GDP Ratio For The Entire World: 286 Percent appeared first on The Economic Collapse.

“Motivated by greed with a complete disregard for food safety and biodiversity.”  Why Food Sovereignty...

Colin Todhunter After a four-year legislative battle, the European parliament has granted member states the ability to decide for themselves whether or not they want to allow crops...

Cry for Argentina: Fiscal Mismanagement, Odious Debt or Pillage?

Ellen Brown RINF Alternative News Argentina has now taken the US to The Hague for blocking the country’s 2005 settlement with the bulk of its creditors....

Economists Call on Congress to Mitigate Fallout from Ruling on Argentine Debt

Decision "could cause unnecessary economic damage to the international financial system" WASHINGTON - Over 100 economists, including Nobel laureate Robert Solow, Branko Milanovic and Dani...

Financial Explosion: Global Debt Crosses the $100 Trillion Mark

Has Risen by $30 Trillion Since 2007; $27 Trillion Is "Foreign-Held" While the US may be rejoicing its daily stock market all time highs day...

December 4, 1945: The Day the Senate Surrendered Our Sovereignty

On December 4, 1945, the United States Senate passed the United Nations Participation Act, committing the United States to full, active participation in the...

China Is On A Debt Binge And A Buying Spree Unlike Anything The World...

When it comes to reckless money creation, it turns out that China is the king.  Over the past five years, Chinese bank assets have grown from about 9 trillion dollars to more than 24 trillion dollars.  This has been fueled by the greatest private debt binge that the world has ever seen.  According to a [...]

Citi forecasts Greek devastation, unstoppable debt spirals in Italy and Portugal

Ambrose Evans-PritchardTelegraph.co.ukOctober 24, 2013 If Citigroup is right, the slight rebound in Europe over the summer...

Gold Spikes 3% After Debt Ceiling Rises & U.S. Downgrade

Today’s AM fix was USD 1,308.50, EUR 959.87 and GBP 813.09 per ounce.
Yesterday’s AM fix was USD 1,278.25, EUR 944.75 and GBP 797.71 per ounce.

Gold fell $1.80 or 0.14% yesterday, closing at $1,279.50/oz. Silver slid $0.06 or 0.28% closing at $21.27. Platinum climbed $14.80 or 0% to $1,395.20/oz, while palladium rose $7.25 or 1% to $712.55/oz.

Gold prices jumped $36 in 15 minutes and it surged as high as $1,321 per ounce or as much as 3.6% at one stage. Silver jumped by an even greater margin, by 5.1%, and rose as high as $22.18/oz.

Gold rose for the first time in four days after U.S. lawmakers reached an agreement to increase the debt ceiling and increasingly important Chinese credit ratings agency, Dagong Global Credit Rating Co. cut its credit rating for the U.S.

This led to short covering and some safe haven demand for gold as the dollar fell against all major currencies.

Gold in USD and Debt Ceiling - Quarterly, 1933-2013 (Bloomberg)
Gold in USD and Debt Ceiling - Quarterly, 1933-2013 - (Bloomberg)

The smart money is scooping gold bullion up at these depressed levels. Gold is down 23% this year despite robust demand from central banks and especially from India and China.

Global sales of bullion bars and coins gained 78% in the second quarter, according to the World Gold Council, showing that demand actually accelerated.

The U.S. government has avoided default but remains essentially insolvent and its appalling fiscal state has deteriorated once again due to the debt ceiling being raised above $16.7 trillion. Although the U.S. national debt has already surged well above that and as of writing, the U.S. National Debt is actually nearly $16.97 trillion and rising at roughly $1 trillion every year.

It is worrying that the recent debate has again been superficial and revolves around the theatre and political chicanery of the Republicans versus the Democrats and the usual partisan support for opposing ‘teams’ rather than the substantive issue of America’s likely insolvency and the fact that the actual national debt is actually between $100 trillion and $200 trillion and there is little sign of political or economic will to tackle this fundamentally important issue.

The U.S. is engaged in fiscal and monetary policies that are akin to a Banana Republic.

In addition to electronically creating out of nothing $85 billion every month to buy its own debt in the form of bonds, the U.S. is also borrowing more money than it is authorized to borrow, from itself again.

The extra $264 billion or so in borrowing — the difference between the actual real time $16.964 trillion national debt and the $16.7 trillion debt limit — was lent to themselves - by one section of government to another - in recent weeks.  Treasury Secretary, Jack Lew, ex COO of Citigroup Bank, has been using “extraordinary measures” since the U.S. ran out of money a few months ago and has been using government retirement programmes to make up the difference.

This is a form of shell game or confidence trick used to perpetrate what is a dangerous accounting practice that tends to end in tears.


Gold and Silver in USD and Debt Ceiling - Quarterly, 2000-2013 - (Bloomberg)

These unusual, some would say fraudulent, accounting practices and the fact that the U.S. is borderline insolvent, contrary to copious amounts of denial globally, are extremely dollar bearish and gold and silver bullish.

The risks posed to the dollar, but also to the pound, euro, yen and other electronic and fiat currencies is why we remain confident that both precious metals will reach real (inflation adjusted) record highs in the coming months.

Silver will likely continue to outperform after its most recent period of under performance.

JP Morgan Chase has issued letters to its business account holders notifying them that as of November 17 the bank will limit all cash transactions, including deposits, withdrawals and ATM usage, to $50,000 per month, and will prohibit all outgoing international bank wires.

Chase Bank has moved to limit cash withdrawals while banning business customers from sending international wire transfers. This has caused speculation that the bank is preparing for a looming financial crisis in the United States by imposing capital controls.

Some have suggested the drastic measures were designed to push business clients into more costly premium business accounts. Bank officials confirmed yesterday that the new capital limits apply to all business account holders but could not say why the measures came about and whether they were bank driven, due to profit motives or government regulations.


Gold in USD and Debt Ceiling, 2011 - (Bloomberg)

The bank will stop processing any outgoing international bank wire, and that any monthly cash transactions in excess of the new $50,000 limit will be subject to penalties and fees.

JP Morgan is embattled after a series of scandals including allegations of manipulation in many markets including LIBOR, foreign exchange, oil and energy markets and of course in the gold and silver markets.

It has received some enormous ‘slap on the wrist’ fines as it attempts to clear up the mess created by the London Whale trading scandal. The bank will pay $100 million to the U.S. Commodity Futures Trading Commission (CFTC), conceding "reckless" behavior led to the trading debacle that generated about $6 billion in losses.

There remains the real risk of capital controls and it will be important to own gold bullion in the event of capital controls.

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Debt Ceiling Impasse in the US Senate. Stripping US Bonds of their AAA Rating?...

Senators Harry Reid and Mitch McConnell, leaders of the Democratic majority and Republican minority in the US Senate, restarted negotiations late Tuesday with the...

US stumbles closer to debt default

Congress has stumbled closer to the precipice of US default as House Republicans withdrew their latest bill to raise the debt ceiling and reopen...

Denial in the Face of “Debt Default”: There is No “Debt Ceiling”

Debt Ceiling? What Debt Ceiling? That's a unicorn in Congress's garden! For all the talk about the United States approaching a catastrophic...

The U.S. Has Repeatedly Defaulted: It’s a Myth that the U.S. Has Never Defaulted...

Some people argue that countries can't default. But that's false. It is widely stated that the U.S. government has never defaulted. However, that...

The Public Debt Crisis, Risk Assessment and the Battle of Debt Rating Agencies

Universal Credit Rating Group announced the appointment of former French Prime Minister Dominique de Villepin as chairman of its international advisory council. UCRG's seeks...

The Debt of Developing Countries: The Devastating Impacts of IMF-World Bank “Economic Medicine”

As the World Bank and the International Monetary Fund hold their annual meeting in Washington 11-13th October 2013 it is necessary to take a...

The Debt Ceiling Debate: It’s Not a Fiscal Cliff … It’s the Breakdown of...

The blood pressure of the patient in the emergency room drops precipitously. The ER docs have already given 15 pints of blood over the course...

The Greatest Debt Crisis The World Has Ever Seen Is Coming

The largest mountain of debt in the history of the world just continues to grow even larger, and everyone knows that this colossal debt...

The Greatest Debt Crisis The World Has Ever Seen Is Coming

The largest mountain of debt in the history of the world just continues to grow even larger, and everyone knows that this colossal debt spiral is not going to end well.  But we all keep playing along because nobody wants the party to end.  Right now, there is an unprecedented ocean of red ink [...]

Debt, Austerity, Devastation: it’s Europe’s Turn

Like plague in the 14th century, the scourge of debt has gradually migrated from South to North. Our 21st-century Yersinia pestis isn’t spread by...

The Atlantic Magazine Downplays America's Debt Burden

When the senior editor of The Atlantic, Derek Thompson, tried to explain away concerns over the massive unfunded liabilities facing the U.S. government repeatedly pointed...

‘Japan debt surpasses 1 quadrillion yen’

File photo shows a bank teller counting 10,000 yen bank notes in Tokyo. Fresh data released by Japan's Finance Ministry show that the country's...

EU Official: Pooling Sovereignty, Once “Unthinkable,” Now “the Model”

As reported here this week, the first round of Transatlantic Trade and Investment Partnership (TTIP) negotiations has been underway in Washington, D.C. with European Union...

Reflecting on Canada’s Sovereignty: America’s Plan to Annex and Invade Canada

Canada Day, July 1st, is an opportunity for Canadians to reflect on issues of national sovereignty. Territorial control over Canada has been part of...

Quantitative Easing for the People: Default on the Public Debt, Nationalize the Banks, and...

Comedian Beppe Grillo was surprised himself when his Five Star Movement got 8.7 million votes in the Italian general election of February 24-25th. His movement is now the biggest single party in the chamber of deputies, says The Guardian, which makes him “a kingmaker in a hung parliament.”

Grillo’s is the party of “no.” In a candidacy based on satire, he organized an annual “V Day Celebration,” the “V” standing for vaffanculo (“f—k off”). He rejects the status quo—all the existing parties and their monopoly control of politics, jobs, and financing—and seeks a referendum on all international treaties, including NATO membership, free trade agreements and the Euro.

“If we get into parliament,” says Grillo, “we would bring the old system down, not because we would enjoy doing so but because the system is rotten.” Critics fear, and supporters hope, that if his party succeeds, it could break the Euro system.

But being against everything, says Mike Whitney in Counterpunch, is not a platform:

To govern, one needs ideas and a strategy for implementing those ideas. Grillo’s team has neither. They are defined more in terms of the things they are against than things they are for. It’s fine to want to “throw the bums out”, but that won’t put people back to work or boost growth or end the slump. Without a coherent plan to govern, M5S could end up in the political trash heap, along with their right-wing predecessors, the Tea Party.

Steve Colatrella, who lives in Italy and also has an article in Counterpunch on the Grillo phenomenon, has a different take on the surprise win. He says Grillo does have a platform of positive proposals. Besides rejecting all the existing parties and treaties, Grillo’s program includes the following:

• unilateral default on the public debt;
• nationalization of the banks; and
• a guaranteed “citizenship” income of 1000 euros a month.

It is a platform that could actually work. Austerity has been tested for a decade in the Eurozone and has failed, while the proposals in Grillo’s plan have been tested in other countries and have succeeded.

Default: Lessons from Iceland and South America

Default on the public debt has been pulled off quite successfully in Iceland, Argentina, Ecuador, and Russia, among other countries. Whitney cites a clip from Grillo’s blog suggesting that this is also the way out for Italy:

The public debt has not been growing in recent years because of too much expenditure . . . Between 1980 and 2011, spending was lower than the tax revenue by 484 billion (thus we have been really virtuous) but the interest payments (on the debt of 2,141 billion) that we had to pay in that period have made us poor. In the last 20 years, GDP has been growing slowly, while the debt has exploded.

. . . [S]peculators . . . are contributing to price falls so as to bring about higher interest rates. It’s the usurer’s technique. Thus the debt becomes an opportunity to maximize earnings in the market at the expense of the nation. . . . If financial powerbrokers use speculation to increase their earnings and force governments to pay the highest possible interest rates, the result is recession for the State that’s in debt as well as their loss of sovereignty.

. . . There are alternatives. These are being put into effect by some countries in South America and by Iceland. . . . The risk is that we are going to reach default in any case with the devaluation of the debt, and the Nation impoverished and on its knees. [Beppe Grillo blog]

Bank Nationalization: China Shows What Can Be Done

Grillo’s second proposal, nationalizing the banks, has also been tested and proven elsewhere, most notably in China. In an April 2012 article in The American Conservative titled “China’s Rise, America’s Fall,” Ron Unz observes:

During the three decades to 2010, China achieved perhaps the most rapid sustained rate of economic development in the history of the human species, with its real economy growing almost 40-fold between 1978 and 2010. In 1978, America’s economy was 15 times larger, but according to most international estimates, China is now set to surpass America’s total economic output within just another few years.

According to Eamonn Fingleton in In The Jaws of the Dragon (2009), the fountain that feeds this tide is a strong public banking sector:

Capitalism’s triumph in China has been proclaimed in countless books in recent years. . . . But . . . the higher reaches of its economy remain comprehensively controlled in a way that is the antithesis of everything we associate with Western capitalism. The key to this control is the Chinese banking system . . . [which is] not only state-owned but, as in other East Asian miracle economies, functions overtly as a major tool of the central government’s industrial policy.

Guaranteed Basic Income—Not Just Welfare

Grillo’s third proposal, a guaranteed basic income, is not just an off-the-wall, utopian idea either. A national dividend has been urged by the “Social Credit” school of monetary reform for nearly a century, and the U.S. Basic Income Guarantee Network has held a dozen annual conferences. They feel that a guaranteed basic income is the key to keeping modern, highly productive economies humming.

A basic income guarantee paid for with central bank credit would not be “welfare” but would eliminate the need for welfare. It would be social security for all, replacing social security payments, unemployment insurance, and welfare taxes.

In Europe, the proposal is being pursued not just by Grillo’s southern European party but by the sober Swiss of the north. An initiative to establish a new federal law for an unconditional basic income was formally introduced in Switzerland in April 2012. The idea consists of giving to all citizens a monthly income that is neither means-tested nor work-related. Under the Swiss referendum system of direct democracy, if the initiative gathers more than 100,000 signatures before October 2013, the Federal Assembly is required to look into it.

Colatrella does not say where Grillo plans to get the money for Italy’s guaranteed basic income, but in Social Credit theory, it would simply be issued outright by the government; and Grillo, who has an accounting background, evidently agrees with that approach to funding. He said in a presentation available on YouTube:

The Bank of Italy a private join-stock company, ownership comprises 10 insurance companies, 10 foundations, and 10 banks, that are all joint-stock companies . . . They issue the money out of thin air and lend it to us. It’s the State who is supposed to issue it. We need money to work. The State should say: “There’s scarcity of money? I’ll issue some and put it into circulation. Money is plentiful? I’ll withdraw and burn some of it.” . . . Money is needed to keep prices stable and to let us work.

The Key to a Thriving Economy

Major C.H. Douglas, the thought leader of the Social Credit movement, argued that the economy routinely produces more goods and services than consumers have the money to purchase, because workers collectively do not get paid enough to cover the cost of the things they make. This is true because of external costs such as interest paid to banks, and because some portion of the national income is stashed in savings accounts, investment accounts, and under mattresses rather than spent on the GDP.

To fill what Social Crediters call “the gap,” so that “demand” rises to meet “supply,” additional money needs to be gotten into the circulating money supply. Douglas recommended doing it with a national dividend for everyone, an entitlement by “grace” rather than “works,” something that was necessary just to raise purchasing power enough to cover the products on the market.

In the 1930s and 1940s, critics of Social Credit called it “funny money” and said it would merely inflate the money supply. The critics prevailed, and the Social Credit solution has not had much chance to be tested. But the possibilities were demonstrated in New Zealand during the Great Depression, when a state housing project was funded with credit issued by the Reserve Bank of New Zealand, the nationalized central bank. According to New Zealand commentator Kerry Bolton, this one measure was sufficient to resolve 75% of unemployment in the midst of the Great Depression.

Bolton notes that this was achieved without causing inflation. When new money is used to create new goods and services, supply rises along with demand and prices remain stable; but the “demand” has to come first. No business owner will invest in more capacity or production without first seeing a demand. No demand, no new jobs and no economic expansion.

The Need to Restore Economic Sovereignty

The money for a guaranteed basic income could be created by a nationalized central bank in the same way that the Reserve Bank of New Zealand did it, and that central bank “quantitative easing” (QE) is created out of nothing on a computer screen today. The problem with today’s QE is that it has not gotten money into the pockets of consumers. The money has gotten—and can get—no further than the reserve accounts of banks, as explained here and here. A dividend paid directly to consumers would be “quantitative easing” for the people.

A basic income guarantee paid for with central bank credit would not be “welfare” but would eliminate the need for welfare. It would be social security for all, replacing social security payments, unemployment insurance, and welfare taxes. It could also replace much of the consumer debt that is choking the private economy, growing exponentially at usurious compound interest rates.

As Grillo points out, it is not the cost of government but the cost of money itself that has bankrupted Italy. If the country wishes to free itself from the shackles of debt and restore the prosperity it once had, it will need to take back its monetary sovereignty and issue its own money, either directly or through its own nationalized central bank. If Grillo’s party comes to power and follows through with his platform, those shackles on the Italian economy might actually be released.

Ellen Brown

Ellen Brown developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, her latest of eleven books, she turns those skills to an analysis of the Federal Reserve and “the money trust.” She shows how this private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. She is president of the Public Banking Institute, http://PublicBankingInstitute. org , and has websites at http://WebofDebt.com and http://EllenBrown.com

Food Sovereignty: Think Globally, Eat Locally

In Haiti, members of the Union of Peasant Groups of Bay map out the families and resources in their community as a step in planning and tracking their local development process. (Photo: Ben Depp)In Haiti, members of the Union of Peasant Groups of Bay map out the families and resources in their community as a step in planning and tracking their local development process. (Photo: Ben Depp)The first group of protestors at Occupy Wall Street publically delivered 23 complaints, outlining the ways in which corporations control our daily lives. Number four asserted, “They have poisoned the food supply through negligence and undermined the farming system through monopolization.”

How we feed ourselves and each other is the backbone of how, historically, we have organized our communities and societies. The ways in which we arrange our agricultural systems make evident our larger worldviews. Food literally and figuratively connects us to each other, to our ancestors, to our cultures, and to the earth. Maybe all food should be acknowledged as soul food (with a low bow to Southern cooking) because it is, in fact, that deep.

A movement is afoot to put food, land, and agricultural systems back in the hands of citizens. One element has long been considered the overarching essential around the world, though it is only beginning to make an appearance in this U.S. This is food sovereignty, a combination of farming practices, marketing systems, and policy choices which together allow every people to make decisions about, produce, and consume its own local, healthy, and culturally appropriate food. Food sovereignty calls for the democratic participation of the population in shaping food and trade policies. It promotes the right of small growers to have control over their land and production, to grow for domestic consumption under local control. It also promotes ecological agriculture.

Food sovereignty is rooted in the daily work of every small farmer, rancher, fisherperson, landless farm worker, and everyone else involved in local food production. Yet no matter what they produce, their ability to survive is affected by international market forces. The movement, therefore, also includes community, national, and international activists working for just trade and economic systems. It promotes tariffs on food imports to protect local markets, and an end to international trade agreements and financial institutions that interfere with the sovereignty and sustainability of food systems.

The principles of food sovereignty challenge the neoliberal economic model – basically free-trade, corporate-driven, global capitalism - that governs food systems in much of the world. Agriculture in that model demotes government and community’s planning, investing in, or intervening in food and agricultural systems. Conversely, it promotes agribusiness corporations ability to invest wherever they like, favoring the import and export of large quantities of food across borders.

The neoliberal model assumes that a low- or middle-income nation’s best option is that of fitting into the economic position allotted to it by richer countries and financial institutions. If the American Midwest can grow massive amounts of corn, the rationale goes, then it should grow corn for the world, while Colombian farmers export coffee, Brazilian farmers bananas, and so on. Along with industrial-scale farming goes monocropping and massive inputs of fuel, fertilizers, and pesticides. Much more than large farmers, the primary beneficiaries are the corporate middle people who consolidate, arrange, package, and ship the food around the world.

The proponents of this model are the World Bank, International Monetary Fund (IMF), World Trade Organization (WTO), governments of industrialized countries, large landholders, and corporations. They insist that global South countries lower agricultural tariffs on food coming into their countries so as to open their markets to foreign trade. They also pressure countries to eliminate agricultural subsidies, even though many high-income countries like the U.S. maintain large subsidies of their own. These measures undermine local production and the livelihoods of the world’s small-scale farmers who cannot compete on an uneven playing field with corporate giants.

A food system that depends on importing and exporting goods around the globe leaves everyone more vulnerable to the whims of global market forces. When oil prices rise, for example, communities and countries who can’t afford the resulting price spikes in food, or who no longer have their own strong agricultural systems in place, are left hungry.

The most powerful international coalition promoting food sovereignty is Via Campesina, an alliance of approximately 150 groups from 70 countries, representing around 200 million small- and medium-size farmers and food producers, landless people, indigenous peoples, and rural women. The coalition includes groups as wide-ranging as the Indonesian Peasant Association, the Confederation of Farmers’ Unions in Turkey, and the U.S National Family Farm Coalition. Via Campesina takes strong stands around trade and financial institutions and policies, and opposes any intervention of the World Bank, IMF, and WTO on questions of food and land. For each critique, the coalition advocates specific alternatives. Via Campesina provides a network in which groups can work together on global campaigns, international days of action, country-specific mobilizations, public education, and demonstrations at prominent venues such as climate talks and WTO meetings.

Another important grassroots force for food sovereignty is the Latin American Coordination of Rural Organizations (CLOC by its Spanish acronym), whose members are both farmers and farmworkers. CLOC represents the Latin American branch of Via Campesina, but it also takes independent positions and actions. CLOC pursues its vision of a future without hunger through three primary campaigns: challenging free trade agreements, promoting agrarian reform, and creating food sovereignty. More recently, its focus has expanded to oppose biotechnology. CLOC members develop their political program through lobbying, popular education, protests, mass mobilizations, international campaigns, and international tours.

Dig Deeper

Feeling inspired? Read on for a list of actions, resources, and organizations to get you started.

  • Help introduce the idea of food sovereignty to your local food group, community organization, or educational institution. Order copies of Grassroots International and National Family Farm Coalition’s booklet explaining food sovereignty (or download here: www.grassrootsonline.org/publications/fact-sheets-reports/food-sovereignty-explained-simple-language-newbooklet) and use them to start conversations. Host a workshop about food sovereignty in your community, with the help of “Food for Thought and Action: A Food Sovereignty Curriculum” (download here: www.grassrootsonline.org/publications/educational-resources/food-thought-action-a-food-sovereignty-curriculum).
  • Join the US Food Sovereignty Alliance, which is bringing together groups from around the country to build a national movement for food sovereignty, and to connect national initiatives with the thriving international movement. Have your organization join (www.usfoodsovereigntyalliance.org).
  • Organize a local campaign to protect your community from corporate farming and other corporate takeovers of natural resources:Ask your Congressperson to oppose the harmful effects of large-scale factory farming, such as requesting that he or she support the Livestock Marketing Fairness Act. Food and Water Watch’s website can keep you updated (www.foodandwaterwatch.org/food/factoryfarms).
    • The Community Environmental Legal Defense Fund helps people get started in challenging corporate takeover of their communities (www.celdf.org);
    • Corporate Accountability International’s webpage connects you with an abundance of ways to challenge corporate control of food (www.stopcorporateabuse.org/food-campaign).
  • Learn about and get inspired by Via Campesina, the world’s largest coalition of small and medium-sized farmers, women, and landless people calling for food sovereignty the world over. Watch their most recent video (www.vimeo.com/27473286).
  • Get involved with international campaigns such as those to halt the expansion of the WTO, stop new trade agreements and renegotiate existing ones, end Fast Track, and cancel global debt:Learn more about what you can do to stop the WTO from continuing its tremendous damage to agriculture. The “Derailer’s Guide to the WTO” by Focus on the Global South is a helpful resource (www.focusweb.org). Use the Tools for Activists from The Bank Information Center, which has put together a comprehensive toolkit on both understanding and challenging the World Bank (www.bicusa.org/toolkit).

Download the Harvesting Justice pdf here, and find action items, resources, and a popular education curriculum on the Harvesting Justice website.

Sovereign Defaults Past And Present In One Chart

When a sovereign nation accumulates too much debt, far more than its economic growth can sustain, there are only two ways out: inflating the debt away, or defaulting. The global central banks have bet not only the house but the entire $700 trillion derivative house of cards that they can generate the former in order to preserve the equity tranche (controlled by the same entities that also control the central banks) above the insurmountable global debt load, and certainly there are more than enough historic examples of instances where a nation literally destroyed its currency by hyperinflation in order to eliminate the debt overhang. Because when it comes to getting the Goldilocks outcome of just enough inflation to slowly grind the debt away, the track record of the world's central planners is simply woeful.

The flipside to the great reflation operation is that while Bernanke and company try year after year to bring enough base money into the system to generate the "virtuous" inflationary cycle, they are increasingly hitting against the statutory limit, which in this case is the amount of debt in the system that keeps on rising year after year, until one day the central banks will have run out of time. This is the moment when global debt - both at the individual sovereign level and consolidated - is so vast, default is the only option. In other words, one can only attempt to reflate so many times before the time runs out.

As the chart below shows, in some 200 years of history, when expressed as a ratio of total sovereign debt to tax revenues, the empirical data as compiled by Reinhart and Rogoff ranges from 2x to 16x. This is shown by the blue bars in the chart below.

So where are we in this cycle as the debt clock counts down?

As the red bars show, we are in a very uncomfortable place, with Japan now at the highest such ratio in history, well above the highest recorded which always ended up in default, while the US, whose such ratio is over 600%, is above the long-term average of circa 520% in default triggering public debt/revenue. The problem is that every current and subsequent attempt to reflate merely pushes both of these higher, until one day the marginal growth creation of every dollar in new debt becomes negative.

How much higher can consolidated global debt go before global GDP is not only no longer growing, but every incremental dollar in debt has a negative impact on GDP, as was the case for the US in the fourth quarter? Keep an eye on global economic growth: if and when the world enters outright recession: the most feared outcome by all central bankers who realize they are out of weapons and their only recourse is much more of the same, that may be cue to quietly leave town.

And some further thoughts on this issue, courtesy of none other than Dylan Grice, circa precisely three years ago:

As is the case for today’s central bankers, Von Havenstein was faced with horrible fiscal problems; as is the case with today’s central bankers, the distinction between fiscal and monetary policy had blurred; as is the case for today’s central bankers, the political difficulty of deflating was daunting; and, as is the case for today’s QE-enthralled central bankers, apparently respectable economic theory reassured him that he was doing the right thing.

One might think that the big difference is that today we have a greater expertise. Surely we understand what happens when deficits are financed with printed money, and that it is only backward and corrupt states that don’t know any better, like Bolivia and Zimbabwe? But just a few years ago didn’t we think that it was only backward and corrupt states that suffered banking crises too?

And anyway, how could Von Havenstein not have known that the continued and escalating printing of money to fund government deficits would cause inflation? The United States experience of unrestrained money printing during the Civil War has been well documented, as had the hyperinflation of revolutionary France in the late 18th century. Isn’t it possible that, like today, he was overconfident in his ability to control his creation and in the economic theory which told him such control was possible? Certainly, in an article in the New York Times on the eve of the First World War, again from Liaquat Ahamed’s book, there seems to have been evidence of the general optimism that there would be no “unlimited issue of paper money and its steady depreciation … since monetary science is better understood at the present time than in those days.”

The fact is we do understand the economics of inflation. Despite what economists everywhere say about being in ‘uncharted territory’ with QE, we know that if you keep monetizing deficits eventually you get inflation, and we know that once you’re on that path it can be extremely difficult to get off it. But we knew that then. Despite what economists everywhere say about being in "uncharted territory" with QE, we know that if you keep monetizing deficits eventually you get inflation, and we know that once you're on that path it can be extremely difficult to get off it. But we knew that then. The real problem is that inflation is an inherently political variable and that concern over debt sustainability and unfunded welfare obligations leaves us more dependent on politicians than we have been in many decades. Frank Graham concluded his 1930 study of the Weimar hyperinflation with the following observation, which I think is as ominous as it is apt today:

"The mills of international finance grind slowly but their capacity is great. It is also flexible. The one condition is that the hoppers be not unduly loaded in the effort to get the whole grist from a single grinding. So much for the economics of the question. What politics has in store is, however, an inscrutable mystery. It can only be said that such financial difficulties as may occur will almost certainly arise from political rather than from economic sources."

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The U.S. Congress: From One Crisis to Another, The Politics of Debt Default

washington

“The full consequences of a default — or even the serious prospect of default — by the United States are impossible to predict and awesome to contemplate… Denigration of the full faith and credit of the United States would have substantial effects on the domestic financial markets and on the value of the dollar in exchange markets.”

-Ronald Reagan (1911-2004), 40th President of the United States (1981–89), (1983)

“Decisions about the debt level [should] occur in conjunction with spending and revenue decisions as opposed to the after-the-fact approach now used… [doing so] would help avoid the uncertainty and disruptions that occur during debates on the debt limit today.”

-U.S. Government Accountability Office (G.A.O.)

“I will not have another debate with this Congress over whether they should pay the bills for what they’ve racked up… We can’t not pay bills that we’ve already incurred.”

-President Barack Obama, Tuesday January 1, 2013

That’s why the American people hate Congress.”

-Chris Christie, New Jersey Republican Governor, (January 2, 2013, after the Republican House majority refused to vote on a $60 billion aid package for victims of Superstorm Sandy)

One crisis averted, three to come! Indeed, that’s what can be said after the U.S. House of Representatives passed legislation on January 23, 2013, to suspend the government’s statutory borrowing limit for three months.

In fact, the cycle of artificially created crises will go on and on in Washington D.C. Now, the next crises are scheduled for March 1s, for March 27th and for May 19th. Stay tuned. On March 1st, automatic sequester cuts agreed by Congress in 2012 will take effect, causing an immediate cut of $69 billion in public discretionary spending. Then, on March 27, the U.S. government’s ability to fund itself (the “continuing resolution”) will run out. And, of course, come May 19, the melodrama of raising the debt ceiling will be back again in force.

Ever since Republicans took control of the 435-member U.S. House of Representatives in 2010, a fiscal drama with the White House and the U.S. Senate has been replayed time and again. One of the political gimmick is called the “raising of the country’s debt limit.

Why so many artificial crises in the current American political system? Extreme political polarization seems to be the answer.

Indeed, since the 2010 mid-term election, when the Republican Party took control of the House of Representatives with some 242 seats, this party has behaved as if it were in fact two parties in one. There is the traditional conservative Republican Party on one side, and the radical Republican Tea Party on the other side. With some 67 anarchist anti-tax and anti-establishment Tea Party House members voting as a block, the latter has been in a position to hold the balance of power in the House and to prevent compromised solutions to the country’s fiscal problems.

A good example was the 2011 showdown between the Democratic Obama administration and the Republican-controlled House of Representatives regarding raising the U.S. government’s debt ceiling.

In the spring of 2011, House Republicans, spurred by Tea Party members who practice no party discipline toward the Republican Party except to themselves, and reneging on a decades-long bipartisan tradition, refused to raise the nation’s debt ceiling, thus threatening to push the U.S. government toward debt default. They demanded that the Obama administration concede to freezing tax revenues and to enacting massive spending cuts. In the midst of a financial crisis and an economic slowdown, such huge public spending cuts could have pushed the U.S. economy toward an economic depression similar to the 1930’s Great Depression.

For the first time, therefore, House Tea Party members decided to use the perfunctory requirement to raise the debt limit to gain partisan political advantage. That move has introduced into the functioning of the U.S. Congress an element of radicalism and brinkmanship that could prevent the U.S. government from operating properly for years to come.

Mind you, the obligation for Congress to vote on raising the U.S. government’s debt ceiling has existed since a 1917 law to that effect was enacted. It allows the U.S. Treasury to proceed with borrowing to finance government operations as outlined in an already approved budget for a given fiscal year.

Economically speaking, indeed, there are three main ways to finance public expenditures: -through tax revenues; -through borrowing; -or, through the printing press, when a government borrows from its own central bank. The latter is in fact an inflation tax imposed on every user of the national currency.

Therefore, if the U.S. Congress has already approved a public budget of operations that does not raise taxes in a sufficient amount to cover outlays, and if an inflation tax is out of question, the only other avenue left is to borrow the required funds.

For years, the 1917 requirement to raise the debt limit was considered redundant since the budget had already been approved and it was seen as a simple bipartisan formality. Since 1940, for example, the U.S. debt ceiling has been raised 94 times, 54 times by a Republican administration and 40 times by a Democratic administration. Altogether the debt ceiling has been raised 102 times since 1917. It has been raised every year that the U.S. government has run a deficit.

If the Tea Party members of the House keep on routinely using the 1917 law to formally raise the debt limit as an obstructionist tool, Congress may be constantly gridlocked and the U.S. government will continue going from crisis to crisis. A small minority of House members could then hold the U.S. government hostage. As a consequence, it could become increasingly difficult for the U.S. Administration to implement sensible economic and fiscal policies along the principle of majority rule. The U.S. economy is bound to suffer severely from such a political paralysis.

In 2011, former president Bill Clinton expressed the view that the 1917 law is unconstitutional since it goes against Article I, sec. 8 of the U.S. Constitution that requires that Congress pay “the Debts and provide for the … general Welfare of the United States.” Besides, the Fourteenth Amendment (section 4) of the U.S. Constitution states that: “the validity of the public debt of the United States… shall not be questioned.

Therefore, if Congress does not fulfill its duties for one reason or another, the President in whom executive power is vested may have the right to act for the “general Welfare of the United States”.

In the coming weeks, if the House of Representatives refuses bipartisan cooperation and keeps stonewalling the Administration, President Obama may have no other choice but to call the Tea Party members’ bluff by unilaterally declaring the 1917 law unconstitutional and letting the courts sort it out later.

A constitutional crisis may seem to many to be a better alternative than a repetitive and protracted economic and financial crisis and an economy constantly teetering on the brink of a permanent fiscal cliff.

Dr. Rodrigue Tremblay, a Canadian-born economist, is the author of the book “The Code for Global Ethics, Ten Humanist Principles”, and of “The New American Empire”)

Spain’s Catalonia declares sovereignty

Catalan separatist merchandise is displayed at a stall in Las Ramblas, Barcelona, Spain. (file photo)

The parliament of Spain’s northeastern region of Catalonia has approved a declaration of the region’s sovereignty as a major step towards its independence from Spain.

The non-binding resolution was passed on Wednesday by 85 votes in favor, 41 against, and two abstentions, the Associated Press reported.

The declaration, which states that the people of Catalonia have a democratic right to decide on their sovereignty, sets up a potential showdown with the central government in Madrid.

Catalonia, one of the most developed regions in Spain, already enjoys a wide degree of autonomy, but the country’s economic crisis has fuelled Catalan nationalism.

Growing Catalan separatism is a huge challenge for Spain's conservative Prime Minister Mariano Rajoy, who is trying to avoid getting bailed out by its European Union neighbors.


Rajoy says a referendum on secession is unconstitutional and hurts all Spaniards, who are already suffering in a recession with the unemployment rate higher than 25 percent.

The approximate 16 billion euros Catalonia pays Madrid in annual taxes is more than it gets back from the central government.

In addition, the autonomous region owes around 40 billion euros in debt, which has forced regional authorities to introduce spending cuts in healthcare and education.

Many Catalans believe their economy would be more prosperous on its own, complaining that a high portion of their taxes goes to the central government in Madrid.

Catalonia, which consists of Barcelona, Girona, Lleida, and Tarragona, accounts for one-fifth of Spain’s economic output.

Spain’s 17 autonomous regions manage their own budgets and are responsible for health and education policies and other areas of public spending.

Battered by the global financial downturn, Spain’s economy collapsed into recession in the second half of 2008, taking with it millions of jobs.

MN/MHB

New World Order – Attack On Sovereignty

Those concerned about “The New World Order” speak as if the United States is coming under the control of an outside conspiratorial force. In fact, it is the US that is the New World Order.

US set to lose top rating over debt ceiling. Again

A picture shows the entrance of Fitch ratings agency (AFP Photo / Miguel Medina)

A picture shows the entrance of Fitch ratings agency (AFP Photo / Miguel Medina)

If the US Congress fails to raise the debt ceiling and sends the country into default, it risks losing its top credit rating.

­One credit agency has already assured it may downgrade America’s score if there’s any sort of delay in coming up with a budget plan.

If the US fails to increase its debt limit by March 1, it may not be able to pay its bills and could fall into default. Fitch Ratings, a top credit agency, said Tuesday that it would downgrade the nation’s AAA credit rating if Congress fails to agree on a plan “in a timely manner”.

“In Fitch’s opinion, the debt ceiling is an ineffective and potentially dangerous mechanism for enforcing fiscal discipline,” the company said.

A credit rating influences a nation’s borrowing costs, which would be higher if a country proves unable to repay its debts. Lower credit ratings could potentially harm the US economy by increasing its borrowing costs. Even if the US were not sent into default, Fitch would consider downgrading America’s credit rating if it witnesses another heated bipartisan debate that stalls time-sensitive progress.

Fitch said on its website that a repeat of the 2011 congressional battle, which almost sent the US into default, would instigate a formal review of the country’s credit rating and increase skepticism in Congress’ ability to come to agreements.

“The pressure on the US rating, if anything, is increasing,” said David Riley, managing director of Fitch Ratings’ global sovereigns division. “We thought the 2011 crisis was a one-off event.”

Standard & Poor’s downgraded America’s AAA rating after Congress’ debt limit battle in 2011. Moody’s Investor Services did not downgrade the country’s rating, but gave it a negative outlook. The US is still burdened with this negative outlook, with Moody’s having expressed doubtfulness over its ability to come up with a deficit-reduction plan in a timely manner.

And even if the US once again averts the financial crisis, Fitch said it would consider downgrading the country’s rating anyway.

“In the absence of an agreed and credible medium-term deficit-reduction plan that would be consistent with sustaining the economic recovery and restoring confidence in the long-run sustainability of US public finances, the current negative outlook on the AAA rating is likely to be resolved with a downgrade later this year even if another debt-ceiling crisis is averted,” Fitch said.

And a downgraded credit rating is not the only consequence the country faces if it fails to raise the debt ceiling. The US may run out of cash to pay its bills, which would abandon those dependent on government assistance. The US would not be able to afford paying for Social Security, veterans benefits, US troops, aid for low-income families or government salaries.

In order to force the Obama administration to cut spending, some Republican leaders have pledged to allow the US to fall into default and shut down the government, thereby hurting the nation’s credit rating.

The top three credit rating agencies – Fitch Ratings, Standard & Poor’s, and Moody’s – have all at one point expressed doubt in Congress’ ability to raise the debt ceiling, and Fitch’s announcement makes the country’s economic outlook even more dire than before.

The Real Interest Rate Risk: Annual US Debt Creation Now Amounts To 25% Of...

By now most are aware of the various metrics exposing the unsustainability of US debt (which at 103% of GDP, it is well above the Reinhart-Rogoff "viability" threshold of 80%; and where a return to just 5% in blended interest means total debt/GDP would double in under a decade all else equal simply thanks to the "magic" of compounding), although there is one that captures perhaps best of all the sad predicament the US self-funding state (where debt is used to fund nearly half of total US spending) finds itself in. It comes from Zhang Monan, researcher at the China Macroeconomic Research Platform: "The US government is now trying to repay old debt by borrowing more; in 2010, average annual debt creation (including debt refinance) moved above $4 trillion, or almost one-quarter of GDP, compared to the pre-crisis average of 8.7% of GDP."

This is a key statistic most forget when they discuss the stock and flow of US debt: because whereas the total US deficit, and thus net debt issuance, is about $1 trillion per year, one has to factor that there is between $3 and $4 trillion in maturities each year, which have to be offset by a matched amount of gross issuance just to keep the stock of debt flat (pre deficit funding). The assumption is that demand for this gross issuance will always exist as old maturities are rolled into new debt, however, this assumption is contingent on one very key variable: interest rates not rising.

It is the question of what happens to this ~$4 trillion in annual debt creation by the US, as well as other key ones, that Monan attempts to answer in the following paper on what happens to the world if and when the moment when rates truly start rising, instead of just undergo another theatrical 2-4 week push higher only to plunge over fears the Fed may soon pull the punchbowl.

By Zhang Monan, published first in Project Syndicate

The Real Interest-Rate Risk

Since 2007, the financial crisis has pushed the world into an era of low, if not near-zero, interest rates and quantitative easing, as most developed countries seek to reduce debt pressure and perpetuate fragile payment cycles. But, despite talk of easy money as the “new normal,” there is a strong risk that real (inflation-adjusted) interest rates will rise in the next decade.

Total capital assets of central banks worldwide amount to $18 trillion, or 19% of global GDP – twice the level of ten years ago. This gives them plenty of ammunition to guide market interest rates lower as they combat the weakest recovery since the Great Depression. In the United States, the Federal Reserve has lowered its benchmark interest rate ten times since August 2007, from 5.25% to a zone between zero and 0.25%, and has reduced the discount rate 12 times (by a total of 550 basis points since June 2006), to 0.75%. The European Central Bank has lowered its main refinancing rate eight times, by a total of 325 basis points, to 0.75%. The Bank of Japan has twice lowered its interest rate, which now stands at 0.1%. And the Bank of England has cut its benchmark rate nine times, by 525 points, to an all-time low of 0.5%.

But this vigorous attempt to reduce interest rates is distorting capital allocation. The US, with the world’s largest deficits and debt, is the biggest beneficiary of cheap financing. With the persistence of Europe’s sovereign-debt crisis, safe-haven effects have driven the yield of ten-year US Treasury bonds to their lowest level in 60 years, while the ten-year swap spread – the gap between a fixed-rate and a floating-rate payment stream – is negative, implying a real loss for investors.

The US government is now trying to repay old debt by borrowing more; in 2010, average annual debt creation (including debt refinance) moved above $4 trillion, or almost one-quarter of GDP, compared to the pre-crisis average of 8.7% of GDP. As this figure continues to rise, investors will demand a higher risk premium, causing debt-service costs to rise. And, once the US economy shows signs of recovery and the Fed’s targets of 6.5% unemployment and 2.5% annual inflation are reached, the authorities will abandon quantitative easing and force real interest rates higher.

Japan, too, is now facing emerging interest-rate risks, as the proportion of public debt held by foreigners reaches a new high. While the yield on Japan’s ten-year bond has dropped to an all-time low in the last nine years, the biggest risk, as in the US, is a large increase in borrowing costs as investors demand higher risk premia.

Once Japan’s sovereign-debt market becomes unstable, refinancing difficulties will hit domestic financial institutions, which hold a massive volume of public debt on their balance sheets. The result will be chain reactions similar to those seen in Europe’s sovereign-debt crisis, with a vicious circle of sovereign and bank debt leading to credit-rating downgrades and a sharp increase in bond yields. Japan’s own debt crisis will then erupt with full force.

Viewed from creditors’ perspective, the age of cheap finance for the indebted countries is over. To some extent, the over-accumulation of US debt reflects the global perception of zero risk. As a result, the external-surplus countries (including China) essentially contribute to the suppression of long-term US interest rates, with the average US Treasury bond yield dropping 40% between 2000 and 2008. Thus, the more US debt that these countries buy, the more money they lose.

That is especially true of China, the world’s second-largest creditor country (and America’s largest creditor). But this arrangement is quickly becoming unsustainable. China’s far-reaching shift to a new growth model implies major structural and macroeconomic changes in the medium and long term. The renminbi’s unilateral revaluation will end, accompanied by the gradual easing of external liquidity pressure. With risk assets’ long-term valuation falling and pressure to prick price bubbles rising, China’s capital reserves will be insufficient to refinance the developed countries’ debts cheaply.

China is not alone. As a recent report by the international consultancy McKinsey & Company argues, the next decade will witness rising interest rates worldwide amid global economic rebalancing. For the time being, the developed economies remain weak, with central banks attempting to stimulate anemic demand. But the tendency in recent decades – and especially since 2007 – to suppress interest rates will be reversed within the next few years, owing mainly to rising investment from the developing countries.

Moreover, China’s aging population, and its strategy of boosting domestic consumption, will negatively affect global savings. The world may enter a new era in which investment demand exceeds desired savings – which means that real interest rates must rise.

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Legal Foundations for War Crimes, Debt Collection and Colonization

James Petras | By now we are familiar with imperial states using their military power to attack, destroy and occupy independent countries. Boatloads of important...

Crucible of Resistance: Class struggle over ways out of the crisis.

Many commentators make Greece and other peripheral EU members responsible for the sovereign debt crisis. People in these countries would have lived above their means and it was only right that they should tighten their belts now, the argument goes. Having postponed the necessary restructuring for too long, austerity would be the only solution to enforce liberalization and deregulation from the outside. In their impressive book Crucible of Resistance: Greece, the Eurozone and the World EconomicCrisis (Pluto Press, 2013), Christos Laskos and Euclid Tsakalotos challenge these understandings and reveal the class dynamics underlying the crisis. In this blog post, I will provide a critical review of this book including also a discussion of potential ways out of the crisis. I will argue, in contrast to Laskos and Tsakalotos, that successful resistance may well start at the Greek, national level rather than the European level.  



The neo-liberal restructuring of Greece


Mainstream explanations of the crisis argue that a ‘productive and efficient North had to bail out a South that was determined to keep its more consumer-oriented and leisurely lifestyle. The reforms necessary for challenging this state of affairs had not gone far enough – they never do in neoliberal accounts – and thus the crisis must be used to complete the reform agenda’ (P.80). Laskos and Tsakalotos successfully challenge the idea that Greece had not liberalized enough. In fact, neo-liberal restructuring had been implemented across the economy ‘after 1996 under the leadership of PASOK’s new leader Kostas Simitis’ (P.22).


Importantly, however, and perhaps not surprisingly, neo-liberal restructuring did not include any kind of new social contract, ensuring some degree of wealth redistribution. Instead, ‘modernizing strategies were crafted onto existing clientelistic arrangements rather than replacing them’ (P.4), thereby guaranteeing some kind of redistribution and social stability. ‘All capitalist social formations need mechanisms to spread the gains of the market to some less privileged social groups, and the clientelistic state was the preferred option of elites in Greece’ (P.41), the authors argue. In other words, rather than being an obstacle to neo-liberalism, clientelism has been an essential part of restructuring in Greece.


Overall, the social consequences of restructuring were dramatic even before the crisis. ‘Promoting some of the key features of neoliberalism, in a society already ridden with unacceptable levels of inequality, was to lead not just to an accentuation of social problems, but also to a crisis of a political system seemingly unable to respond to the needs of ever wider sections of the population’ (P.24).



Causes of the crisis and the austerity response


Rather than locating the causes of the crisis within Greece itself, Laskos and Tsakalotos identify problems in the global economy in general, and the unevenness within the European Union (EU) in particular. The role of Germany and its export-led growth strategy is clearly at the heart of the problem. ‘Germany depends quite heavily on demand generated within the rest of the European Union’, the authors point out. ‘In 2007, when the trade account was 8.15 per cent of GDP, some 4.44 per cent of GDP (i.e. 63.4 per cent of the trade account surplus) originated in Germany’s surplus arising from its export of goods to other EU countries’ (P.86). Importantly, this not because Germany’s production was based on higher levels of productivity based on new technology and working practices. ‘In Greece productivity increases actually outstripped those in Germany, especially in the later period. Rather, it is the German restrictive wages policy after 2000 that made it almost impossible for the periphery to compete’ (P.83).

When Greece faced bankruptcy in 2010 and 2012, bailout packages were provided, but they came at the cost of permanent austerity imposed by the Troika consisting of the European Central Bank, the Commission and IMF. As the authors make clear, austerity has not solved the economic crisis. Instead, a vicious circle of austerity-recession-more austerity commenced, undermining further Greece’s productive capacities. ‘Industrial production (manufacturing, mining, electricity) fell by 23.3 per cent between October 2008 and October 2012, widening the gap between Greece and its EU partners’ (P.104). Moreover, ‘between 2010 and 2012 almost 60,000 enterprises closed down each year’ (P.106). If economic recovery was not achieved, why was austerity continued? What was the real purpose behind austerity?


Laskos and Tsakalotos convincingly demonstrate that austerity has ultimately been a class project. It was used as opportunity by capital to strengthen its position vis-à-vis labour. It was used ‘as opportunity to finish the neoliberal modernizing project in terms of reducing wages and pensions, dismantling labour protection, and undertaking an even more radical program of privatization’ (P.103). The external role by the IMF, in co-operation with local elites, is crucial. ‘By the time of the second austerity programme, the IMF was making it clear that Greece should consider its competitors to include countries such as Bulgaria, and that consequently wage levels in the private sector still had some way to fall’ (P.111). An already highly unequal society was pushed into further inequality. ‘The adjustment programmes have raised inequality and poverty to new heights’ (P.131).



Moments of resistance


And yet, crises are also always moments of opportunity for progressive forces from the left. Resistance against austerity is noticeable in Greece. ‘Especially after 2010, social resistance to austerity included diverse forms of solidarity and initiatives to set up a parallel social economy: from social clinics and pharmacies to social groceries, and from the movement to cut out the intermediaries in agricultural production to various cooperative ventures’ (P.143).


At the organizational level, the authors highlight SYRIZA’s success at uniting large parts of the left on the basis of their strong engagement with social movements and concrete local struggles. SYRIZA’s ‘increasing engagement with the European Social Forum, and its support for Left unity to overcome the divisions of the past, provided the basis for a leftwards trajectory in which leftist Eurocommunist ideas played an increasingly significant part (P.128). While Laskos and Tsakalotos highlight the dangers of an authoritarian turn, they also see the possibility of transcending capital. ‘For the first time in many generations the Left has a convincing interpretation of the present crisis, and that this can become a materialist force breaking old social alliances and forming new ones in favour of a strategy that begins the transcendence of capitalism itself’ (P.12). 

In order to be able to balance capital’s class power, ‘this time round’, they argue, we need a Left which is more democratic, more participatory, and more aware that supranational problems need supranational responses’ (P.15). This requires new alliances across borders as well as the formation of broader movements. ‘Left strategies need to build on the experience of the labour, feminist, anti-racists and other movements such as those struggling against the commodification of social and public goods’ (P.142).



What level of resistance?


The authors firmly look to the European, supranational level for resisting austerity and transforming capitalism. And I agree, a strong and united left European movement for ‘Another Europe’ would be the most desirable development. Unfortunately, however, this united movement at the European level has not emerged yet. The European Social Forum process has run out of steam and been discontinued. The Alter Summit process with a first meeting in Athens in June 2013 has not yet attracted a large following. The European trade unions led by the European Trade Union Confederation (ETUC) have finally agreed on a joint demonstration for 4 April 2014 and put forward their own plan for sustainable growth and quality jobs (see ETUC, 18/12/2013). In general, however, the ETUC is tied up in a social partnership ideology and working within the existing European institutions. Transcending capitalism is certainly not on its agenda.



The question then is why wait for a European level response, when perhaps the Greek national level offers a more immediate solution? Costas Lapavitsas and colleagues have put forward the strategy of a debtor-led default by Greece including also an exit from the Eurozone. Critics of this strategy argue that while a depreciating new currency after the exit may boost exports, it would also imply that state debt denominated in Euros would rocket sky high aggravating an already difficult situation (e.g. Toporowski, 2013). And yet, these critics overlook Lapavitsas et al’s flanking measures.  Key policies of such a programme would include: (1) a unilateral suspension of payments; (2) a public audit of debt following suspension of payments to identify which part of national debt is actually legitimate; (3) a deep ‘haircut’ for lenders (Lapavitsas et al, 2012: 130-1) and (4) an expansion of the tax base to include the rich and capital more generally (Lapavitsas et al, 2012: 135). To avoid an immediate crisis of the financial system, ‘there would have to be extensive and decisive government intervention. In Greece this would certainly mean extending public ownership and control over banks, thus protecting the banks from collapse and preventing depositor runs. Under public ownership, the banks could act as levers for root and branch transformation of the economy in favour of labour’ (Lapavitsas et al, 2012: 132; see also Crisis in the Eurozone, Part II - progressive ways out of the crisis!).

Alternatively, what would happen if resistance in Greece itself is so strong that the government, together with the Troika, is unable to enforce austerity further? It is foreign banks, especially German and French private banks, which are heavily exposed to Greek debt. A stop to austerity in Greece would first and foremost threaten these banks and then the overall European financial system. The whole strategy of austerity would suddenly be questioned and may well unravel. Could we not envisage a chain reaction in such a situation where resistance elsewhere may be encouraged and then eventually lead to a European-wide movement?


Ultimately, these questions will be decided by concrete practice, by class struggle. The clarity with which Laskos and Tsakalotos present their analysis and outline the challenges is impressive, their discussion of ways forward highly stimulating. I strongly recommend this book for reading to all those interested in moving towards ‘Another Europe’.  



References


Lapavitsas, Costas et al (2012) Crisis in the Eurozone. London/New York: Verso.


Toporowski, J. (2013) ‘International credit, financial integration and the euro’, Cambridge Journal of Economics, Vol.37: 571–84.

China should Reduce its Holdings of US Treasuries, Diversify its Reserves, “There are Alternatives...

Timothy Alexander Guzman, Silent Crow News - The US political crises and its Debt limit problem is a warning sign for China over its $1+Trillion it holds in US treasuries.  Although the crisis is temporarily resolved until January, uncertainties will still remain.  Before a deal was reached on Wednesday, Chinadaily.com reported that  “Even if the debt impasse is eventually solved before Thursday’s deadline, the political brinkmanship unfolding on the world stage, and the tremendous uncertainty around it, reminded Chinese economists and media of the risk of excessive exposure to US Treasury bills.“  Li Daokui, an economist at Tsinghua University said that “many argue that China has few alternatives to investing in US debt, but I don’t think this is true.”  China is reported to have over $3.6 Trillion in foreign exchange reserves mostly in US treasury bonds.   He said that there are alternatives to US treasuries.  He stated the following three alternatives:

A possible alternative, according to Li, is to sell half of the current holdings and reorient them to three kinds of financial assets. The first is the stocks of multinationals that have invested in the Chinese market. That is the equivalent of investing in its own economy.  The second choice is other economies’ sovereign debts that have a rating higher than AA+. The third choice is utility corporations in mature economies.

China’s purchases of US debt are supposed to keep US-China relations stable according to Daokui “The only explanation why China continues to hold such a gigantic share of US debt, according to Li, is out of broader concern for US-China relations” he continued “But no one can guarantee that the government can resist the domestic pressure, especially from those economists who have called for diversified investment and smaller US Treasuries buying.” 

Xinhua News Agency stated the following on the US government’s political crises and why a new reserve currency is crucial to the world economy:

The developing and emerging market economies need to have more say in major international financial institutions including the World Bank and the International Monetary Fund, so that they could better reflect the transformations of the global economic and political landscape.

What may also be included as a key part of an effective reform is the introduction of a new international reserve currency that is to be created to replace the dominant U.S. dollar, so that the international community could permanently stay away from the spillover of the intensifying domestic political turmoil in the United States.

The online Australian based Business Spectator reported that Liao Qun, a Hong Kong-based economist for Citic Bank International said “If there really is a default, the Chinese government will definitely speed up foreign exchange reserve diversification, seeking safer bonds of other countries,” he also said that “If there is an acceleration in diversifying, there might also be a reduction in holdings (of US Treasuries)”.  Although reducing its holdings would devalue its US treasuries, China would have to make a difficult decision that would affect their economy because they would have no other choices unless they want to go along with a sinking ship.  Japan seems to be on board to diversify its holdings of US treasuries even though Japan-US relations are relatively stable due to Washington’s political and economic influence which would make its situation more difficult than China’s.  The Business Spectator report quoted chief economist Yoshikiyo Shimamine on Japan’s US treasuries.  Only second to China:

In the longer term Japan may also rebalance its portfolio a tad to diversify away from holding US government debt, said Yoshikiyo Shimamine, executive chief economist with Dai-ichi Research Institute in Tokyo. However Tokyo’s political dependence on Washington – for example, in its defense pact – mitigates against a sudden switch, he added.

If Japan follows through with its diversification as China has been doing, then the future outlook for US treasuries is bleak.  “But China is committed to reducing risk by diversifying its reserves, while at the same time shifting investment away from purely financial products to industrial projects” the report said.  It is a matter of time, perhaps in one to two years, that China will unload its current US treasuries.  The United States government and its political, financial and military institutions have lost its moral obligations (if it had any to begin with) by what Xinhua’s October 13th article described as “outright lies”:

Meanwhile, the U.S. government has gone to all lengths to appear before the world as the one that claims the moral high ground, yet covertly doing things that are as audacious as torturing prisoners of war, slaying civilians in drone attacks, and spying on world leaders.

Under what is known as the Pax-Americana, we fail to see a world where the United States is helping to defuse violence and conflicts, reduce poor and displaced population, and bring about real, lasting peace.

Moreover, instead of honoring its duties as a responsible leading power, a self-serving Washington has abused its superpower status and introduced even more chaos into the world by shifting financial risks overseas, instigating regional tensions amid territorial disputes, and fighting unwarranted wars under the cover of outright lies.

As a result, the world is still crawling its way out of an economic disaster thanks to the voracious Wall Street elites, while bombings and killings have become virtually daily routines in Iraq years after Washington claimed it has liberated its people from tyrannical rule.

Let’s see what happens In January as the drama continues to unfold.

The Bank Guarantee That Bankrupted Ireland

The Irish have a long history of being tyrannized, exploited, and oppressed—from the forced conversion to Christianity in the Dark Ages, to slave trading of the natives in the 15th and 16th centuries, to the mid-nineteenth century “potato famine” that was really a holocaust. The British got Ireland’s food exports, while at least one million Irish died from starvation and related diseases, and another million or more emigrated.

Today, Ireland is under a different sort of tyranny, one imposed by the banks and the troika—the EU, ECB and IMF. The oppressors have demanded austerity and more austerity, forcing the public to pick up the tab for bills incurred by profligate private bankers.

The official unemployment rate is 13.5%—up from 5% in 2006—and this figure does not take into account the mass emigration of Ireland’s young people in search of better opportunities abroad. Job loss and a flood of foreclosures are leading to suicides. A raft of new taxes and charges has been sold as necessary to reduce the deficit, but they are simply a backdoor bailout of the banks.

At first, the Irish accepted the media explanation: these draconian measures were necessary to “balance the budget” and were in their best interests. But after five years of belt-tightening in which unemployment and living conditions have not improved, the people are slowly waking up. They are realizing that their assets are being grabbed simply to pay for the mistakes of the financial sector.

Five years of austerity has not restored confidence in Ireland’s banks. In fact the banks themselves are packing up and leaving. On October 31st, RTE.ie reported that Danske Bank Ireland was closing its personal and business banking, only days after ACCBank announced it was handing back its banking license; and Ulster Bank’s future in Ireland remains unclear.

The field is ripe for some publicly-owned banks. Banks that have a mandate to serve the people, return the profits to the people, and refrain from speculating. Banks guaranteed by the state because they are the state, without resort to bailouts or bail-ins. Banks that aren’t going anywhere, because they are locally owned by the people themselves.

The Folly of Absorbing the Gambling Losses of the Banks

Ireland was the first European country to watch its entire banking system fail.  Unlike the Icelanders, who refused to bail out their bankrupt banks, in September 2008 the Irish government gave a blanket guarantee to all Irish banks, covering all their loans, deposits, bonds and other liabilities.

At the time, no one was aware of the huge scale of the banks’ liabilities, or just how far the Irish property market would fall.

Within two years, the state bank guarantee had bankrupted Ireland.  The international money markets would no longer lend to the Irish government.

Before the bailout, the Irish budget was in surplus. By 2011, its deficit was 32% of the country’s GDP, the highest by far in the Eurozone. At that rate, bank losses would take every penny of Irish taxes for at least the next three years.

“This debt would probably be manageable,” wrote Morgan Kelly, Professor of Economics at University College Dublin, “had the Irish government not casually committed itself to absorb all the gambling losses of its banking system.”

To avoid collapse, the government had to sign up for an €85 billion bailout from the EU-IMF and enter a four year program of economic austerity, monitored every three months by an EU/IMF team sent to Dublin.

Public assets have also been put on the auction block. Assets currently under consideration include parts of Ireland’s power and gas companies and its 25% stake in the airline Aer Lingus.

At one time, Ireland could have followed the lead of Iceland and refused to bail out its bondholders or to bow to the demands for austerity. But that was before the Irish government used ECB money to pay off the foreign bondholders of Irish banks. Now its debt is to the troika, and the troika are tightening the screws.  In September 2013, they demanded another 3.1 billion euro reduction in spending.

Some ministers, however, are resisting such cuts, which they say are politically undeliverable.

In The Irish Times on October 31, 2013, a former IMF official warned that the austerity imposed on Ireland is self-defeating. Ashoka Mody, former IMF chief of mission to Ireland, said it had become “orthodoxy that the only way to establish market credibility” was to pursue austerity policies. But five years of crisis and two recent years of no growth needed “deep thinking” on whether this was the right course of action. He said there was “not one single historical instance” where austerity policies have led to an exit from a heavy debt burden.

Austerity has not fixed Ireland’s debt problems. Belying the rosy picture painted by the media, in September 2013 Antonio Garcia Pascual, chief euro-zone economist at Barclays Investment Bank, warned that Ireland may soon need a second bailout.

According to John Spain, writing in Irish Central in September 2013:

The anger among ordinary Irish people about all this has been immense. . . . There has been great pressure here for answers. . . . Why is the ordinary Irish taxpayer left carrying the can for all the debts piled up by banks, developers and speculators? How come no one has been jailed for what happened? . . . [D]espite all the public anger, there has been no public inquiry into the disaster.

Bail-in by Super-tax or Economic Sovereignty?

 In many ways, Ireland is ground zero for the austerity-driven asset grab now sweeping the world. All Eurozone countries are mired in debt. The problem is systemic.

In October 2013, an IMF report discussed balancing the books of the Eurozone governments through a super-tax of 10% on all households in the Eurozone with positive net wealth. That would mean the confiscation of 10% of private savings to feed the insatiable banking casino.

The authors said the proposal was only theoretical, but that it appeared to be “an efficient solution” for the debt problem. For a group of 15 European countries, the measure would bring the debt ratio to “acceptable” levels, i.e. comparable to levels before the 2008 crisis.

A review posted on Gold Silver Worlds observed:

[T]he report right away debunks the myth that politicians and main stream media try to sell, i.e. the crisis is contained and the positive economic outlook for 2014.

. . . Prepare yourself, the reality is that more bail-ins, confiscation and financial repression is coming, contrary to what the good news propaganda tries to tell.

A more sustainable solution was proposed by Dr Fadhel Kaboub, Assistant Professor of Economics at Denison University in Ohio. In a letter posted in The Financial Times titled “What the Eurozone Needs Is Functional Finance,” he wrote:

The eurozone’s obsession with “sound finance” is the root cause of today’s sovereign debt crisis. Austerity measures are not only incapable of solving the sovereign debt problem, but also a major obstacle to increasing aggregate demand in the eurozone. The Maastricht treaty’s “no bail-out, no exit, no default” clauses essentially amount to a joint economic suicide pact for the eurozone countries.

. . . Unfortunately, the likelihood of a swift political solution to amend the EU treaty is highly improbable. Therefore, the most likely and least painful scenario for [the insolvent countries] is an exit from the eurozone combined with partial default and devaluation of a new national currency. . . .

The takeaway lesson is that financial sovereignty and adequate policy co-ordination between fiscal and monetary authorities are the prerequisites for economic prosperity.

Standing Up to Goliath

 Ireland could fix its budget problems by leaving the Eurozone, repudiating its blanket bank guarantee as “odious” (obtained by fraud and under duress), and issuing its own national currency. The currency could then be used to fund infrastructure and restore social services, putting the Irish back to work.

Short of leaving the Eurozone, Ireland could reduce its interest burden and expand local credit by forming publicly-owned banks, on the model of the Bank of North Dakota. The newly-formed Public Banking Forum of Ireland is pursuing that option. In Wales, which has also been exploited for its coal, mobilizing for a public bank is being organized by the Arian Cymru ‘BERW’ (Banking and Economic Regeneration Wales).

Irish writer Barry Fitzgerald, author of Building Cities of Gold, casts the challenge to his homeland in archetypal terms:

The Irish are mobilising and they are awakening. They hold the DNA memory of vastly ancient times, when all men and women obeyed the Golden rule of honouring themselves, one another and the planet. They recognize the value of this harmony as it relates to banking. They instantly intuit that public banking free from the soiled hands of usurious debt tyranny is part of the natural order.

In many ways they could lead the way in this unfolding, as their small country is so easily traversed to mobilise local communities.  They possess vast potential renewable energy generation and indeed could easily use a combination of public banking and bond issuance backed by the people to gain energy independence in a very short time.

When the indomitable Irish spirit is awakened, organized and mobilized, the country could become the poster child not for austerity, but for economic prosperity through financial sovereignty.

_____________________

Ellen Brown is an attorney, president of the Public Banking Institute, and author of twelve books, including the best-selling Web of Debt. In The Public Bank Solution, her latest book, she explores successful public banking models historically and globally. Her blog articles are at EllenBrown.com.

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China should Reduce its Holdings of US Treasuries, Diversify its Reserves, “There are...

The US political crises and its Debt limit problem is a warning sign for China over its $1+Trillion it holds in US treasuries.  Although the crisis is temporarily resolved until January, uncertainties will still remain.  Before a deal was reached on Wednesday, Chinadaily.com reported that

 “Even if the debt impasse is eventually solved before Thursday’s deadline, the political brinkmanship unfolding on the world stage, and the tremendous uncertainty around it, reminded Chinese economists and media of the risk of excessive exposure to US Treasury bills.“ 

Li Daokui, an economist at Tsinghua University said that “many argue that China has few alternatives to investing in US debt, but I don’t think this is true.”  China is reported to have over $3.6 Trillion in foreign exchange reserves mostly in US treasury bonds.   He said that there are alternatives to US treasuries.  He stated the following three alternatives:

A possible alternative, according to Li, is to sell half of the current holdings and reorient them to three kinds of financial assets. The first is the stocks of multinationals that have invested in the Chinese market. That is the equivalent of investing in its own economy.  The second choice is other economies’ sovereign debts that have a rating higher than AA+. The third choice is utility corporations in mature economies.

China’s purchases of US debt are supposed to keep US-China relations stable according to Daokui

“The only explanation why China continues to hold such a gigantic share of US debt, according to Li, is out of broader concern for US-China relations” he continued “But no one can guarantee that the government can resist the domestic pressure, especially from those economists who have called for diversified investment and smaller US Treasuries buying.” 

Xinhua News Agency stated the following on the US government’s political crises and why a new reserve currency is crucial to the world economy:

The developing and emerging market economies need to have more say in major international financial institutions including the World Bank and the International Monetary Fund, so that they could better reflect the transformations of the global economic and political landscape.

 What may also be included as a key part of an effective reform is the introduction of a new international reserve currency that is to be created to replace the dominant U.S. dollar, so that the international community could permanently stay away from the spillover of the intensifying domestic political turmoil in the United States.

 The online Australian based Business Spectator reported that Liao Qun, a Hong Kong-based economist for Citic Bank International said “If there really is a default, the Chinese government will definitely speed up foreign exchange reserve diversification, seeking safer bonds of other countries,” he also said that “If there is an acceleration in diversifying, there might also be a reduction in holdings (of US Treasuries)”. 

Although reducing its holdings would devalue its US treasuries, China would have to make a difficult decision that would affect their economy because they would have no other choices unless they want to go along with a sinking ship.  Japan seems to be on board to diversify its holdings of US treasuries even though Japan-US relations are relatively stable due to Washington’s political and economic influence which would make its situation more difficult than China’s.  The Business Spectator report quoted chief economist Yoshikiyo Shimamine on Japan’s US treasuries.  Only second to China:

In the longer term Japan may also rebalance its portfolio a tad to diversify away from holding US government debt, said Yoshikiyo Shimamine, executive chief economist with Dai-ichi Research Institute in Tokyo. However Tokyo’s political dependence on Washington – for example, in its defense pact – mitigates against a sudden switch, he added.

 If Japan follows through with its diversification as China has been doing, then the future outlook for US treasuries is bleak.  “But China is committed to reducing risk by diversifying its reserves, while at the same time shifting investment away from purely financial products to industrial projects” the report said.  It is a matter of time, perhaps in one to two years, that China will unload its current US treasuries.  The United States government and its political, financial and military institutions have lost its moral obligations (if it had any to begin with) by what Xinhua’s October 13th article described as “outright lies”:

Meanwhile, the U.S. government has gone to all lengths to appear before the world as the one that claims the moral high ground, yet covertly doing things that are as audacious as torturing prisoners of war, slaying civilians in drone attacks, and spying on world leaders.

Under what is known as the Pax-Americana, we fail to see a world where the United States is helping to defuse violence and conflicts, reduce poor and displaced population, and bring about real, lasting peace.

Moreover, instead of honoring its duties as a responsible leading power, a self-serving Washington has abused its superpower status and introduced even more chaos into the world by shifting financial risks overseas, instigating regional tensions amid territorial disputes, and fighting unwarranted wars under the cover of outright lies.

 As a result, the world is still crawling its way out of an economic disaster thanks to the voracious Wall Street elites, while bombings and killings have become virtually daily routines in Iraq years after Washington claimed it has liberated its people from tyrannical rule.

Let’s see what happens In January as the drama continues to unfold.

Democratic global Keynesianism as a way out of crisis? Critical reflections on Heikki Patomäki’s...

When the financial market crisis in 2007 and 2008 threatened the global economy, governments around the world stepped in and bailed out many financial institutions, which were on the brink of collapse. Large amounts of private debt were transformed into public debt. In the Eurozone, this resulted in the sovereign debt crisis. In his excellent book The Great Eurozone Disaster: From Crisis to Global New Deal (Zed Books, 2012), Heikki Patomäki not only provides an insightful analysis of the crisis, but he also makes clear recommendations for the best way out of crisis.

Patomäki’s argument is in many respects a classic Keynesian analysis. He correctly points out that ultimately the global financial crisis was only the trigger of the sovereign debt crisis. Insufficient demand unevenly distributed across the European Union (EU) and the neo-liberal institutional set-up of the Economic and Monetary Union (EMU) were the real problems. ‘The difficulties facing the European Monetary Union have been primarily caused by the asymmetries in the formation of overall demand in the European political economy as a whole, and also by the institutional arrangements and restrictions that were put in place by the Maastricht Treaty’ (P.79). A successful solution to the crisis, for Patomäki, consequently, needs to tackle the question of demand. ‘A sufficient level of effective aggregate demand is an essential requirement for adequate real investments and economic growth’ (P.49).

When reflecting on potential future scenarios, Patomäki identifies three different alternatives: ‘According to the first scenario, the neoliberal European project will continue and deepen; in the second scenario, the EU will develop into a social-democratic federation of states and a world power; but in the third scenario the EU will pursue transformations of global governance and promote democratic and social goals, understanding itself as part of a much wider dynamic whole’ (P.108). The current EU policies around the so-called Fiscal Compact and its focus on fiscal discipline, the first scenario, are considered disastrous. ‘When a sufficient number of EU states decide to cut public spending at the same time, it has a marked negative impact on the level of effective aggregate demand within the whole of the EU’ (P.83). The second scenario, the Euro-level, social-democratic federation, would be in a better position to address the problem of aggregate demand spread equally across the EU.

Image by EuroCrisisExplained.co.uk

The real solution for Patomäki, however, lies in the EU becoming part of a democratic global Keynesianism. This would include the re-regulation of financial markets within a setting of new global institutions, perhaps including even a global central bank, with the goal to manage trade deficits and surpluses. ‘Needed are the sorts of global governance mechanisms that can shape the supply of money in the system, balance surpluses and deficits on an equitable basis, and direct the formation, composition and distribution of economic growth’ (P.168). His vision includes a world parliament to ensure the democratic nature of the new system as well as respect for ecological issues. In sum,

‘global Keynesianism is an approach that frames questions of public economic policy and politics more generally on the world economic scale. Global Keynesianism aims to regulate global interdependencies in such a way as to produce stable and high levels of growth, employment and welfare for everyone and everywhere, simultaneously. Global Keynesianism is an ecologically responsible doctrine: governing interdependence could not otherwise by sustainable’ (P.175).


Nevertheless, as impressive as Patomäki’s analysis clearly is, and as nice as it would be to have a ‘global Finland’ characterized by equality, democracy and social justice, there are serious flaws in his historical understanding as well as recommendations for the future. Most importantly, it is his (mis-) understanding of the capitalist social relations of production, which causes a number of problems in his analysis. In line with his Keynesian focus on demand levels and related issues of distribution of wealth, he completely overlooks the way exploitation is rooted within the way of how production is organised around wage labour and the private ownership of the means of production as well as the related, fundamental class conflict between labour and capital. 

A different understanding of the capitalist social relations of production has implications for how we can explain the current crisis in the first place. Rather than pointing to the lack of regulation (P.37) and personal greed (P.39), from a historical materialist perspective the emphasis is on the structural crisis tendency of capitalism. The fact that so many US financial institutions engaged heavily in the risky subprime mortgage market was not the result of personal greed, but due to competitive pressures forcing one financial institution to obtain the same high profit margin as its competitor, which dealt in subprime mortgages (see also Corruption in the banking industry – the problem of a few ‘bad apples’?).

Moreover, a class analysis results in a completely different understanding of how the Keynesian compromise came about in industrialised countries after World War Two. In contrast to Patomäki’s rather technocratic vision, in which experts, understanding how the economy works, devised a system of demand management, a class analysis makes clear that the welfare state was the result of class struggle. Against the background of the Cold War and on the basis of strong labour organisations at the national level, forged in industrial conflicts at the beginning of the 20th century, labour was in a position to balance the social power of capital. The result was a compromise, in which capital retained the right to own the means of production in exchange for rising wages and an expansive welfare state for workers. In other words, a balance of power in society was absolutely essential. Keynesian ideas provided the economic formula of implementing the compromise in concrete policies.  

This has clear implications for the possibilities of global Keynesianism. Rather than establishing new institutions of global governance and a technocratic consensus on the best Keynesian way forward, it is a balance of class power, which is required. However, this is clearly not the case. Globalisation has precisely implied a dramatic increase in the structural power of capital, which has shifted the balance of power at the global as well as national level in favour of capital. After all, the dominance of capital has been behind the neo-liberal shift in European integration since the mid-1980s in the first place.

Photo by informatique
Nevertheless, even if there was a balance of class power in society at the global level, it is questionable whether global Keynesianism would be feasible within the general capitalist setting. Capitalism has always expanded outward along lines of uneven and combined development. Structurally, in order to continue the accumulation of surplus value, capitalism constantly has to look for new markets and cheap labour elsewhere. This does not, however, lead to equal development, but to highly uneven development and increasing inequality between countries as well as within countries. Ultimately, we can only understand the Keynesian class compromises in industrialised countries, if we see it as a part of the wider global setting. While a degree of equality had been achieved within Northern welfare states, this was also based on, and conditioned by, continuing exploitation of the Global South be it in the area of mineral extraction, be it through drawing on cheap labour of the periphery. Similar to Germany, Nordic countries including Denmark, Finland, Norway and Sweden have historically related on export-led growth, with which their welfare states were financed. It is in these trade relations, in which high value added goods are traded in exchange with labour intensive goods that surplus is transferred from developing to developed countries. In short, structurally, global Keynesianism is simply impossible within the capitalist social relations of production and global uneven and combined development.

Finally, a historical materialist analysis has clear implications for what is required for a viable alternative way forward.  Rather than focusing on how the distribution of wealth could be re-arranged within global institutions, the emphasis has to be on changing the capitalist social relations of production, the ‘hidden abode’ within which exploitation takes place. It is the system of the private ownership of the means of production and wage labour, which needs to be changed. Only socializing the means of production can overcome exploitation and inequality. 


Prof. Andreas Bieler
Professor of Political Economy
University of Nottingham/UK

Personal website: http://andreasbieler.net

2 September 2013

Austerity policies in Europe: crisis response or class warfare?

As a result of austerity policies in response to the global financial market and Eurozone sovereign debt crises, policies of wage cuts and dismantling or hollowing out of collective bargaining have been implemented across the European Union (EU). And yet, as a new wage map by the European Trade Union Institute (ETUI) illustrates, the general situation of European people has not improved.


The three key findings of the wage map are summarized by the ETUI as follows:

  • ‘The majority of countries (15 out of 27) record falling real wages. The most dramatic decline of real wages since the onset of the crisis took place in those countries that were subject to financial bailout programmes.

  •  A decline in real hourly minimum wages affecting the most vulnerable part of the workforce. Once again, the highest decline can be found in those countries which were dependent on financial aid programmes.

  •  A drop in the wage share in the majority of EU countries indicating a redistribution of income from labour to capital.’

Poster by PropagandaTimes
It should not be surprising that these policies have done little to overcome economic crisis. If everybody cuts wages and hopes that products are bought by people in other countries, an overall aggregate decline in demand across the EU is the result. Not everybody can pursue a strategy of export-led growth. Some also have to import products. In short, what the excellent wage map by the ETUI reveals well is that austerity policies have not worked in terms of getting Europe out of recession.


Nevertheless, perhaps the real purpose of austerity has never been to overcome recession? Perhaps the real purpose has been to change the balance of social class forces in society? As the ETUI notes itself, austerity policies have gone hand in hand with moves towards dismantling collective bargaining. Equally, austerity has gone hand in hand with attacks on the public sector and attempts across the EU to open up public sectors to private investment. This is directly enforced by the EU as part of bailout packages for countries such as Greece, but other countries too such as the UK are currently pursuing a policy of partial privatization with the excuse that this was necessary in order to pay off public debts.

Cartoon by barbourians

Ultimately, austerity is a strategy of class warfare by capital against working people and trade unions as their representatives. Arguments about having to deal with public debt are used to justify a drastic transformation of European political economies.

Resistance then has to focus first on increasing again the wage share. But this cannot be enough in itself. In the end, the control of the means of production by capital needs to be challenged to change fundamentally the balance of power in favour of labour. 



Prof. Andreas Bieler
Professor of Political Economy
University of Nottingham/UK

Personal website: http://andreasbieler.net

28 August 2013

Austerity and Resistance: The politics of labour in the Eurozone crisis.

Europe is haunted by austerity. Public sectors across the EU are cut back and working class gains from the post-war period seriously undermined (see also Reflections on the Eurozone crisis). In this blog post, I will assess the causes of the crisis, its implications for workers and discuss the politics of labour in response to the Eurozone crisis.


The underlying dynamics of the Eurozone crisis

Photo by Gwydion M. Williams
Current problems go right back to the global financial crisis starting in 2007 with the run on the Northern Rock bank in the UK and reaching a first high point with the bankruptcy of Lehman Brothers in 2008. Two major consequences of the crisis can be identified. First, states indebted themselves significantly as a result of bailing out failing banks and propping up the financial system. Second, against the background of high levels of uncertainty financial markets froze. Banks and financial institutions ceased lending to each other as well as industrial companies. Countries too found it increasingly difficult to re-finance their national debts. The Eurozone crisis, also called sovereign debt crisis, commenced.

Nevertheless, this analysis ultimately only scratches the surface of the causes of the crisis. The fundamental dynamics underlying the crisis have to be related to the uneven nature of the European political economy. On the one hand, Germany has experienced an export boom in recent years, with almost 60 per cent of its exports going to other European countries (Trading Economics, 10 May 2013). Germany’s trade surplus is even more heavily focused on Europe. 60 per cent are with other Euro countries and about 85 per cent are with all EU members together (de Nardis, 2 December 2010). However, such a growth strategy cannot be adopted by everybody. Some countries also have to absorb these exports, and this is what many of the peripheral countries now in trouble, such as Greece, Portugal, Spain and Ireland, have done. They, in turn, cannot compete in the free trade Internal Market of the EU due to lower productivity rates. Germany’s export boom results in super profits, which then require new opportunities for profitable investment. State bonds of peripheral countries as well as construction markets in Ireland and Spain seemed to provide safe investment opportunities. In turn, these investments led to yet more exports from Germany to these countries and yet further super profits in search for investment opportunities.

Photo by informatique


Who is being rescued?

It is often argued in the media that citizens of richer countries would now have to pay for citizens of indebted countries. Cultural arguments of apparently ‘lazy Greek’ workers as the cause of the crisis are put forward. Nevertheless, this is clearly not the case. Greek workers are amongst those, who work the most hours in Europe (BBC, 26 February 2012). In any case, it is not the Greek, Portuguese, Irish or Cypriot citizens and their health and education systems, which are being rescued. It is banks, who organised the lending of super profits to peripheral countries, which are exposed to private and national debt in these countries. For example, German and French banks are heavily exposed to Greek debt, British banks to Irish debt (The Guardian, 17 June 2011).


What is the purpose of the bailout programmes?

Is the purpose of the bailout programmes to ensure the maintenance of essential public services in Europe’s periphery? Clearly not. On the contrary, the Troika consisting of Commission, European Central Bank and IMF demands cuts in public finances precisely for services such as education and health care. Is the purpose to assist peripheral countries in re-gaining competitiveness? Again, this too is clearly not the objective. The bailout programmes do not include any industrial policy projects.

Photo by HatM


The true nature of the bailout programmes is visible in their conditionality, making support dependent on austerity policies including: (1) cuts in funding of essential public services; (2) cuts in public sector employment; (3) push towards privatisation of state assets; and (4) undermining of industrial relations and trade union rights through enforced cuts in minimum wages and a further liberalisation of labour markets. Hence, the real purpose of the bailout programmes is to restructure political economies and to open up the public sector as new investment opportunities for private finance. The balance of power is shifted further from labour to capital in this process. Employers, ultimately, use the crisis in order to strengthen their position vis-à-vis workers, facilitating exploitation.


Are German workers the winners due to the export boom?

In contrast to general assumptions, German workers have not benefitted from the current situation. German productivity increases have to a significant extent resulted from drastic downward pressure on wages and working related conditions. ‘Germany has been unrelenting in squeezing its own workers throughout this period. During the last two decades, the most powerful economy of the eurozone has produced the lowest increases in nominal labour costs, while its workers have systematically lost share of output. EMU has been an ordeal for German workers’ (Lapavitsas et al, 2012: 4). The Agenda 2010 and here especially the so-called Hartz IV reform, implemented in the early 2000s, constitutes the largest cut in, and restructuring of, the German welfare system since the end of World War II. In other words, Germany was more successful than other Eurozone countries in cutting back labour costs. ‘The euro is a “beggar-thy-neighbour” policy for Germany, on condition that it beggars its own workers first’ (Lapavitsas et al, 2012: 30).  
Hence, while the mainstream media regularly portray the crisis as a conflict between Germany and peripheral countries, the real conflict here is between capital and labour. And this conflict is taking place across the EU as the economic crisis is used across Europe to justify cuts. In the UK, although not in the position of countries such as Greece, Portugal or Ireland, people too are faced with constant further cuts and restructuring including privatisations in the health and education sectors as well as attacks on employment rights. In short, across the EU, employers abuse the crisis to cut back workers’ post-war gains. The crisis provides capital with the rationale to justify cuts, they would otherwise be unable to implement.  


What possibilities for labour to resist restructuring?

Considering that austerity is a European-wide phenomenon, pushed by Brussels but equally individual national governments, it will remain important that trade unions combine resistance to neo-liberal restructuring at the European level with resistance at the national level. To declare solidarity with Greek workers is a good initiative by German and British unions, for example. Nevertheless, the more concrete support is resisting restructuring at home. Any defeat of austerity in one of the EU member states will assist similar struggles elsewhere.

Photo by informatique
When thinking about alternative responses to the crisis, short-term measures can be distinguished from medium- and long-term measures. Immediately, it will be important that German trade unions push for higher salary increases at home so that the German domestic market absorbs more goods, which are currently being exported. Along similar lines is the proposal by the Confederation of German Trade Unions (DGB) for an economic stimulus, investment and development programme for Europe. This new Marshall plan is designed as an investment and development programme over a 10-year period and consists of a mix of institutional measures, direct public sector investment, investment grants for companies and incentives for consumer spending (DGB 2013). Neo-Keynesian measures of this type will ease the immediate pressure on European economies. However, they will not question the power structures, underlying the European political economy.

A victorious outcome in the struggle against austerity ultimately depends on a change in the balance of power in society. The establishment of welfare states and fairer societies were based on the capacity of labour to balance the class power of capital (Wahl 2011). Overcoming austerity will, therefore, require a strengthening of labour vis-à-vis capital. As Lapavitsas notes, ‘a radical left strategy should offer a resolution of the crisis that alters the balance of social forces in favour of labour and pushes Europe in a socialist direction’ (Lapavitsas 2011: 294). Hence, in the medium-term, it will be essential to intervene more directly in the financial sector. As part of bailouts, many private banks have been nationalised, as for example the Royal Bank of Scotland in the UK. However, they have been allowed to continue operating as if they were private banks. Little state direction has been imposed. It will be important to move beyond nationalisation towards the socialisation of banks to ensure that banks actually operate according to the needs of society. Such a step would contribute directly to changing the balance of power in society in favour of labour.

Photo by apasp


In the long run, however, even the change in power balance between capital and labour will not be enough. Capitalist exploitation is rooted in the way the social relations of production are set up around wage labour and the private ownership of the means of production. Exploitation, therefore, can only be overcome, if the way of how production is organised is being changed itself.


This post was first published in Norwegian on radikalportal.noand in English by the Global Labour Column as well as by the Social Europe Journal


Prof. Andreas Bieler
Professor of Political Economy
University of Nottingham/UK

Personal website: http://andreasbieler.net

29 July 2013

Croatia joined an EU at war — class war!

Photo by Council of the EU
When Croatia joined the European Union on 1 July, the country joined an EU at war. It is a class war in which capitalist forces, the Troika (the EU Commission, the European Central Bank and the International Monetary Fund), national governments and the new European oligarchy have gone on the offensive to dismantle the welfare state and defeat the trade union movement. Croatia’s accession to the EU will, in other words, serve some Croatians’ economic, social and political interests while it will undermine and weaken others’ – mainly those of workers and trade unions. In this guest post, Asbjørn Wahl analyses from a labour perspective the dynamics underlying the current state of European integration.

The background is a Europe in crisis, an economic crisis which in reality is a deep systemic crisis of capitalism. The current phase of this crisis was triggered off by the financial crisis of 2007-8, which particularly in Europe was turned into a sovereign debt crisis. This crisis is now being used as an excuse to destroy social Europe and to shift the balance of power further in favour of capital. This is the aim, or at least the effect, of the harsh unemployment and austerity policies which are now being pursued across Europe. The crisis has also clearly revealed that the EU institutionally consists of a core of powerful states and a periphery of more powerless ones. Croatia will obviously find its place among the latter.
Over the last few years we have experienced enormous attacks on workers and trade union rights in the EU. Firstly, we had the so-called Laval quartet (the Viking, Laval, Rütter and Luxemburg cases in the EU Court of Justice in 2007-8) which all restricted the right to strike. Secondly, a number of the latest pacts, legislation and policy recommendations in the EU have strongly contributed to weakening the right of workers and trade unions. Thirdly, encouraged by the EU Commission, collective agreements in the public sector have been set aside by governments in at least ten EU member countries, while wages have been cut without negotiations with trade unions. Legislation has also been introduced at national level in a number of EU member states in order to limit further the right to strike and to be able to use more extreme measures to curb strikes by military and police forces (cf. Greece).

The institutional development of the EU has been remarkable over the last few years and has contributed to carving in stone neoliberalism as the one and only economic model of the EU. New pacts and institutions have thus been adopted at a speed which is unprecedented in the history of the EU, and with little democratic legitimacy. The Euro-Plus Pact, the six pieces of legislation on economic governance (the so-called six-pack), the Fiscal Pact and the Competitiveness Pact under negotiation are all parts of this development of an ever more authoritarian, neoliberal EU.

General Strike, Photo by Sheesh Wo


Structural reforms of the labour market have been central elements of this legislation. In the neoliberal EU language this means lower minimum wages, reduced coverage of collective agreements, decentralisation of wage formation, more flexible working hours, reduced overtime pay, more temporary work, etc. In effect, lower social protection and reduced trade union power. Furthermore, unemployment benefits are cut, retirement age increased and pensions reduced. As if this is not enough, the Member States have been instructed to implement austerity policy in national legislation, preferably in their constitution. Austerity forever or, in other words, the end of social Europe.

So far, the European trade union movement has not been able to curb this reactionary policy of liberalisation, privatisation and austerity. It still clings strongly to the social partnership ideology of the post-World War II period, despite the fact that the class compromise, on which this policy was based, has broken down. Right up to the last few years, the European Trade Union Confederation (ETUC) has, therefore, (like their closely related Social Democratic Parties) actually supported most of the neoliberal legislative and institutional development of the EU. Only recently have we seen the beginning of a change of this policy – under pressure from some national trade union confederations, particularly from the South of Europe.

General Strike, Photo by Sheesh Wo
The all-European trade union actions, which took place on 14 November 2012, were in this regard promising. At least, nothing like it has ever happened in the history of the European trade union movement. General strikes were organised in six EU Member States on that day (Portugal, Spain, Italy, Greece, Cyprus and Malta). In addition, more limited strikes were carried out in France and Belgium – and huge demonstrations and solidarity actions were organised in a number of other countries, including in Central and Eastern Europe. This is the tendency in which Croatian trade unions will have to find their place in order to defend the interests of their members – and thus start the construction of another Europe, a peoples’ Europe.


Asbjørn Wahl is the Director of the Campaign for the Welfare State and Adviser of the NorwegianUnion of Municipal and General Employees. This post was first published in the Croatian version of Le Monde Diplomatique, June 2013.

Lawlessness Is The New Normal – Paul Craig Roberts

Lawlessness Is The New Normal Paul Craig Roberts In various articles and in my latest book, The Failure of Laissez Faire Capitalism And Economic Dissolution Of The West, I have pointed out that the European sovereign debt crisis is being used to terminate the sovereignty of the countries that are members of the EU. There…

The post Lawlessness Is The New Normal — Paul Craig Roberts appeared first on PaulCraigRoberts.org.

People of Cyprus: Follow the Vikings!

Protesters demand the resignation of the government in Reykjavík, Iceland, on November 15, 2008. (Wikimedia Commons/OddurBen)When the banks of the Sweden, Norway and Iceland went out of control, the people refused to bail them out, and the economies of all three countries were the better for it. Instead of allowing themselves to be bullied by international investors represented by the IMF and the European Union, the Cypriots who are facing a similar crisis today might want to learn from the Viking example.

The Cyprus banking sector went rogue to the point that it became eight times larger than the rest of the country’s economy. Perhaps the bankers thought they would become too big to fail, requiring the country to rescue them. But why should citizens rescue bankers?

There is a better way, which is what the Scandinavians insisted on.

When it comes to a financial crisis, what’s needed is the combination of popular will and the existence of an alternative. The Vikings combined smart economics with the organizing muscle to make it happen. As a presidential candidate in 2008, Barack Obama said he knew that the Swedes handled their banking crisis in the correct way, but he also acknowledged that the United States wouldn’t follow the Swedish path. Why? Obama believed that we wouldn’t back him with a mass direct action movement in a confrontation with Wall Street.

So, what is the alternative to bailouts for rogue banks? And what can a movement do when the party in power is in bed with the 1 percent?

What democracy looks like when banks go out of control

In the 1980s, Norway and Sweden set aside what had been working for them — democratic socialism — and flirted with neo-liberalism. They deregulated, setting free the financial sectors. The private banks speculated, creating housing bubbles. By the early ’90s, the bubbles burst. Both nations headed into crisis.

In Sweden, 90 percent of the banking sector experienced massive losses. Fortunately, the Social Democrats, the party of the working class, was in power and decided against bailouts. The government nationalized two of the banks, sheltered some that looked like they could survive, and allowed the rest to go bankrupt. Stockholders were left empty-handed.

As it turned out, three of the other large banks were able to raise necessary capital privately. Regulation was re-imposed and Sweden came back strong.

This Swedish version of “tough love” put the economy in such a strong position that when the 2008 financial crisis hit most of Europe, Sweden could use a series of flexible measures that minimized disruption. Its banks had already been cleaned up. Its famous social safety net kept Swedes accessing unemployment insurance, health care, education and job training.

The result: By 2011 the Washington Post was calling Sweden the “rock star of the recovery,” with a growth rate twice that of the United States, lower unemployment and a robust currency.

When Norway’s banks went out of control, the Labor government seized the three biggest banks of Norway, fired the senior management and made sure the shareholders didn’t get a krone.

The now publicly owned banks were given new, accountable management and time to clean up. The government told the rest of the private banking sector that it were on its own: If bankers had money in their mattresses with which they could re-capitalize, fine; if not, they could go bankrupt. There was no way Norwegian citizens would bail them out.

The lesson for Norway’s entire financial sector was unmistakable. No more moral hazard: Risk your own money, not other people’s. Failing banks will be allowed to fail, no matter what their size.

The government gradually sold its shares in the banks it had seized and made a net profit. It kept a majority stake in the largest bank, probably as a safeguard to prevent the bank from being sold to foreign owners.

The St. Louis Federal Reserve Bank’s vice president, Richard G. Anderson, studied the responses of Sweden and Norway to their parallel financial crises: “The Nordic bank resolution is widely regarded as among the most successful in history,” he concluded. By bouncing back through effective governmental intervention, Norway and Sweden avoided the “lost decade” syndrome that dogged Japan after its crash in the early 1990s and that is now the reality for the United States and much of Europe.

For activists in the many countries now confronting austerity programs, these examples can serve as a concrete alternative with a track record of success.

But what if your government is in the hands of the 1 percent?

For decades, Iceland followed the “Nordic model,” with high standards of living, free university education, universal health care, full employment and a robust labor movement. The government owned the major banks.

Then, in the late ’90s, Iceland’s political leadership shifted. It began to privatize banks and joined the international trend initiated by the repeal of the Glass-Steagall Act in the United States, a law that separates investment banking from ordinary banking. Now the banks were free to take ownership stakes in their customers’ companies.

Building on Iceland’s economic credibility, the largest banks opened branches abroad and bought foreign financial institutions. They made the Norwegian and Swedish banks’ mistake of creating a real estate bubble, and then went beyond that by making high-risk loans to holding companies. Like Cyprus, Iceland’s banks blew themselves up like balloons, becoming several times the size of Iceland’s gross national product.

In 2008, Iceland suffered one of the worst banking collapses in history. Unemployment and inflation shot up. By September the Icelandic economy was in free fall.

Activists formed a grassroots nonviolent movement to demand resignation of the government. They massed outside the parliament building, banging pots and pans to disrupt the meetings inside — the “Kitchenware Revolution,” they called it.

The crowds grew to 10,000 — out of a total population of 320,000 — and the increasing turbulence forced Prime Minister Geir H. Haarde to announce that he and his cabinet would resign and new elections would be held. Although the politicians responsible for Iceland’s financial life were resigning, the campaigners didn’t stop there; they demanded — and won — the resignation of the governing board of the Central Bank.

The party representing the working class stepped in and pledged that there would be no bailouts, and the three largest banks therefore failed. The government made sure that Icelandic depositors got their money back and gave debt relief to struggling homeowners. For businesses facing bankruptcy but experiencing a positive cash flow, debts were forgiven. The government devaluated its currency in order to support Iceland’s important export market.

The next part will be especially interesting to Cypriot activists who want to fight back: Iceland then repudiated the billions of dollars of debt owed to U.K. and Dutch citizens who had taken loans through online subsidiaries of Icelandic banks. The move sent shudders through the international financial world, but still ordinary Icelanders refused to accept responsibility for the frenzied behavior of their bankers. The question was twice put before voters in referenda, and twice Icelanders said “No.”

Instead of trying to pacify international investors, Iceland created controls on the movement of capital. Instead of demanding austerity, the government expanded its social safety net. The result? Iceland is recovering. By July 2012 unemployment was hovering at 6 percent and falling. The economy was expected to grow by 2. 8 percent.

As The Independent’s Ben Chu has pointed out, ever since the 2008 international crisis both European politicians and ratings agencies “have demanded that national governments honor the debts of their banking sectors, protect their exchange rates, eschew capital movement restrictions, and impose massive austerity to earn back the confidence of bond markets.”

Iceland largely ignored those demands. Did the investors punish Iceland for being so smart and self-respecting? No. In June 2011, the government issued $1 billion in sovereign debt at 6 percent interest, an offering that was twice oversubscribed by investors.

It may be time for Cyprus to join Iceland in treating the bullies like, well, bullies. It may be the little countries that need to act like grown-ups and enforce accountability: Those who make the mess should clean it up. But it will take people’s movements to make sure that happens, movements that have an idea what the alternative is.

This work is licensed under a Creative Commons Attribution-Share Alike 3.0 United States License

George Lakey

George Lakey is Visiting Professor at Swarthmore College and a Quaker. He has led 1,500 workshops on five continents and led activist projects on local, national, and international levels. Among many other books and articles, he is author of “Strategizing for a Living Revolution” in David Solnit’s book Globalize Liberation (City Lights, 2004). His first arrest was for a civil rights sit-in and most recent was with Earth Quaker Action Team while protesting mountain top removal coal mining. E-mail: [email protected]

Is Cyprus in Our Future?: The Plague of Wall Street Banking

The economic news this week highlights what happens when governments are unable to confront the root cause of the financial collapse – the risky speculation and securities fraud of the big banks.  What happens? They blame the people, cut their benefits, tax their savings and demand they work harder for less money.

In the United States there have been no criminal prosecutions for securities fraud in the big banks.  Just as the Justice Department has made it clear that the big banks are too big to jail because doing so jeopardizes the stability of the banking system; financial fraud investigator Bill Black points out that the SEC cannot institute fines that are too big for the same reason. “The art is to make the number sound large to fool the rubes, but to insure that the fine poses only a modest inconvenience to our ‘most reputable’ fraudulent banks.” So, the SEC trumpets “more than 150 firms and individuals, with sanctions totaling $2.7 billion.” Black points out that this number sounds big, but it isn’t compared to the losses caused by the fraud epidemic in the US which are well in excess of $15 trillion.  A trillion is a thousand billion. Are we, ‘the rubes’ or do we know that our government is in cahoots with big finance?

In fact, the big banks have been engaged in all sorts of nefarious activity for a long time, asWashington’s Blog points out with this jaw-dropping list of crimes, and are rife with fraud. And, this week the biggest of the too big to prosecute, JP Morgan, had its financial fraud and disrespect for government on display when the Senate Banking Committee issued a massive 300 page indictment, errr report, documenting the $6.2 billion “London Whale” scandal. The report traces the scandal right to the top, CEO Jamie Dimon, and shows how the bank lied to bank examiners and investors. Experts state the obvious from this evident fraud; investigations and fines, and possibly a large monetary settlement are possible but a prosecution by DOJ remains unlikely. Obvious because everyone knows the game in Washington is one of no criminal prosecutions.

Although, another too big to jail bank, Goldman Sachs did have a loss in court this week, when the US Supreme Court refused to overturn a Court of Appeals decision requiring the bank to defend a civil suit by investors claiming securities fraud.  There are lots of hurdles ahead, but this provides a glimmer of hope.

This week our too big to prosecute philosophy of the (lack of) Justice Department was shown to apply to foreign banks as well.  The second largest bank in Germany got a pass when it offered a job to an IRS agent who cut its tax burden.  Again, the rubes were told that Commerzbank paid $210 million in tax liability, sounds good, but it was only 62% of what it owed. The day after the agreement the IRS officer was offered a job at Commerzbank. The agent pled guilty to charges this week, but the bank and the officers involved were not prosecuted.

Europe is showing us what happens when government fails to confront the big banks – the people pay and the economy collapses into depression.  Is this our future?

The horror story of the week for struggling workers and poor countries has to be Cyprus.  The country was being built up as a big banking area but when it all went sour, they went to the EU for a bailout.  The EU hemmed and hawed and finally agreed, but with a very big requirement which takes structural adjustment to a new level of abuse – they required “a one-off 10 percent tax on savings over €100,000 and a 6.75 percent tax on small depositors. Senior bank bondholders and investors in Cyprus’ sovereign debt will be left untouched.” [See update below.]

This is causing a run on the banks in Cyprus, but is also raising red flags in many other struggling Euro countries.  Can bank accounts in Greece, Italy, Spain, Portugal or any other country in Europe be safe? Are more and more people going to take their money out of the banks and keep it under their mattress? It may seem like the sane thing to do but a run on the banks will just weaken shaky banks further.

Leaders of the EU, IMF and Germany are all staying with their demand for more austerity and greater productivity (i.e. lower wages for greater output). At the same time they are urging bailout of the banking system which remains weak.  This same leadership recognizes their approach may lead to a “social explosion” and Standard & Poors is also warning that the situation is socially explosive. The reality is that southern Europe is essentially in a depression and Germany, EU and IMF are demanding that they squeeze more money out of impoverished people.

In Washington, DC, the two Wall Street parties keep talking about cuts to the budget – austerity measures that will hurt the old, the poor, the young and working class – and disregard the fact that government spending is actually not the problem.  While they push austerity, they remain silent as big business interests go into their sixth year of big tax avoidance. Paul Buchheit summarizes “For over 20 years, from 1987 to 2008, corporations paid an average of 22.5 percent in federal taxes. Since the recession, this has dropped to 10 percent – even though their profits have doubled in less than ten years.” He highlights the worst of the worst. On top was Obama’s jobs czar, General Electric.

There is some sanity, but not much, among the US financial elite. Dallas Fed Chairman Richard Fisher told the Conservative Political Action Conference that it was time to break up the big banks and end the crony capitalism that protects them.  Liberal Democrat Sherrod Brown has introduced a bill to do just that. Of course it is opposed by the administration so it will probably not go anywhere.

Instead, President Obama is pushing the anti-democratic Trans Pacific Partnership which is a gift to the big banks and other transnational corporate interests. For the big banks it will require countries to let capital flow in and out without restriction, not allow the banning or regulation of risky investments like derivatives and credit-default swaps and will prevent the formation of much-needed public banks. Our Wall Street government continues to serve Wall Street first at the expense of the people’s necessities.

All of this shows it is time to remake the banking system: hold security fraud violators criminally accountable, break up the too big to jail banks, support community banks and credit unions and create public banks at least at the state and local level; and make the Fed transparent and accountable to democracy.  This would be a transformed banking system that would serve the people and the economy, move toward economic democracy and take power away from corrupt Wall Street. Failure to confront and remove the plague of Wall Street-centered banking will continue to infect the entire economy.  Is Cyprus in our future? It doesn’t have to be.

Update: On Tuesday, March 19, the Parliament in Cyprus rejected the tax on bank accounts after mass protests by the people. This leaves Cyprus in a mess with no bailout and no money to contribute to a bailout. Will Russia invest in future oil found recently off the coast of Cyprus in return for the Parliament protecting $30 billion in Russian deposits that are in Cyprus banks? Will Germany and the EU bend, not requiring Cyprus to raise money for the bailout? Will Cyprus leave the EU? Lots of questions without answers right now, but the banks in the country will remain closed until they figure it out.

Greece: The Crisis Behind the Crisis and the Challenges Facing the Left

Neoliberal policies created a disaster in the country now shredded by austerity measures. The Syriza party and the Greek left have much work ahead if they are to build a just and sustainable economic and social order.

When the global financial crisis of 2008 reached Europe's shores sometime in late 2009, the eurozone, with its faulty design and distinct neoliberal policymaking framework, experienced its first major crisis since the introduction of the euro as a single currency; the danger of an imminent collapse was suddenly all too real. From the beginning, there were warnings about the dire consequences of introducing a single currency into a region with sharp economic and cultural differences, but the European political elite turned a deaf ear on the skeptics.(1) European business interests were too big to be compromised over concerns about future financial busts or speculations about the risk of adopting a foreign currency without the backing of a federal treasury and a central bank acting as lender of last resort. Indeed, like the owner of the Titanic who told the captain to go full speed although several warnings had been received about icebergs ahead, European policymakers at the time could not resist the temptation to launch euro as a cash currency in spite of the fact that the Eurosystem was built on a weak institutional foundation. And they compounded the error by allowing highly problematic candidates to join the union, thereby violating the principles of optimal currency areas.(2)

Unfit to Join the Euro

The first crack in the EU wall occurred in Greece, the weakest link of the currency union. Economically, socially and culturally, Greece was ill prepared to join the euro when it did back in 2001, but the country managed nevertheless to do so mainly because of its legacy of contribution to the development of Western culture.(3) The nation's domestic political and economic elite were eager to join Euroland not just because of the perceived benefits, but also because they were very much in need of a psychological boost: if you are weak and marginal, and incapable of change and improvement, joining a group of strong and rich nations gives you the illusion that you are on a par with them.(4) Hence the hilarious statement of then Greek Finance Minister, Yannos Papantoniou, who described the joining of the euro as "'an historic day that would place Greece firmly at the heart of Europe,"' or the equally laughable statement of then prime minister Costas Simitis, who propounded that "we all know that our inclusion in EMU (European Monetary Union) ensures for us greater stability and opens up new horizons."

Apparently, both of these political midgets felt that what shapes a nation's economy is its currency, not its productive base, technological know-how, human skills, etcetera. Be that as it may, the euro produced, for the most part, a rocky ride for Greece (GDP increased, but both public and private debt levels reached new heights while competitiveness declined significantly) that ten years later crashed against the brick wall erected by international credit markets when they refused to extend further lending on account of the country's massive fiscal deficit and humongous public debt burden. And perhaps not without coincidence, both of the aforementioned euro cheerleaders ended up having reigned over the longest unbroken period of political corruption in the modern period of Greece, courtesy of neoliberal "socialist" governance.(5)

When the global financial crisis erupted, the Greek economy had already entered a downturn phase, with GDP expansion having slowed down in 2008. The industrial sector, in fact, had entered a phase of recession as far back as 2005. In 2008, the industrial production indicator had fallen by 4.2 percent and reached a 10 percent decline in 2009.(6) Yet, when the crisis initially reached Greece, everyone was in an apparent and inexplicable state of denial, including leading EU officials. Thus, in October 2008, Kostas Karamanlis, then Greece's prime minister and leader of the conservative New Democracy party, declared in a speech to his cadres that the Greek economy was largely "shielded" from the effects of the economic crisis thanks to the structural adjustments his government had initiated. And his main political opponent, PASOK leader George Papandreou and current prime minister, assured the citizenry that "there was plenty of money around" and that, if elected, his government would exhibit "'the political will"' to find money for the toiling population, just as it had been found for the bailouts of the banks. But the most problematic example of unwillingness on the part of leading public officials to recognize the trouble that lay ahead for Greece came from the EU chiefs themselves: thus, EU Commissioner Joaquín Almunia announced as late as February 2009 that "the Greek economy is in better condition compared with the average condition in the Eurozone, which is currently in recession."(7)

Why were the Greek and EU political elites unable and unwilling to face up to the gravity of the Greek situation before things got out of hand? This question remains vital as the Greek economic crisis is now turning into a humanitarian crisis and EU leaders continue to ignore the pressing reality of the situation, intent on pushing forward with the destructive policies of austerity and fiscal adjustment.

But Greece's sovereign debt crisis did not come out of the blue. It may have been precipitated by the financial global crisis of September-October 2008 (the deficit had climbed to 15.4 percent of GDP, although there are accusations made from a former employee of the Greek Statistical Authority, Zoe Georganta, a professor of economics at the University of Macedonia, that the official figures for the 2009 budget deficit had been inflated by the Papandreou government in 2010 in an apparent attempt to legitimize the harsh austerity measures that came along with the bailout plan orchestrated by the European Union and the International Monetary Fund (IMF); an inquiry is now underway by Greek prosecutors). But it had long been in the making. It was, in effect, a time bomb waiting to explode. The Greek economic model of growth was highly flawed: growth was not based on economic fundamentals; income tax rates were always very low, tax evasion massive, and Greek governments ran a continual deficit - building up an immense stock of national debt consistently well over 100 percent of GDP.

The Triple Nature of the Greek Crisis

Still, the Greek crisis must be seen as something much more than the simple outcome of corrupt government practices, although corruption, including tax evasion, is a major component of the economic ills facing the country today. It is the story of a kleptocratic state and a parasitic capitalist elite who got caught in the web of the eurozone's flawed design when the US financial crisis of 2007–2008 hit Europe's shores.(8) It is also the story of an economy that did not meet the prerequisites for entering an alleged optimum-currency area, nor did it make much attempt to fit in properly. But it is also the story of the general failure of the global neoliberal project, the financialization of the economy and free-market orthodoxy.(9) Indeed, how else could eurozone countries with such dissimilar economies - Greece, a statist and highly corrupt economy; Ireland, a poster-child for neoliberal capitalism; Spain, a faithful follower of EU dictates about deficits and debt - end up suffering the same fate?

The reason is rather simple: because they all orbited the same central entity, the black hole of European neoliberal capitalism. As such, political and ideological differences between social democratic and conservative political parties have long ago vanished. Thus, in Greece, Spain, Portugal and elsewhere, "'social democratic"' governments long ago discarded even the pretext of being agents of progressive reform.(10) Hence the ease with which such governments went along with the EU/IMF dictates in imposing unprecedented cuts and austerity measures that have drastically reduced the standard of living for the working people in their respective countries. In sum, the Greek crisis:

  • stands as a severe fiscal and public debt crisis (during the 1980s and 1990s, annual government expenditures exceeded revenue by an average of more than 8 percent of GDP, while the national debt exceeded 100 percent of GDP) stemming from the deep and long-term structural problems of the Greek economy and the deformities of the domestic political and cultural system
  • represents a European crisis due to the intricate trade and financial ties between Greece and the other eurozone member-states, and
  • reflects the deadly failure of the neoliberal project, which has become institutionalized throughout the EU's operational framework, all while the IMF remains the world's single most powerful enforcer of market fundamentalism. 

At the heart of the neoliberal vision is a societal and world order based on the prioritization of corporate power, "free" markets, and the abandonment of public services. The neoliberal claim is that economies would perform more effectively, producing greater wealth and economic prosperity for all, if markets were allowed to function without government intervention. This claim is predicated on the idea that "free" markets are inherently just and can create effective, low-cost ways to produce consumer goods and services. Subsequently, an interventionist or state-managed economy is wasteful and inefficient, choking off growth and expansion by constraining innovation and the entrepreneurial spirit.

This is the version of neoliberalism developed by Milton Friedman and the Chicago School and usually associated with the Pinochet regime in Chile, and, later, with the free-market policies of Margaret Thatcher and Ronald Reagan - an ideological revolution that was long in the making but that gained ascendancy over Keynesianism with the appearance of stagflation.(11) And it is by far the most dangerous ideology of our time (12), spreading havoc with its "economics of social disaster."(13)

In April 2010, with the bond vigilantes having woken up as a result of Dubai's debt crisis in late 2009, Greece was shut out of the international bond markets and - facing the prospect of a default - sought refuge under an EU/IMF financial rescue scheme. Months prior, the Papandreou government (14) had approached the IMF to extend its "'technical know-how and experience"' to the EU by administering a dose of shock therapy. Greece needed to be "rescued," and the Europeans needed not only the Fund's expertise but also to add an element of legitimacy to the austerity experiment that was about to be performed on a peripheral member-state. In this context, the invitation to the IMF to join in the operation on an ailing European patient served multiple purposes.

The neoliberal quacks were quick to rush to judgment about the roots of the Greek crisis - allegedly, a bloated public sector that wasted too many resources on lazy, unproductive citizens and hindered the potential of the private sector - and lost no time in recommending brutal austerity measures. What if the facts did not fit this narrative? Indeed, all the available data showed that the Greek public sector, while inefficient and corrupt, was actually smaller than the public sector of many other European nations; that Greeks worked on average more than most other Europeans; and that even Greek productivity in the years leading up to the crisis compared favorably with that of Germany.(15) And what if there were huge imbalances in the eurozone, with the core states running huge surpluses and the peripherals running huge deficits?(16) Greece was judged to be solely responsible for the sad state of its fiscal condition in the age of the euro and had to be punished, both as penance for its sins and as a warning to its southern cousins that the same fate awaited them if they didn't put their own fiscal houses in order.

It is this cynical, brutal perspective that led to Greece becoming an unwilling test subject for the EU's neoliberal vision and kept Germany's game going when things got rough in Euroland. Most of the German banks were overexposed to Greek debt and nearly insolvent. The May 2010 bailout of 110 billion euros (with a usurious interest rate of 5 percent) was orchestrated by the EU and the IMF - the twin monsters of neoliberal capitalism - in an apparent attempt to have Greece keep up with its debt payments to foreign banks: hence the rejection of even the slightest consideration of a debt restructuring, even though this would have been the quickest and safest way to allow Greece some breathing room. Helping its economy recover through the coordinated implementation of a large-scale development plan would also have been appropriate in a proper economic and monetary union. Indeed, such moves could have secured the confidence of international bond investors in the euro's sustainability and might even have prevented contagion in the rest of the periphery. They would certainly have prevented the spread of an otherwise avoidable contagion from the periphery to the center, which is clearly underway as of last year. But with the adoption of punishment as policy, contagion in the periphery became inevitable, and with the deficit economies in the periphery wrapped in an austerity straightjacket, the surplus economies of the center were bound to feel the effects of their insane and brutal policies. The economies of both Germany and France contracted in the last quarter of 2012. GDP in the eurozone as a whole fell by 0.5 percent last year, and, more significant, 2012 will go down in history as the first year since 1995 in which no quarter produced growth.(17)

The Catastrophic Effects of Austerity

Indeed, as a policy, the bailout scheme proved to be a dismal failure on every possible front, save for ensuring that debt payments kept flowing to foreign banks. The crude macro-stabilization program and the harsh austerity measures that accompanied the loan to Greece (amounting to 11 percent of the country's GDP) had the opposite of the intended effect on the markets and choked off all prospects of recovery for the Greek economy: demand plummeted due to the deadly combination of massive budget spending cuts, reductions in wages and pensions, and sharp tax increases, causing thousands of small businesses to go bankrupt and forcing several multinationals to move their production facilities to nearby Balkan countries, thereby producing explosive unemployment rates, sharply diminishing state revenues and substantially increasing the debt-to-GDP ratio.(18) The policy pursued by the EU/IMF duo is so fundamentally flawed that Keynes must be rolling over in his grave. Still, economic dogmas ought, apparently, to be respected, no matter what results they produce, so in the mind of the neoliberal zealots, they should be pursued to the bitter end. Thus, less than two years later, a second "bailout" of 130 billion euros was extended to beleaguered Greece, with terms and conditions for allegedly turning the economy around that are much harsher than the first "rescue" attempt. The "pay while you bleed" and "suffer for your sins" policy of the twin monsters should by now be clear to everyone.

In drafting the document for the so-called Second Economic Adjustment Program for Greece, the EU's neoliberal lackeys contended that "Greece made mixed progress towards the ambitious objectives of the first adjustment program."(19) On the positive side, it is noted, the general government deficit was reduced "from 15.75 percent of GDP in 2009 to 9.25 percent in 2011." On the negative side, the recession "was much deeper than previously projected" because, it is claimed, factors such as "social unrest" and "administrative incapacity" (including a lack of effectiveness in combating tax evasion) "hampered implementation." The antigrowth "fiscal and structural adjustment" program was perfectly designed and would have produced all the anticipated results if the government were better able to carry out the policies (perhaps it should have ordered the police and the army to arrest all public administrators and have them shot for disobeying the troika's commands), and if the citizenry did not on occasion make some fuss about the austerity program by staging demonstrations here and there, or by occupying the square outside the Greek parliament building. In essence, this is what the neoliberals' above comments are saying.

The feeble excuses of the EU bureaucrats for the fiscal consolidation program's causing a much sharper economic decline than "previously projected" fly in the face of the recent partial concessions made by the IMF: that the policies carried out in Greece ended up having much more adverse effects on the economy because the IMF miscalculated the impact of the fiscal multiplier. Indeed, the executive summary of the Second Economic Adjustment Program for Greece goes on to state unequivocally that, insofar as the prospects of the success of the second adjustment program are concerned, "the implementation risks ... remain very high" but the success of the program "depends chiefly on Greece."(20)

The neoliberal economics applied to Greece by Germany, the EU and the IMF did not simply cause a greater decline in Greek GDP than "originally projected" or make the debt grow substantially bigger in the course of the last two years (from 126.8 percent in 2010 to 180 percent in 2012). It also produced an economic and social catastrophe of proportions unparalleled in peacetime Europe. In May 2010, when the first bailout was approved and the austerity measures kicked into high gear, the unemployment rate in Greece stood at 12 percent. It has since climbed to 27 percent, and the youth unemployment rate has reached 62 percent. According to the Greek Statistical Authority, the actual number of unemployed reached 1.35 million in November 2012, with the number of employed standing at 3.642 million.(21)

Poverty is also spreading rapidly, affecting all groups in society, including children. In a recent report released by Eurostat, 31 percent of Greeks had a standard of living in 2011 that was close to the poverty line,(22) while the Labor Institute of the Greek General Confederation of Labor (INE-GSEE) states in its monthly publication Enimerosi that by the end of last year, 3.9 million people had fallen below the poverty line.(23) Income levels for workers have also taken a big hit over the last two to three years, and there is more wage suppression to come. According to research data released by the INE-GSEE, incomes dropped by 22.8 percent, or 19 billion euros, during 2010-2011, with a projected decline of 33 billion euros in available income in 2012.(24)

Perhaps most indicative of the catastrophic impact of the EU/IMF austerity measures imposed on Greece is that many schools throughout the country have gone on for a second year without heating oil (the nation was shocked recently by the death of two college students who died in their sleep due to inhalation of carbon monoxide from a makeshift stove as they could not afford heating oil, whose cost has gone through the roof because of the government's ingenious scheme to find extra revenues by raising the taxes on heating oil by 450 percent), the public health care system has collapsed to the point that even medication for cancer patients is not available, and suicides, for a nation that used to have the lowest recorded suicide rates in Europe, are taking place at a record pace.

The aim of the EU/IMF structural adjustment program with regard to the Greek labor market (employment and wages) is crystal clear: total liberalization, minimum wages comparable to those in Bulgaria and Romania (two relatively backward-looking Balkan nations, and with levels of corruption equal to those in Greece), and a potential ban on strikes. The first two elements of the subversive neoliberal labor market policy are well advanced, while the third one is in the works. Again, these measures have an official stamp of approval from the Greek government, including the current administration, a tripartite coalition consisting of the leader of the conservative party as prime minister and the leaders of the Socialist party and the Democratic Left as vice presidents. Moreover, as with every Greek administration since the outbreak of the crisis, the Ministry of Finance serves as a Trojan horse for inflicting the scorched-earth policy of the EU and IMF on Greece's economy and its people.

"The Left's Moment": Problems and Challenges

The scorched-earth policies pursued in Greece over the last three years by Germany and the twin monsters of neoliberalism, i.e., the EU and the IMF, have produced an economic and social catastrophe of unprecedented proportions for a nation in peacetime conditions. For the past three years, Greece has been a guinea pig for the policy prescriptions of a neoliberal EU under the command of Germany and its northern allies. A public debt crisis has been used as an opportunity to dismantle the social state, to sell off profitable public enterprises and state assets at bargain prices, to deprive labor of even its most basic rights after decades of hard-fought struggles against management, and to substantially reduce wages and pensions, creating a de facto banana republic - all with the support of a significant segment of the Greek industrial/financial class and with the assistance of the domestic political elite.

Greece is a nation experiencing a catastrophic crisis of immense proportions inside one of the world's richest regions, yet its government celebrates the fact that the deficit has been reduced as a result of the fiscal adjustment efforts (when virtually all other economic and social variables have gone from bad to worse every year) and expects the citizens to offer more "blood, tears, toil and sweat." At the same time, it is launching a brutal frontal attack on the left, using lies and propaganda and, increasingly, the iron fist of the state, as public opinion polls show consistently for the last few months that the conservative party of New Democracy (which is at the helm of the tripartite government currently ruling the nation) and Syriza, the Coalition of the Radical Left, are in a neck-and-neck race.

The political landscape of Greece has changed radically as a result of the economic crisis. First, the socialists, the true masters of calculated political and ideological duplicity, the real maestros of corruption in Greece, are all but finished as a political force. In the 2012 national elections, the Socialist Party received 12.3 percent of the popular vote, and the latest polls show that its popularity has dropped to about 7 percent. This is the price paid for surrendering Greece to the EU/IMF rescue mechanism in May 2010 and for collaborating since the 2012 elections with the conservatives in finalizing the conversion of Greece into a neoliberal zombie society.

Second, the conservatives, under the leadership of the current prime minister, Antonis Samaras, have shifted from being opponents of the memorandum of agreement with the EU and the IMF when they were the opposition to become its obsequious servants. Their credibility and base support has weakened considerably in the course of the last couple of years, but the conservative constituency in Greece feels trapped and has few options other than perhaps to throw its support behind Golden Dawn, the neo-Nazi party of Greece. To be sure, a good percentage of conservative voters have already done so: the neo-Nazis received 7 percent of the popular vote in the 2012 elections, and their numbers seem to be growing in spite of (in fact, maybe because of) being nothing more than preachers for hate and thugs who carry out organized attacks against immigrants throughout Greece. Ideologically, they embrace Hitler's National Socialism doctrine, strive for racial purity and openly envision the reestablishment of concentration camps for leftists and communists.

Greece's neo-Nazi political party represents a real threat to the social fabric of Greece; however, it remains to be seen how the appeal of the extreme right will be countered when society itself is facing a meltdown because of the harsh austerity measures and the traditional political establishment is morally bankrupt and has lost much of its legitimacy.(25)

The emergence of Syriza as the second-largest party (pulling 26.89 percent of the vote against 29.66 percent for the conservatives) represents the biggest change in the Greek political landscape. In many ways, this is indeed the "left's moment in Greece,"(26) but the reality of the support rate that the left enjoys is more complicated than what the numbers report. Most of its votes in the 2012 elections came from former Pasok voters. This is not to imply that Syriza may eventually rise to power on a protest vote, but it does mean that the left finds itself in the uncomfortable situation of having the backing of a huge percentage of "political orphans." Even more troubling is the fact that many former Socialist Party hacks look to relaunch their political careers by seeking to attach themselves to Syriza's political cause. These are, of course, political opportunists of the highest caliber, and Syriza must turn its back on them if it wishes to keep intact the left's overall mission, vision and core principles.

The general impression among analysts and an increasing number of average citizens is that Syriza is about to become a "new Pasok." This is not far from the truth, especially as some elements close to the leadership of the party appear to be willing to make whatever compromises may be necessary in order to have Syriza rise to power. The party also lacks a clear and coherent agenda for change, and its position on the current crisis has shifted remarkably in the course of the last several months from calling for the abolition of the EU/IMF fiscal adjustment program (but without having an overall strategy for managing the crisis, or even solid support at the grassroots level) to renegotiations of the agreement (when the "troika" - the European Commission, the IMF, and the European Central Bank, or ECB - supervising the fiscal consolidation effort has opposed outright any attempt aiming towards renegotiations of its terms of agreement for the bailout schemes). Conscious, perhaps, of the immaturity of Greek citizenry, but also reflecting its own political and ideological ambiguities, Syriza has also opted not to confront direct exit from the euro as a possible policy option, even though this may, in the final analysis, be the only effective strategy (but with a potentially huge short-term cost) for stopping the permanent decline of the nation's economy. Indeed, as things stand, the current eurozone is doomed to fail, and the peripheral nations will go on experiencing worsening economic and social conditions as the core remains adamantly opposed to any policy options that would mutualize the debt in the eurozone, provide relief for the beleaguered south, or end austerity.

To be sure, Syriza faces daunting challenges ahead, while finding the resolve to deal with them is undermined by the cacophony of views that prevail inside the party and by its lack of apparent influence among working-class organizations and trade unions. The extent to which the organization might be able to find qualified members among its ranks for the tormenting task of turning around a highly inefficient public administrative system and managing an economy which, by the end of the current year, will have seen its GDP shrink by an incredible 25 percent since the onset of the global financial crisis of 2008, is also highly debatable. For a party of the left, Syriza has also shown reluctance, or unwillingness, or inability to embark on an open discussion about the country's future political culture, having chosen, instead, to consume itself scoring political points over the way political corruption was sustained in the past by the conservative and socialist parties.

Yet, if there is anything that the economic crisis in Greece reveals, other than the fact that neoliberal policies wreak havoc on the standard of living and produce massive unemployment and widespread poverty, and that a way must be found to restart the engine of the economy and get the unemployed back to work, it is the need to come to terms with the norms and patterns of the nation's political culture, including revisiting questions of civic virtue, fairness and social provision, expectations and obligations, and articulating visions of a good and decent society.

Having said all that, Syriza remains in Greece today the only political force that can offer hope for the future, put an end to the ongoing catastrophe, and, under certain conditions, work its way toward the realization of a sustainable economic and social order based on those core principles that have long defined progressives worldwide: employment opportunities for all, decent wages, a vigorous and efficient welfare system, free health care services, free education, quality social services, a progressive tax system, democratic accountability, environmental protection, respect for the "other," democratic participation at the workplace, sound business practices, and incentives for new business undertakings.

In politics, there is a huge gap between theory and practice, so Syriza should be neither idealized nor undermined for what it is trying to do, which is to answer history's call and try to rescue the country that gave birth to democracy from becoming ultimately a wretched society and a failed state inside one of the world's richest regions.

C. J. Polychroniou is a policy fellow at the Levy Economics Institute of Bard College. Certain parts of the above article are included in a recent Policy Note (2013/1) published by the Levy Institute and titled "The Tragedy of Greece: A Case Against Neoliberal Economics, the Domestic Political Elite, and the EU/IMF Duo." The views expressed here do not necessarily represent those of the Institute's board nor its advisers.

Endnotes

1.
Some of the most dire warnings against the launching of the euro came from inside Germany itself. Wilhelm Hankel, Karl Albrecht Schachtschneider, Joachim Starbatty, and Wilhelm Nφlling were four renegade professors who opposed the euro from the start and tried to stop it with a legal challenge to Germany's highest court. Obviously, they lost the case. They tried again 12 years later against a German bailout of Greece. They lost again. Their basic claim all along has been was that the euro was an architectural flaw which would lead to the downfall of European economies. Moreover, and in sharp contrast to the original arguments in support of the creation of a single currency zone in Europe, the euro has led to greater economic and social inequality among the various national economies, has exacerbated the problem of unemployment in the peripheral economies, and has produced huge transfers from the periphery to the core.

2.
The original optimal currency area approach was laid out by Robert Mundell in his article "A Theory of Optimum Currency Areas," American Economic Review Vol. 51, No 4 (1961), pp. 657–665. See also R. I. McKinnon, "Optimum Currency Areas," American Economic Review Vol. 53, No. 4 (1963), pp. 717–725.

3.
Greece gained entry into the eurozone by fabricating - with significant help from Goldman Sachs - the true state of the country's fiscal condition. The EU political elite was clearly aware of Greece's actual fiscal condition, but opted to look the other way.

4.
This is the reason that, in spite of the irreparable damage that three years of catastrophic austerity measures - part of the bailout agreements orchestrated by the European Union (EU) and the International Monetary Fund (IMF) - have caused, both to the national interests and to Greece's social fabric, the discussion of exiting the euro remains a taboo virtually across the political spectrum.

5.
The conservative government of Kostas Karamanlis, which came to power in 2004 and governed until 2009, proved to be equally, if not even more, corrupt and immensely incompetent. In fact, from the 1980s onwards, the socialists and the conservatives had ruled the nation in a similar fashion, both of them using the state and its coffers as a means to enrich themselves and their parasitic capitalist partners and to cater to the needs and demands of their political clientele in order to maintain an army of faithful party voters, making it thus virtually impossible to tell which of the two political parties has caused greatest damage to the common good. Both have been implicated in various large-scale scandals that involved exploiting state resources in order to transfer wealth from the public to the private sector and to redistribute wealth from the bottom to the top. Both of them, as well as the private sector, squandered European Union structural funds with reckless abandon, in the process allowing the destruction of vital sectors of the economy to take place (e.g., agriculture). Insofar as the culture of corruption - which the elite saw fit to let spread throughout society, thus creating a system of "corrupt legality" - is concerned, foreign actors also had a major role in it. The German industrial giant Siemens was in the habit of handing out bribes to political figures in order to gain preferential treatment over business deals (i.e., gain state contracts). This was a global practice of Siemens', and it is estimated that the bribes to Greek officials in both main political parties may have been as much as 100 million euros over a ten-year period. Charges were filed in 2008 for money laundering and bribery, but a parliamentary investigative committee that had been formed to examine the Siemens scandal conveniently swept the case under the rug.

6.
Greek Statistical Authority (March 18, 2010). See www.statistics.gr.

7.
Cited on the web site of the Greek Embassy in Washington, DC. See http://www.greekembassy.org/embassy/Content/en/Article.aspx?office=3&folder=1013&article=24631

8.
See Dimitri B. Papadimitriou and L. Randall Wray, "Euroland's Original Sin," Policy Note 2012/8. Annandale-on-Hudson, N.Y.: Levy Economics Institute of Bard College (July 2012). Online: http://www.levyinstitute.org/publications/?docid=1559

9.
C. J. Polychroniou, "The Greek and the European Crisis in Context," New Politics Vol. 13, No. 4 (Winter 2012), pp. 49–56.

10.
See C. J. Polychroniou, "The Mediterranean Conundrum: Crisis in the European Periphery," Economic and Political Weekly, Vol. XLVII, No. 21 (May 26, 2012), pp. 35-41.

11.
A fine new source discussing the history and the policies of neoliberalism is that of Daniel Stedman Jones, Masters of the Universe: Hayek, Friedman, and the Birth of Neoliberal Politics ( Princeton, N.J.: Princeton University Press, 2012).

12.
Among the many profound pieces by Henry A. Giroux on the ideology of neoliberalism, see in particular his latest one "The Politics of Disimagination and the Pathologies of Power," Truthout (February 27, 2013). Online: http://www.truth-out.org/news/item/14814-the-politics-of-disimagination-and-the-pathologies-of-power

13.
See C. J. Polychroniou, "Greece's Bailouts and the Economics of Social Disaster," Policy Note 2012/11. Annandale-on-Hudson, New York: The Levy Economics Institute of Bard College (September 2012). Online: http://www.levyinstitute.org/publications/?docid=1569

14.
George Papandreou, son of Andreas Papandreou, founder of the Panhellenic Socialist Movement (Pasok) and prime minister of Greece for almost ten years, after having won three national elections, became prime minister in October 2009. With no charisma whatsoever and lacking in intellectual prowess and administrative and leadership skills, his failure as a top political dog was all but ensured. He resigned in November 2011, after having ruled the most excruciatingly amateurish and agonizingly incompetent government in modern Greek history, but will always be remembered as the prime minister who "masterminded" the unconditional surrender of Greece to Germany and the IMF and imposed brutal austerity - the prime minister whose ultimate vision was "one working person per family." He is still the leader of The Socialist International, one of the most shameful contemporary political organizations, allegedly at the service of democratic socialism but whose members included, among other "devotees to the cause of socialism and democracy," Egypt's Hosni Mubarak and Tunisia's Zine al-Abidine Ben Ali; and, the irony of all ironies, he gets paid hefty fees to lecture for a few weeks at prestigious institutions like Harvard and Columbia, probably on how to ruin an economy and destroy a nation's sovereignty.

15.
See Dimitri B. Papadimitriou, Gennaro Zezza, and Vincent Duwicquet, "Current Prospects for the Greek Economy: Interim Report," Annandale-on-Hudson, New York: Levy Economics Institute of Bard College (October 2012). Online: http://www.levyinstitute.org/publications/?docid=1589

16.
See Jörg Bibow, "The Euro Debt Crisis and Germany's Euro Trilemma." Working Paper No. 721. Annandale-on-Hudson, New York: Levy Economics Institute of Bard College (May 2012). Online: http://www.levyinstitute.org/publications/?docid=1535

17.
Philip Blenkinsop and Annika Breidthardt, "Euro Zone Economy Falls Deeper than Expected into Recession," Reuters (February 14, 2013). Online: http://uk.reuters.com/article/2013/02/14/uk-europe-economy-idUKBRE91D0CS20130214

18.
C. J. Polychroniou, "Greece's Bailouts and the Economics of Social Disaster," Policy Note 2012/11. Annandale-on-Hudson, New York: The Levy Economics Institute of Bard College (September 2012). Online: http://www.levyinstitute.org/publications/?docid=1569

19.
European Commission, "European Economy: The Second Economic Adjustment Programme for Greece," Occasional Papers 94 (March 2012), p. 1.

20.
European Commission, "European Economy: The Second Economic Adjustment Programme for Greece," Occasional Papers 94 (March 2012), p. 4.

21.
Greek Statistical Authority, "Labour Force Survey: November 2012," Press Release (February 14, 2013).

22.
Cited in ekathimerini.com. "3.4 Million Greeks near Poverty Line in 2011, Eurostat Reports," (December 3, 2012). Online: http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_1_03/12/2012_472690.

23.
INE-GSEE (Labour Institute of the Greek General Confederation of Labour), Enimerosi, No. 200 (December 2012), p. 1.

24.
INE-GSEE (Labour Institute of the Greek General Confederation of Labour), The Greek Economy and Employment: Yearly Report (2012), p.21.

25.
Greece's two main political parties, the conservatives (New Democracy, or ND) and the socialists (Pasok), used to draw, until recently, over 75 percent of the combined vote. In the 2012 elections, both parties together managed to attract less than 35 percent of the popular vote - and if elections were held today, it is unlikely that they would get more than 28 percent of the combined vote.

26.
The phrase is borrowed from the title of an article by Costas Lapavitsas, which appeared in The Progressive, Vol. 76, Issue 7 (July 2012).

Cyprus – Oh The Irony!?

By Ben Davies of Hinde Capital

Cyprus - Oh The Irony!?

In history seemingly innocuous events portend more serious outcomes – albeit we recognise them in hind(e)sight. This is the dramatic irony of history. Just as a single shot in Sarajevo, took out a largely unknown European aristocrat, Archduke Franz Ferdinand, who would have known then that the world would plunge into World War I. The Cypriot savers must have thought the authorities were being highly ironic, of the Socratic kind, when they were told they were receiving a bail-out, except it was a “bail-in”. I don’t know the Greek/Turkish for – you are having a laugh, but I bet that’s what they are saying. So what is a bail-in?

A bail-in takes place before a bankruptcy, and involves losses being imposed on bondholders, something that has rarely taken place throughout the GFC and euro crisis. In fact taxpayers (the government) have consistently bailed-out the private sector in full. The Cypriot bank rescue is no exception, except this time there is a bail-in and ironically again not of bondholders but of the depositors first. This is a direct contravention to the usual legal claims on the capital structure.

So there you have it – on Friday 14th March Cyprus became the 5th country to receive an EU bail-out (in), except this one was a bail-in but one with a significant and severe twist of fate. The Cypriot government in Nicosia is scheduled to vote on a EU bail-out plan which calls to extract a “tax” on bank depositors (savers) some €5.8 billion: 6.75 per cent for anyone with less than €100,000 in a Cypriot bank account, 9.9 per cent for anyone with more than that.

This is an unprecedented assault on individual property rights and every individual in the developed world should take notice, and far from stabilising the eurozone, the bail-out likely heightens contagion risk across the EU.

Why bother holding a bank account when your government can expropriate your savings? Far from containing a bank run in Cyprus it will exacerbate it, absent capital controls, and likely begin significant depositor flights across the European periphery.

These events I believe signify one of the most alarming developments in the Eurozone crisis and by dint the global economy since the financial crisis began.

Cypriot Disputes and Levies

For a sovereign entity so small, Cyprus is a country that has had more than its fair share of international controversy and disputes. Cyprus has a long and convoluted history with the British, Turks and Greeks, whose tensions have wreaked havoc across Europe over two World Wars. This weekend marked yet another period of disquiet in the history of this troubled island.

Cyprus is reeling from an oversized and ailing banking system.  Technically bankrupt, domestic banks stand at €126.4 billion in size, or over 7 times the size of the economy.  Without a bail-in, depositors would be wiped out and Cyprus would undergo economic collapse, bringing along with it all the attendant social misery and deprivation of a depression. 

Ironically Cyprus is no stranger to levies.  The British extracted taxes in the 19th century to cover the compensation they owed to the Ottoman Sultanate, who had conceded the island to the British.

In 1878, under the Cyprus Convention, the Cyprus became a protectorate of the British in a secret agreement between the United Kingdom and Ottoman Empire. The Greek Cypriots believed the British would eventually help Cyprus unite with mother Greece, just as with the other Ionian Islands. The indigenous Cypriots believed it their natural right to reunite the island with Greece; after all the very first census showed the population was comprised of 74% Greeks and 24% Turks.

Fast forward half a century and most of us over the age of 40 refer to the Cyprus dispute as that of the conflict between the Republic of Cyprus, and Turkey, over Turkish-occupied North Cyprus. My knowledge of the origins of the Cyprus dispute is a little sketchy but as I understand it, the dispute originally was born out of the Cypriots’ desire for self-determination away from the British Crown, which had unlawfully declared itself the constitutional ruler after Greece failed to fulfil its WWI obligations to invade Bulgaria; in return the Republic of Turkey recognized British rule of the island.

Eventually this colonial dispute became an ethnic one between Greek and Turkish islanders and their respective mother countries. In 1974 Turkey invaded Northern Cyprus and declared unilateral independence, as well as itself a sovereign entity – the Turkish Republic of Northern Cyprus – but has never received UN and international recognition. There has been a UN no-go zone buffering North and South ever since.

Another irony of the day was that in return for the British protectorate the Ottoman Empire received military support against Russia in Asia. As I will cover later Russia has been integral to the demise and now the future well-being of Cyprus. Another legacy dispute that has compounded the Cypriot collapse was their adherence to EnosisThis refers to ‘the union’, literally speaking, of the Greek-Cypriot population to incorporate the island of Cyprus into Greece.  Observance of this tradition led the Cypriot banks to misguidedly purchase vast amounts of Greek sovereign debt before and during the euro crisis. Cyprus became a casualty of the Greek’s very own bailout restructuring. Oh the irony again. 

Creditor Structure

Bank depositors by now will have realised that bank deposit guarantees are not worth the paper they are written on and the legal precedent to label this confiscation of assets as a ‘stability levy’ or tax has no doubt been framed as such so as to circumvent EU deposit guarantee law, which this levy clearly violates. This is stealing – period.

Every saver in Italy, Spain, Portugal, but not limited to these countries, as it potentially applies to any saver in northern Europe and the UK, are at risk of a confiscation of their hard-earned money.  We will likely see depositor flight from the periphery to the supposedly more robust surplus countries – principally Germany. This is despite the very large outstanding Target2 balances owed Germany by the periphery, but don’t expect the man in the street to be aware of this fact.  This is unfortunate as some progress was being made in the reduction of Target2 imbalances as deposits in the periphery showed renewed signs of growth. 

The Troika has run roughshod over the rule of law. By calling for a universal bail-in of depositors (the securest part of bank capital ladder) before extracting money from shareholders, junior and subordinated bondholders, the EU bureaucrats and IMF have unilaterally ripped up the legal framework for property rights. This is a truly worrying and frightening progression – actually regression – in economic freedom.

At Hinde Capital, we have no issue with uninsured depositors contributing to the bail-out of a banking system, even as unpalatable and clearly undesirable as this would seem.

Unfortunately bank depositors (savers) have long been under the misguided impression that they are potentially immune from a bank collapse, with the State providing a safety net in the form of deposit guarantees up to a declared sum.  I would argue that individuals, partly due to government propaganda in the good times, have long since forgotten – or indeed have never understood – that once you deposit your money into a bank, you give up your right to ownership, ie, It’s a LOAN! An asset which is lent out multiple times as is the agreed practice under fractional reserve banking, clearly has a risk of no return, albeit a seemingly a low risk when confidence and trust is high in the economic system.

In truth the correct order of claims on the creditor structure in this ‘bankruptcy’ proceeding has been largely ignored as the Cypriot banks have such a small sliver of equity and debt, and have an unusually large depositor base.  It is the involvement of the depositor base that turns this whole debacle into a plot of immense political intrigue and, indeed, even conspiracy. 

Cyprus-sia ‘Tax’ Haven

It has been long known that Cyprus has held a vast sum of deposits from Russian lenders, and because of that Russia has been its biggest direct foreign investor. Low corporate tax rates, sub 10%, were the attraction, with Russians transferring their money into companies based in Cyprus. Some of this was then reinvested back in Russia.  According to Der Spiegel: 

An internal study by the German foreign intelligence agency, the Bundesnachrichtendienst (BND), says banks in Cyprus hold $26 billion (€20.33 billion) in deposits by Russian investors. According to the BND, most of this money has been illegally moved abroad to evade Russian tax authorities. By Cypriot standards it’s a tremendous sum given that the island’s entire annual GDP amounts to €17 billion.

The Cypriot government on Monday denied the money-laundering accusation. A government spokesman said SPIEGEL was trying to besmirch the reputation Cyprus has as an international investment location. The country had effective money-laundering rules and adhered to EU law, the spokesman said.

Indeed, Russians aren’t the only ones who sought the refuge of this once tax safe-haven, and consequently other European countries were not keen to be seen to be using their own tax payers’ money to afford a bail-out for ‘tax dodgers’ and money laundered in Cypriot banks by Russian KGB, mafia and their own citizens. So you could call the tax on uninsured depositors actually a levy on money laundering – call it a 10% haircut for washing your dirty linen. I bet any good money launderer worth his salt would take that cut. 

Conspiracy Talk

The question is why have the small savers been penalised? This is the point in the plan which makes the EU bureaucrats look so dysfunctional or at best dishonest – I meant to phrase it that way round. By penalising small depositors, mostly local Cypriots, they, as I have stated, undermined the universally agreed EU depositor guarantee that currently stands at €100,000. The talk is that the Cypriot government who took a line of credit of some €2.5 billion from Russia in 2011, and having utilised it fully, wanted to appease the ‘motherland’.  So they have agreed not to levy the full tax on deposits above €100,000. By doing this they hope for further assistance from Russia. I suspect they will offer support as Russian banks have loaned in excess of $40 billion to Cypriot companies of Russian origin (according to financial reports).

The Private Sector Initiative (PSI) on depositors is a victory for the ‘northern league’ of Europe, for now at least.  With a German election year in full swing Merkel needed to satiate German taxpayers by no longer exposing their euros to the profligacy of the periphery. Yes, a victory in round one for Merkel and the CDU, but ‘ding ding’, here comes round two: I bet the Cypriots pull a few punches by pushing back on the levy on small depositors. ‘Ding, ding’ – round 3 – I say Merkel gets knocked off her feet as depositors flee the periphery and then (eventually) Mario has to step in and decide whether to cite ‘irreversibility’ status as a clause to stem a banking sector collapse in Europe, and provide unlimited monetary support, but without the conditionality clause of austerity. I say ‘eventually’ as Mario had repeatedly slapped the EU finance ministers, and Schauble particularly, for advocating a haircut on bank deposits. So he could really make Germany sweat by holding back on a re-load of its big bazookas’ – long-term LTROs and OMTs.

In the interim the national central bank (NCB), in this case Cyprus is no doubt utilising the ELA (Emergency Liquidity Assistance) to supply the Cypriot banks with sufficient funds to remain liquid in the event of insolvency and failure.  This is at the risk of the NCB concerned and outside the ECB’s refinancing operational framework.  It is completely opaque and in truth it will appear as a Target 2 ledger or on the ECB asset side as ‘Other assets’.

For now the Cypriot banks are now on holiday, forcibly closed for business until at least Thursday at time of writing, so depositors cannot withdraw their money. Likewise, ATMs have been deactivated and electronic wire transfers suspended. They will be opened once the Cypriot parliament has ratified (or not) the deposit levy and other terms of the bail-in. It could well be that the terms change yet to protect small savers as they should have been all along. Either way, the psychological damage has been exacted across European populations. 

Contagion Risk

Those who think there is little risk of a levy being imposed on other periphery members are missing the point. The seeds of doubt have been planted. As a saver facing zero yields on deposits and a potential haircut, why keep your savings in a bank? Sure it is convenient for electronic transactions, but individuals can adapt easily. As one of my more amusing colleagues put it, “mattresses now hold a 10 per cent premium”.

Talk of ‘exceptional’ circumstances and a ‘one-off’ are true but only because Germany and the Troika would never succeed in enforcing such illegal measures on Italy and Spain without risking social unrest and a collapse of the euro. The Cypriots have more leverage than they realise. The Russians don’t need a failure as it could mean Russian bank risk. Moreover, Target 2 imbalances likely ensure that the ECB would not cut off the ELA and risk a euro currency break-up.

Conclusion

What this should reaffirm to you all is how the handling of the crisis has only succeeded in heightening the risks associated with this current monetary order.  The excessive amounts of debt have continued to grow and are clearly not sustainable. Policymakers have resorted to draconian methods of expropriating private sector assets (households, pension funds and corporates) either by excessive explicit ‘taxation’ and/or stealth taxation administered by a policy of negative real rates to help reduce the fixed real burden of debts.

It also reinforces our long-held views that when push comes to shove policymakers (the State) will escalate oppressive tactics against their electorate in a bid to maintain their status quo and that of their fiat currency system.

Of most importance is the adherence to retrospective changes of law and different rules for different people and countries. Insolvencies are generally well-defined in law. First equity, then subordinated debt, then deposits and senior bonds together, take the hit in that order.  The creditor structure has been up-ended and more than merely tweaked over the last few years.  I suspect with levels of ignorance high amongst populations they haven’t quite woken up to the reality that the state is not in fact here for your protection as it once was and that we all need to take on self-reliance and a heightened sense of responsibility for ourselves. Some notable rule changes of late are subtle but growing in number:

  1. The ECB, holders of Athens-law and foreign law Greek debt all received different treatment
  2. The Dutch didn’t restructure SNS Reaal paper, they confiscated it
  3. The Irish banned lawsuits against the ultimate wind-down of Anglo Irish
  4. Portuguese private pensions were confiscated

The list is long but you get the idea.  Rule-changes are getting ‘regressively’ more creative and sinister. As a friend  pointed out to me this as if the “football referee has gone from being a quasi-neutral arbiter, to pulling off his black shirt to reveal a Manchester United one underneath and awarding himself a series of penalties.”

The bail-out should have been a legal bail-in whereby equity is wiped out, and all bank debt is written down. Then unsecured (uninsured) depositors ie above €100,000 should have taken a double digit hit. By doing this EU finance ministers and lawmakers would have been respecting the creditor hierarchy while adhering and honouring the rule of law. The retrospective change of law is what should alarm us all. The insidious and subtle nature of this encroachment on our civil rights sets an ominous precedent and those who glibly mock libertarians for their ‘rants’ are no doubt those same people who thought PIIGS really do fly.

The bail-in announcement for the Cypriot banks late Friday night was one of those events when we all look back and think that was the beginning of the end of the real global financial crisis. This should leave any individual in Europe under no illusion that the political elite will enact whatever it deems fit to protect their positions in the name of the euro and their own positions of power.

It is very clear that markets and investors underestimate the reality that debt restructurings are very necessary but won’t necessarily be enacted which leaves only more private sector wealth transfers (confiscation) and likely circumvention of the underlying problem of sovereign insolvency by central bank deficit financing.

So much for EMU solidarity…comrades.

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“We The People”

Submitted by Mark J. Grant, author of Out of the Box,

“We the People”
 
Glorious words in many ways. They begin the preamble to the United States Constitution as America threw off the chains of tyranny and became a country. How much has been gained, how must lost, since those times when the citizens were dedicated to a common cause. The road has been long, no end in sight, and I rejoice in the continuation if sometimes not in a moment’s chosen path.
 
However it must be said that Americans are not the only “We the People” country on the planet. This declaration is to be found in democracies everywhere and should be cherished and praised as citizens of each nation get to make the choices appended to self-determination. The desires of the governed must always rule those who are governing and when the leadership fails in that recognition they should be replaced. When political leaders do not listen to the voice of their citizens they will be voted out if not tossed out. The United States, cast in stone some two hundred and thirty seven years since its founding, was not always such a safe bet. We have erred and lurched and struggled with our principles but still here, still beating the drum, still on our own two feet.
 
Recently one of the German politicians referenced two of the Italian largest vote getters as “clowns.” I reject the comment and I admonish Peer Steinbrueck for his inadequacy. What higher moral ground does he claim that supersedes the voice of the Italian people and I say, “None sir, and that you should be ashamed of yourself.”
 
I point all of this out this morning because there is change afoot on the Continent and to not take note of it may well be an expensive mistake. Business of late, business as usual, may not be the business of tomorrow as the citizens of various countries, not in open revolt or not in the streets, are beginning to wave a different banner and it is decidedly nationalistic and a potential new definition of just whom “We the People” are; in fact.
 
Recently, in poll after poll, the citizens of Germany, Britain and other countries in Europe are gathering around their own flags and seemingly rejecting the imposed commonality. I do not ignore the will of the people and when the politicians of various nations ignore their will then they may be replaced, not by rifles in the streets, but by peaceful votes in elections. The incessant pressures of either paying for the lifestyles of people in other nations or the demands of austerity for accepting foreign capital are driving sharp wedges in the grand scheme of Union in Europe.
 
I would not underestimate what is happening in Italy. It is a rejection, in my opinion, of not just corrupt practices in their own country but of having others govern them. It is a squared stance, I believe, staring directly at Brussels and Berlin telling them to mind their own business and to stop telling the Italians how to run their own country. I am not without sympathy for this position I assure you.
 
We have had the Arab Spring and perhaps the Italian Spring will be the wildcard of this year. When people discuss the imposed austerity measures and leave the discussion there they have not gone far enough in their thinking. I would say that the Italians, the Greeks, the Portuguese, the Spaniards do not wish to be German and may be getting tired of being told what to do by them while the British and the Dutch and others are having their patience worn thin by the demands out of Brussels and Berlin for their money. Even in Germany, as demonstrated by a recent poll, the people are getting tired of supporting other nations financially so as to exercise control. The grass grows thin upon the Continent.
 
The pledge of Mr. Draghi, always conditional upon the support of the European Union, may get diminished further if the nations of that Union do not give him support. Since all of the yields of European sovereign debt rely upon this promise then much could be lost if the promise cannot be kept. Southern Europe and Northern Europe may not be separated by an ocean but they are fathoms apart in tradition and mindset. Rome, whatever her inherent difficulties, has the capacity of leadership and just because there is a power vacuum for the moment in the Vatican and in their Parliament does not mean that they will not both be filled and perhaps with surprising results. The politicians of Europe may be ignoring Italy and the world’s investors are certainly ignoring Italy for the moment but the people of various nations, in my estimation, are not.
 
“We the People” may be in for a definitional change. The spark of the Italian elections may be the kindling for a much larger fire. I would not ignore the burning smell that is wafting through the air and I would not ignore the consequences of it.

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Platinum & Palladium’s Breakout Year

Via Sprott Physical Bullion Trusts,

Hard assets are gaining momentum once again as market participants digest the potential impact of central bank printing initiatives. After last year's record level of central bank intervention, 2013 is gearing up to be an even more prolific year on the money-printing front. Japanese Prime Minister Shinzo Abe recently unveiled Japan's tenth Quantitative Easing program to follow the country's current $224 billion stimulus announced on January 11th. The US Federal Reserve is steadily printing US$85 billion a month under its QE3 & QE4 programs, and reports indicate that the European Central Bank is close to launching its much-awaited Open Market Transaction (OMT) program to purchase European sovereign debt. It's a money-printing party and everyone's invited. Even the new Bank of England head, Mark Carney, has hinted of plans to launch more monetary stimulus.

Professional investors have noticed and are expressing concern over the consequences of concerted currency devaluation and the continuation of zero-percent interest rates. PIMCO's Bill Gross, aka "The Bond King", is now regularly touting gold and hard assets as a prudent investment in 2013. While his advice appears to have fallen on deaf ears, interest in inflation protection is once again on the rise. We continue to believe that precious metals remain the place to be invested in this environment and are always interested in different avenues with which to participate in the sector's inevitable rise.

Despite being long-time precious metals enthusiasts and active investors in gold and silver, we did not focus on "the other precious metals", platinum or palladium, until very recently. Our interest in the space was ignited by a client's request to assess investment opportunities in the debt and equity of Platinum Group Metal (PGM) mining companies - an exercise that came up almost completely dry. As long-time resource equity investors, we are familiar with the mining industry's supply/demand cyclicality and the impact it has on commodity prices. Looking more closely at the PGM miners, the platinum and palladium industry reminds us of the uranium industry back in 2003. Like uranium, platinum and palladium are crucial to a number of important industrial applications where demand for them is relatively inelastic to price. And like uranium in 2003, palladium is also marked by an opaque, but rapidly diminishing foreign supply stockpile, which had previously balanced out the market and effectively capped the price. Investors will remember that uranium proceeded to perform extremely well from 2003 onwards based on the fundamental supply/demand imbalances that ensued. Our assessment of the PGM industry has led us to believe that platinum and palladium have the potential to do the same. The one difference being, however, that whereas in uranium, where we chose to build our exposure primarily through uranium mining equities, platinum and palladium exposure appears to be best gained through the metals themselves… hence the launch of the Sprott Physical Platinum & Palladium Trust this past December (NYSE Arca: SPPP, TSX: PPT.U).

PLATINUM

On January 15th, the world's largest platinum producer, Anglo American Platinum Ltd. (Amplats), announced plans to shut down several of its mines, resulting in the layoff of 14,000 mine workers and the reduction of approximately 400,000 ounces of annual platinum production. Given that global platinum mine production has averaged approximately 6.2 million ounces per year, the Amplats announcement is equivalent to almost 6% of global annual mine production in 2012, representing a substantial shortfall to the metal's supply/demand balance. The platinum spot price appreciated by over $30/oz following this announcement out of South Africa.

Our desire to launch the Sprott Physical Platinum & Palladium Trust was partly based on an expectation of further supply disruptions out of South Africa, which produces close to 75% of the world's annual platinum supply and 37% of the world's palladium. Union-led labour strife has become a growing concern in the country, where some 46 people were killed this past summer in violent strikes at Lonmin's platinum mine in Marikana. The labour unrest has come at a time when the industry is already suffering from persistent operating challenges and declining profit margins (see Figure A). The geological nature and depth of many of the country's platinum mines requires large amounts of manual labour, and South African mine workers have become increasingly politicized in their struggle for higher wages. At today's platinum price, however, most platinum miners are unprofitable after netting out the costs of labour, electricity and equipment required to produce the metal. Many are cash flow negative and cannot meet the workers' request for higher wages without sustaining further losses. Roger Baxter, senior executive at the Chamber of Mines of South Africa, recently stated that at least 50% of the country's platinum industry is marginal or in a loss-making position today. In addition, many of the mining operations are suffering from declining ore grades, further lowering mine output. The result has been a 25% decline in annual South African platinum production since 2006. As the Amplats decision plainly underscored, at today's prices, platinum mining in South Africa is simply no longer a profitable affair.

FIGURE A: PRODUCTION MARGIN AND BASKET PRICE
breakout-year-chart 1  

Source: CIBC World Markets Equity Research 2012, PGM Basket consists of Platinum (~60%), Palladium (~30%) and Rhodium (~10%)

FIGURE B
breakout-year fig b
Source: Johnson Matthey Platinum 2012 Interim Review

The impact of South Africa's mining woes has completely shifted the platinum market's supply fundamentals over the past year, moving it from a state of oversupply in 2011 to a net supply deficit in 2012 (see Figure B). The recent developments in South Africa strongly suggest platinum's supply deficit will continue into 2013, supporting the platinum spot price and potentially moving it to much higher levels. In fact, some industry estimates have suggested the platinum market will experience a deficit as high as 760,000 ounces in 2013. Platinum miners will not be able to increase production unless the platinum price rises to a level capable of incentivizing further development.

 On the demand side, platinum has benefitted from a steady demand for auto catalysts, which constitutes the metal's primary industrial usage. Platinum and palladium both possess chemical properties that help reduce pollutants produced by gasoline and diesel engines, significantly lowering the air pollution produced by automobiles. Just as we believe the platinum price must go up to incentivize new mine production out of South Africa, the platinum price is further supported by the fact that it CAN go up, because of the relative inelasticity of the demand for its catalytic utility. The average automobile (worldwide) carries a mere $212 worth of platinum group metals per vehicle, making the impact of any platinum price increase on the total wholesale cost of an automobile relatively marginal. In China, for example, where pollution is a critical problem, air pollution levels of 300 or above regularly prompt the US embassy to issue warnings to minimize outdoor or strenuous activity. Air particulate levels in Beijing have often been above 500 recently, sometimes crossing over 700. In response, Beijing has recently tightened emissions standards for new cars to meet European Union Standards, or Euro V, starting February 1st. Increasing the platinum/palladium loadings per catalytic converter is one feasible way of directly addressing this growing problem, as the demand for automobiles in China is expected to grow steadily over the next five years. Platinum has also benefitted from increasing demand for its usage in jewelry, particularly in China, where it is considered to be superior to gold. According to refiner Johnson Matthey, China is expected to have consumed 1.92 million ounces of platinum in 2012, representing 70% of the overall global platinum jewellery consumption of 2.73 million ounces. That total is likely to increase as demand rises in other countries as well. In India, for example, platinum demand is estimated to have increased by 25% this past year, representing a new high of 100,000 ounces. As emerging markets growth continues, we expect platinum jewellery demand to increase along with it.

PALLADIUM

The palladium story is similar to that for platinum from a demand perspective, but has a different supply picture that makes it more compelling in our view. Palladium generally occurs with platinum and other PGM metals and is usually associated with nickel and copper. Like platinum, palladium's main industrial usage is in catalytic converters, most notably in gasoline engines. It is also used in jewellery, watchmaking, dentistry, surgical instruments and electrical contacts.

Almost 40% of the world's annual palladium mine supply comes from Russia, primarily through operations at Norilsk. Russia, naturally, does not provide much information on its palladium stockpiles, but various reporting agencies are able to piece together reliable estimates for annual supply and demand.

The palladium market is tight, and appears to be getting tighter. It has gone from a 1.26 million ounce surplus in 2011 to a 915,000 ounce deficit in 2012. This represents a swing of over 2 million ounces this year due to contracting supply, increasing gross demand and diminished recycling, resulting in a supply decrease of 790,000 ounces (see Figure E). If you factor in the ~200,000 ounces we purchased in our Trust, the deficit for 2012 increases to 1.15 million oz.

As bullish as we are on the supply dynamics of platinum, it is palladium that appears to be poised to move higher in the short-term. The palladium market is now in supply deficit globally and will experience a residual deficit in 2013 even after existing stockpile sales are taken into account. Russia has historically maintained a sizeable palladium stockpile which has represented a key source of supply over the past two decades. 2012 reports suggested that that stockpile was nearing depletion, with sales expected to fall below 100,000 ounces in 2013, versus the 250,000 ounces that are believed to have been sold last year. Those numbers were also supported by Swiss PGM data, where the most recent 2012 numbers show Russian palladium shipments running 72% lower than the same period in 2011. All of this was recently confirmed by Norilsk itself, when an executive conceded in an interview on November 29th (and later confirmed by industry watchers like GFMS this past January) that the supply overhang from Russian stockpiles is officially close to being depleted. If this proves to be true, it will represent a significant shift in supply, since those stockpiles were a main contributor in balancing the palladium market for the last ten years.

FIGURE E
breakout-year fig e
Source: Johnson Matthey Platinum 2012 Interim Review

One other bullish palladium supply factor relates to the Norilsk mines themselves, which produce more palladium than the next four largest palladium producers combined. Norilsk's 2012 palladium production is expected to account for 42% of global supply. Despite higher prices, Norilsk is not expected to expand its annual palladium production for at least 10 years, because that's how long it will take to develop the new mines it requires to increase production. In addition, the existing operations are reported to be having difficulty maintaining their average 2.7 million ounces of annual production due to diminishing ore grades at depth within the ore bodies Norilsk is mining. With Russian state supplies dwindling, and Norilsk's palladium production flat at best, the supply picture in 2013 has a very high probability of tightening further. This is especially likely if South Africa's 1.5 million ounces of palladium production is also impacted by further strikes and mine shutdowns.

Palladium demand has been robust, having risen by 15% year-over-year in 2012 to 9.73 million ounces. The growth has been primarily driven by increased use in autocatalysts, the demand for which alone is forecasted to increase by 7% in 2013. Given the probability of tightening supply in the years ahead, we could potentially see a hoarding reaction by industry users as supply constraints become more pronounced. In year 2000, a similar reaction by industry users led palladium to trade over $1,000/ ounce. It is also interesting to note that palladium has the second highest amount of short positions in the futures market in relation to total annual production - second only to that for silver. The reversal of those short contracts may represent a significant source of investment demand as prices continue to rise.

SUMMARY

The timing of the launch of the Sprott Physical Platinum & Palladium Trust has been favourable thus far. Supply problems out of South Africa will be the driving force behind platinum's price appreciation, while palladium will benefit from the depletion of Russian stockpiles and flat production from Norilsk. Both metals have the potential to see significant demand increases as the autocatalyst market benefits from growing global auto sales, which reached a record 80 million units sold in 2012.

As at February 2013, the Sprott Physical Platinum & Palladium Trust now holds 81,486 ounces of platinum and 186,098 ounces of palladium in bullion form. The Trust is structured similar to our existing Sprott Physical Gold Trust (NYSE Arca: PHYS, TSX: PHY.U) and Sprott Physical Silver Trust (NYCE Arca: PSLV, TSX PHS.U), but differs in that it initially holds approximately equal dollar amounts of platinum and palladium.

We aim to publish more updates in the coming months to analyze developments in the markets for both metals. Although platinum and palladium share gold and silver's "precious metal" categorization, they represent significantly smaller markets in terms of physical production, making them much more responsive to the supply constraints and demand increases that we foresee for both. It is also worth noting that relatively little of the total annual platinum and palladium supply actually makes it to "market" - with the vast majority sold directly to fabricators. Our Trust's December purchases represent 1.3% of 2012's platinum mine supply and almost 3% of palladium supply. If investment demand for platinum/palladium were to grow in an environment where supply is further constrained, it could indeed have a large impact on the spot price for both metals going forward.

Precious metal investors are encouraged to review platinum and palladium's unique supply/demand dynamics. We believe 2013 will be an exciting year for both metals, and that's without even considering what could happen to the precious metals sector as a whole.

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Guest Post: On Corruption And The Status Quo

Submitted by Martin Sibileau of A View From The Trenches,

“…The two pillars of the current global financial system are therefore (a) the illusion of the existence of a risk-free asset and (b) the repression of that market which demonstrates that the risk-free asset and its derivatives (stocks, bonds, the Euro, all bred in the repo market) are an illusion….”

During the past weeks I have been on the sidelines, waiting for a relevant event to take place but fully aware that I was wrong. I just wanted to hope. Sometimes, it feels good to hope. But since last September, nothing has really changed. At least not fundamentally and that which seems new, is simply the result of the tectonic shift we had back at the end of the summer (of 2012).

It is vox populi that the rise of Spanish and Italian sovereign yields was triggered by corruption scandals that may be of political consequence. They were not alone, as the Libor affair is still making news. I don’t think scandals by themselves bring consequences, but before I go further, let me discuss the topic of corruption itself, for as I will explain, the ongoing policies will bring nothing else but more corruption.

Corruption in government is simple arbitrage. Whenever governments intervene in a market either by restricting supply or demand, capping or flooring prices, the affected goods will have two prices: The government fixed price and the market price. And because prices are nothing else but critical signals for the process of social cooperation (also known as “market”) to work, markets get confused by two different signals from the same good.

If there is restricted supply of a good, or if the price of a good is capped, the market will be willing to bid more than the current price for that good. That bid will be noticeable and the only economic agent capable of acting on the signalled gap will be someone in power: a government official or a politician. This person’s responsibility will be to allocate scarce resources where they are most needed. The public will call him corrupt, but he will just be an arbitrageur. He will offer an additional quantity of that good which is restricted at a higher price, including his fees (also called “bribes”), of course. He will be simply taking over a function that a repressed market cannot perform at that time.

Government corruption is nothing else but the reflection of a repressed market. The immorality lies not in the act of corruption (i.e. arbitrage), but in the market repression that enables it. And as we all know by now, the repression in the financial markets has only grown exponentially in the past years. This may only mean that more corruption is underway. Above all, the two repressed markets we should all be very familiar with are the ones for US Treasuries and gold.

The US Treasuries market is not really a market. As I understand, about 75% of the issuance expected for February will be purchased by the Fed, whose SOMA account already represents about a third of the stock of Treasuries outstanding, across the curve. How an asset that requires that 3/4ths of its flow be purchased by a central bank to maintain its price can be deemed to have 0% risk and be used as collateral is beyond me! As well, I am completely amazed that we still have analysts from the main banks publishing research notes where they try to assess implied future rates…Implied??? By whom?

This brings me to the gold market. As I mentioned in past letters, Keynesians give a lot of weight to the role of expectations. If they manage expectations to make the public believe that the purchasing power of their salaries has not decreased in real terms, they believe they may get an economic system from recession back to growth. In the same fashion, if they already have a benchmark for real value, say gold, all they need is to suppress the price of this benchmark, to control their expectations. They need not lower the value of the benchmark. Making it volatile enough to discourage any inclination to have that asset used as a store of value is enough. Hence, the endless take down in the price of gold triggered by leveraged sales during thin trading. It has coincidentally taken place ever since the rating on the US Treasuries was challenged by those martyrs at S&P. Below, I show the interventions during the last month (source: Bloomberg).

Feb 10 2013

The two pillars of the current global financial system are therefore (a) the illusion of the existence of a risk-free asset and (b) the repression of that market which demonstrates that the risk-free asset and its derivatives (stocks, bonds, the Euro, all bred in the repo market) are an illusion.

On the subject of a risk-free asset, back on September 16th, I suggested that  “… for all practical purposes (…) the European Central Bank would set the value of the world’s risk-free rate…”. The assumption behind this conclusion was that, thanks to Draghi’s offer to establish Open Monetary Transactions, “…the market (would) arbitrage between the rates of core Europe and its periphery, converging into a single Euro zone target yield…”. The two charts below (source: Bloomberg) help us visualize the status of the predicted convergence, as well as the relative stability in the long-term German sovereign debt vis-à-vis that of the United States.

Feb 10 2013 II

With obvious “noise”, the underlying convergence (shown above left) is clear. On the right, we can appreciate how the yield in the 30-yr Treasuries is on the rise, thanks to in spite of billions being bought by the Federal Reserve, while the yield on the German bunds remains within range. We also still have the usual flags I have been calling collective attention to for the past year, and they are all related to repressed markets. The zero-interest rate policies were going to encourage share buybacks, dividend payments and any method to allow the extraction of whatever real value is still available to extract from corporations/businesses by their owners. This meant leverage was going to increase, unemployment would remain high, capital expenditures were going to decrease and the risk of defaults was to going to rise.

A year later, all these symptoms are starting to surface. One more reason to avoid stocks and be long gold. But in my view, it will take longer than many believe, for these imbalances to burst. This is the point I made at the start of 2013, when I wrote that “…during 2013, I expect imbalances to grow…”. Those who hold a view more bearish than mine point to inconsistencies, gaps between valuations expressed by different asset classes. But how can we point to such dislocations and at the same time sustain that markets are being repressed? We must be consistent: If the signals prices send to us are detached from fundamentals, we cannot at the same time call upon them to make our case! That would only be appropriate in a world where markets are not repressed.  So… If I am not that bearish but still believe that imbalances in the long term will burst, what will make them burst? On this point, I stick to what I said at the start of 2012:

…As long as the people of the EU put up with this situation and the EU Council (…) effectively kills democracy at the national level AND as long as the Fed continues to extend US dollar swaps, this status quo will remain…(…)…Whenever the political sustainability of the EU is challenged, we will see a run for liquidity…(…)…The trend is for asset inflation, and will last as long as the people of the EU and the US do not challenge the political status quo…” . Unemployment and the tolerance of those unemployed will tell us when the time has come. If it is not that, it will be the wave of defaults the same unemployment produces. There will still be corrections in between, but they will be just that: corrections. That tolerance, of course, is always tested by corruption cases made public. And as I explained above, the more repressed markets become, the higher the number of corruption cases we will learn from.

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‘Lift the Burden’: Tens of thousands march against austerity in Ireland (VIDEO)

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Tens of thousands of people have marched through cities in Ireland in a massive show of anger against severe austerity measures and high costs of living.

The Irish Congress of Trade Unions,which organized the rallies, claimed more than 100,000 people attended, with some 60,000 marching in Dublin. Demonstrators also protested in Cork, Galway, Limerick, Sligo and Waterford.

Tough cuts were implemented to please Ireland's creditors in the wake of the country’s banking crisis. It has been relying on a joint EU-IMF loan since 2010.

The “Lift the Burden” march took place despite the Irish government’s recent bank debt deal with the European Central Bank. It saw 28 billion euro worth of costly promissory notes swapped for long-term sovereign bonds.

The union’s General Secretary David Begg vowed that the campaign against the debt burden will carry on until the European authorities fully honor the agreement reached last July to separate bank debt from sovereign debt, The Irish Times reported.

"It would be fatal for people to believe this issue is now resolved and we can all move on," David Begg said. "At the onset of the crisis Ireland had one of the lowest debt to GDP ratios in Europe. The difference between then and now is due entirely to Ireland socializing bank debt at the behest of the ECB, to save the European banking system."

I've no confidence at all in the deal, it won't make any difference to ordinary people," Alfie Murray who marched in Dublin with his 8-year-old grandson, told Reuters. "It's the next generation that'll shoulder the cost," he said.

Financial advisor Marco Pietropoli explained to RT that the Irish per capita have ended up with a far bigger bill than the most countries who had a bailout. “Therefore they are suffering a great deal more.”

Pietropoli says that Ireland's situation is one of the most difficult in the EU and that Dublin's holding of the bloc's presidency isn't likely to make things any better.

“I don’t think the Irish with the presidency are necessarily going to be able to exert much pressure or much influence to actually change the situation in Europe, because the power remains with the Germans.”

Image from twitter user‏@kierfoley
Image from twitter user‏@kierfoley

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Image from twitter user‏@gribers

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Image from twitter user‏@Darren606

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‘Europe’s A Fragile Bubble’, Citi’s Buiter Warns Of Unrealistic Complacency

Citi's Willem Buiter sums it all up: "...the improvement in sentiment appears to have long overshot its fundamental basis and was driven in part by unrealistic policy and growth expectations, an abundance of liquidity and an increasingly frantic search for yield. The key word in the recovery globally, and in particular in Europe, growth is fragile. To us the key word about the post summer 2012 Euro Area asset boom is that most of it is a bubble, and one which will burst at a time of its own choosing, even though we concede that ample liquidity can often keep bubbles afloat for a long time." His conclusion is self-evident, "markets materially underestimate these risks," and the post-Draghi european performance has "gone well beyond the point of possible self-validation and therefore looks fragile."

Excerpted from 'New and Old Risks in the Euro Area', Citi's Willem Buiter

Then Buiter rips apart the Central Banker's meme of 'markets' as policy tools...

We recognise that, in a decentralised market economy where expectations of the future, moods, hopes and fears drive private (and sometimes also government) behaviour directly and through their effect on the prices of real and financial assets, today’s subjective expectations and other psychological characteristics in part determine what tomorrow’s fundamentals will be.

Irreversible or costly-to-reverse decisions like capital expenditure, human capital formation, resource extraction etc, are driven by subjective expectations and moods, making the distinction between a fundamentally warranted asset boom and a bubble slightly fuzzy at the edges.

But this indeterminacy, bootstrapping, self-validating characteristic of complex dynamic economic systems inhabited by partially forward-looking households, firms and policy makers – called reflexivity by George Soros – can be taken too far.

Mere optimism and confidence will not permit the authors of this note to bootstrap themselves into winning the men’s doubles at Wimbledon 2013. The fact that financial markets have radically reduced their implied estimates of the likelihood of sovereign default in the periphery of the EA (other than in Greece) and of senior unsecured bank debt restructuring throughout the EA, core as well as periphery, should not stop us from continuing to analyse carefully the fundamental drivers of both sovereign credit risk and senior unsecured bank debt credit risk. When we do this, the conclusion that the markets materially underestimate these risks is, in our view, unavoidable.

Eliminating or mitigating some risks of disaster does not create an engine for sustained growth...

Let us recall the major headwinds for the world economy and Europe in particular. Private sector debt has hardly fallen in many EA countries to date and remains much above the levels at the beginning of the last decade (Figure 4).

Fiscal deficits have fallen in most EA countries, but general government gross debt continues to rise and remain close to all-time highs outside of war periods for many advanced economies (AEs, Figure 5).

Continued fiscal austerity thus remains all but certain in many AEs.

Many banks (both in the core and the periphery of the EA) remain weak despite a substantial amount of operational restructuring and selective recapitalizations and deleveraging. In many EA and in a number of non-EA member states of the EU, the entire national banking systems remain weak, fragile and unable or unwilling to provide funding to the real economy on a scale sufficient to support a sustained recovery.

The path to economic recovery, let alone sustained growth at an attractive growth rate of potential output remains an arduous and long one.

Euro area policy actions or announcements have also been misinterpreted or at best over-interpreted.

The ECB now provides a selective safety net for the banking sector through the LTROs (ring-fencing banking activity against a systemic collapse) and through the OMT. The OMT ring-fences sovereigns against convertibility or break-up risk, but not against the risk of sovereign debt restructuring through official sector involvement, OSI, through concessions by official creditors, or through private sector involvement, PSI, through concessions by private creditors. These measures effectively rule out the key tail risk of a break-up of the Eurozone through an involuntary forced exit of the fiscally and competitively weak member states.

It is key to recognise the fact that neither the ECB nor the ESM, nor any foreseeable evolution in their scope and resources, eliminate the risk of bail-in of unsecured bank creditors (including senior unsecured creditors, up to unsecured bank bondholders and non-guaranteed/uninsured depositors) in Cyprus, Portugal, Spain, Italy, Slovenia and indeed, unless the sovereigns in the core really are willing and able to open their pockets to support their own banks’ unsecured creditors, in Belgium, France, the Netherlands and Germany.

In addition, a number of risks have in fact increased recently.

1) Political risks in Italy and Spain

First, there are renewed political risks. In Italy, the Monte dei Paschi di Siena (MPS) bail-out is providing further support to the growing momentum former PM Berlusconi‘s party enjoys in the most recent polls, raising risks of a hung parliament in the upcoming election on February 24. The fact that ECB President Draghi was Governor of the Bank of Italy at the time when it was the supervisor of MPS when MPS is alleged to have engaged in a number of dubious financial operations creates the risk of reputational damage for the ECB President.

More significant than the individual reputations at risk is the risk that the MPS issue reinforces concerns about the potential for reputational damage to the ECB once it takes on the role of the main EA bank supervisor under the new Single Supervisory Mechanism (SSM), a concern voiced in general (rather than specific to the MPS issue) by ECB Executive Board Member Constancio recently.

Even before the MPS issue, the near-term prospects for further near-progress on banking union were dimmed by two other factors. First, the German general election, due to be held in September 2013, has reduced Chancellor Merkel’s appetite for policy actions that could be controversial domestically. This might preclude any major concessions to Germany’s EA neighbours as regards the timing and phasing of fiscal austerity, and the early introduction of key elements of banking union.

Meanwhile, in Spain, allegations about financial malpractice in the ruling Partido Popular party have further hurt the party’s popularity. They are likely to limit government effectiveness in taking unpopular further reform measures and have increased – otherwise modest – risks of government instability, should these allegations be found to be true.

These developments will in particular make it harder for the Spanish government to impose substantial additional fiscal austerity. Additional fiscal tightening would be needed to meet deficit targets following a likely diagnosis of deficit overshoots in the spring. This is despite the new, softer (and IMF-induced) conventional wisdom towards fiscal tightening in response to deficit overshoots: make up bad faith deficit overshoots within the original time frame but permit bad luck deficit overshoots to be corrected over a longer horizon. Unless there is a Keynesian Laffer curve (fiscal tightening depresses activity to such an extent that the deficit increases) the new conventional wisdom will raise the risk of future debt unsustainability.

In Greece, the government announced a primary surplus for 2012 on the basis of preliminary budget figures, but government officials also noted that the final figure is likely to be revised to a deficit of 1.2-1.3% of GDP. The domestic political situation remains tense, as evidenced by the civil mobilization orders that the Greek government has issued to metro and maritime workers. Political tensions and the risk of political instability translate in a direct and somewhat disconcerting manner into economic and financial uncertainty, the likelihood of an earlier recourse to further sovereign debt restructuring and the risk of dysfunctional politics leading to Grexit.

2) Excessive contagious optimism among policymakers

Second, the rally in asset prices and in particular the reduction in funding stress for both sovereigns and banks in the EA periphery has also lessened the perception of many policymakers of the need for major further support measures in the near-term, a perception that is evident by various remarks to the effect that ‘the worst of the crisis is over’ (see e.g. Euro Area: Sovereign Debt Crisis Update 23 Jan 2013).

Notably, ECB President Draghi neglected these dynamics when he spoke of ‘positive contagion’ at the last ECB policy meeting. In our view, there is no such thing as ‘positive contagion’ if the term ‘positive’ refers to the real economic impact of the contagion. Excessive contagious optimism, detached from fundamentals, usually ends up hurting more than it helps, even though the improvement in financial conditions that resulted from the recent rally has probably eased some of the pain in fiscally and financially weak EA countries.

3) Bail-ins of bank creditors (junior and senior) are undoubtedly coming closer.

The combination of the likely further capital needs of EA banks, the limited financial resources of the EA sovereigns (even in the core) and political opposition to bailing in tax payers to avoid bailing in senior unsecured bond creditors make it likely that bail-ins of senior unsecured bank creditors in the EA will start before 2015.

The economic and financial risks facing the EA are not only driven by governments and politics.

4) The recent appreciation of the euro and the effective monetary tightening implied by the increase in money market rates (driven by the large repayments of the first 3Y-LTRO on Jan 30) are most unwelcome from the point of view of EA domestic demand.

Summing up, in our view, the EA sovereign debt and banking crisis is far from over. If anything, recent developments, notably policy complacency bred by market complacency, combined with higher political risks in a number of EA countries highlight the risks of sovereign debt restructuring and bank debt restructuring in the EA down the line.

Source: Citi

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Frontrunning: January 31

  • Risky Student Debt Is Starting to Sour (WSJ)
  • Political scandal in Spain as PP secret accounts revealed (El Pais)
  • New York Times claims Chinese hackers hijacked its systems (NYT)
  • Spain's Rajoy, ruling party deny secret payment scheme (Reuters)
  • Iran crude oil exports rise to highest since EU sanctions (Reuters)
  • BlackBerry 10’s Debut Fizzles as U.S. Buyers Left Waiting (BBG)
  • Costs drag Deutsche Bank to €2.2bn loss  (FT)
  • And the gaming of RWA continues - Deutsche Bank Beats Capital Goal as Jain Shrugs Off Loss (BBG)
  • More fun out of London - Barclays, RBS May Pay Billions Over Improper Derivatives Sales (BBG)
  • Hagel to face grilling by Senate panel on Mideast, budget (Reuters)

Overnight Media Digest

WSJ

* Israel bombed a suspected shipment of anti-aircraft missiles in Syria on Wednesday, according to regional and U.S. officials, in its most ambitious strike inside its neighbor's territory in nearly two chaotic years of civil war there.

* Research in Motion Ltd executives excused more than a year of delays by saying they wanted the next BlackBerrys to be just right. But the smartphones that took more than two years to develop won't be available for the key U.S. market until mid-March, when carriers are expected to complete their tests.

* The U.S. economy shrank for the first time in more than three years in the fourth quarter, underscoring the halting nature of the recovery. But the strength of consumer spending and business investment suggested that the economy will grow, albeit slowly, this year.

* The U.S. Treasury for the first time auctioned holdings in U.S. banks that had missed a series of dividend payments, allowing the government to close out financial-crisis era investments only at steep discounts.

* Facebook reported a 40 percent fourth-quarter revenue jump as it ramped up its mobile business and offered new tools to advertisers, but the firm's shares slipped in after-hours trading.

* Boeing Co executives said it was business as usual despite the crisis surrounding its 787 Dreamliner, though airlines worldwide made preparations for an extended grounding of the aircraft.

* Illinois took the rare step Wednesday of postponing a bond auction just hours before it was expected to launch, as concerns grew among investors over the state's deep pension hole.

FT

FLEE 'SAFE' SOVEREIGN DEBT, SAYS HASENSTAB - The man who oversees 175 billion dollars in bonds for Californian asset manager, Franklin Templeton, says its time to get out of government debt now before it is too late.

UNION REQUESTS IAG MEETING ON IBERIA - The chief executive of International Airlines Group, Willie Walsh will reject a request from a pilots' union to discuss the restructuring of Iberia.

MPS ATTACK BARCLAYS OVER BONUS CULTURE - The parliamentary commission on banking standards accused Barclays of empty rhetoric, tearing into the bank's remuneration committee.

FACEBOOK MOBILE AD GROWTH DRIVES SALES - An aggressive advertising drive by the Facebook during the U.S. presidential elections and shopping season saw the website post its first quarterly revenue growth since going public.

DEUTSCHE BANK CHIEFS MAINTAIN COURSE - To the dismay of analysts and some investors, Deutsche Bank's Anshu Jain and Jurgen Fitschen are firmly rejecting the need for the bank to raise more capital.

RIMLESS BLACKBERRY HOPES TO REGAIN TOUCH - The struggling handset maker Blackberry is taking a gamble by launching two touchscreen smartphones in a direct challenge to Apple and Samsung.

ÇUKUROVA WINS RIGHT TO CONTROL TURKCELL - A court decision by the UK Privy Council will allow one of Turkey's richest men, Mehmet Karamehmet, the chance to regain control of the country's biggest mobile phone operator, Turkcell.

NYT

* For the last four months, Chinese hackers have persistently attacked The New York Times, infiltrating its computer systems and getting passwords for its reporters and other employees.

* Research in Motion Ltd introduced a new operating system and a new generation of phones, along with a new corporate name, with the hope of restoring its products' status as a symbol of executive cool.

* The U.S. government played a role in slowing the economic recovery as cuts in military spending and other factors overwhelmed the Federal Reserve's expanded campaign to spur growth.

* Despite two serious safety failures and new questions about the reliability of its lithium-ion batteries, Boeing Co's chief executive said Wednesday that he saw no reason to retreat from using the new but volatile technology on its 787 jets.

* Chrysler, the smallest of the American automakers, on Wednesday reported a big increase in 2012 earnings that helped its Italian parent company, Fiat SpA, become profitable for the year as well.

* Time Inc joined the many news organizations trying to tighten their belts in a tough advertising climate by announcing layoffs and offering employees buyout packages on Wednesday.

* In a legal dispute that had been closely watched by multinational companies and environmental organizations, a Dutch court dismissed most of the claims brought by Nigerian farmers seeking to hold Royal Dutch Shell accountable for damage by oil spilled from its pipelines.

China

CHINA SECURITIES JOURNAL

-- Livzon Pharmaceutical Group Inc said in a statement it will become the third company to move its dollar-denominated B shares to the Hong Kong H-share market.

-- Metallurgical Corporation of China Ltd said it expected to book a loss of 7.2 billion yuan ($1.16 billion) in 2012.

21st CENTURY BUSINESS HERALD

-- Galaxy Securities could give up its plan for a dual listing of yuan-denominated shares in Shanghai and Hong Kong, but it still expects to list H-shares in May.

CHINA DAILY (www.chinadaily.com.cn)

-- The State Council, China's cabinet, has approved an energy consumption target as part of efforts to correct overuse and foster greener growth. The government aims to keep total energy consumption below 4 billion metric tonnes of standard coal equivalent by 2015, with electricity consumption below 6.15 trillion kwh.

-- Domestic and foreign inbound mergers and acquisition deals by strategic investors fell to a five-year low last year, but activity will rebound in 2013, a report by accounting firm PricewaterhouseCoopers said.

Corp Fin

* Germany plans a modest reform of its banking sector that would put a cap on risky activities but not lead to the breakup of banks or significantly impair big institutions like flagship lender Deutsche Bank, according to a draft law seen by Reuters.

* Prosecutors are investigating the former management of Italy's troubled Monte dei Paschi bank for bribery and fraud, judicial sources said on Wednesday, as pressure grew on the Bank of Italy and bourse watchdog Consob.

* Endo Health Solutions Inc has held talks in recent weeks with drugmakers potentially interested in buying the maker of pain relief medication, people familiar with the matter said.

* Russian state technology firm Rusnano is planning to sell through a private placing of 10 percent of its shares between March and June, its chief executive Anatoly Chubais said in an interview with the Interfax news agency.

* Quintiles Transnational Corp, the largest provider of testing services to drugmakers, has chosen Morgan Stanley, Barclays Plc and JPMorgan Chase & Co as joint bookrunners for a planned initial public offering, people familiar with the matter said.

* Germany's second-biggest lender Commerzbank by 2015 plans to shed half of the workforce at its mortgage unit Hypothekenbank Frankfurt, formerly known as Eurohypo, according to an internal paper obtained by Reuters

Fly On The Wall 7:00 AM Market Snapshot

ANALYST RESEARCH

Upgrades

Arthur J. Gallagher (AJG) upgraded to Buy from Neutral at BofA/Merrill
Arthur J. Gallagher (AJG) upgraded to Outperform from Market Perform at Keefe Bruyette
AudioCodes (AUDC) upgraded to Outperform from Perform at Oppenheimer
Citrix Systems (CTXS) upgraded to Buy from Neutral at BofA/Merrill
Core Laboratories (CLB) upgraded to Outperform from Market Perform at FBR Capital
MB Financial (MBFI) upgraded to Outperform from Market Perform at Keefe Bruyette
Vale (VALE) upgraded to Buy from Neutral at BofA/Merrill

Downgrades

Comerica (CMA) downgraded to Underperform from Market Perform at Bernstein
Endo Health (ENDP) downgraded to Perform from Outperform at Oppenheimer
Facebook (FB) downgraded to Hold from Buy at Stifel Nicolaus
Facebook (FB) downgraded to Market Perform from Outperform at BMO Capital
Facebook (FB) downgraded to Neutral from Buy at Citigroup
Fusion-io (FIO) downgraded to Neutral from Outperform at Credit Suisse
Fusion-io (FIO) downgraded to Neutral from Overweight at JPMorgan
Fusion-io (FIO) downgraded to Neutral from Overweight at Piper Jaffray
KeyCorp (KEY) downgraded to Underperform from Market Perform at Bernstein
Netgear (NTGR) downgraded to Equal Weight from Overweight at Barclays
Regions Financial (RF) downgraded to Underperform from Market Perform at Bernstein
Seagate (STX) downgraded to Underweight from Equal Weight at Barclays
Velti (VELT) downgraded to Market Perform from Outperform at Wells Fargo
Zions Bancorp (ZION) downgraded to Underperform from Market Perform at Bernstein

Initiations

Cubist (CBST) initiated with a Buy at Janney Capital
Depomed (DEPO) initiated with a Buy at Janney Capital
Forest Labs (FRX) initiated with a Buy at Janney Capital
NPS Pharmaceuticals (NPSP) initiated with a Buy at Janney Capital
Salix (SLXP) initiated with a Buy at Janney Capital
Santarus (SNTS) initiated with an Outperform at Leerink

HOT STOCKS

Apollo (APO), Metropoulos acquired majority of Hostess snack cake business for $410M
Annaly Capital (NLY) to acquire CreXus (CXS) for $872M
ACI Worldwide (ACIW) acquired Online Resources (ORCC) for $3.85 per share or $263M in cash
Facebook (FB) said mobile driving greater engagement
Said search could be “meaningful” business in the future
Said more clients using the site for “new launches”
Capital Southwest (CSWC) sold Heelys for $2.25 per share to Sequential Brands
Las Vegas Sands (LVS) said U.S. market saturated or near saturated
Cabot (CBT) remains cautious in near-term, cited mixed results across portfolio
Lucas Energy (LEI) cut staff by 40%, to cut 2013 expenses by 40% vs. 2012
Cardinal Health (CAH) reorganizing medical segment organization
AstraZeneca (AZN) said no share repurchases will take place in 2013

EARNINGS

Companies that beat consensus earnings expectations last night and today include:
Dunkin' Brands (DNKN), Time Warner Cable (TWC), Whirlpool (WHR), AstraZeneca (AZN), ConocoPhillips (COP), Ameriprise (AMP), Silicon Graphics (SGI), Quantum (QTM),  Owens-Illinois (OI), Facebook (FB), Qualcomm (QCOM), Electronic Arts (EA)

Companies that missed consensus earnings expectations include:
Destination Maternity (DEST), Aetna (AET), Regis (RGS), Ball Corp. (BLL), Murphy Oil (MUR), Cabot (CBT), Las Vegas Sands (LVS)

Companies that matched consensus earnings expectations include:
Callaway Golf (ELY), Knight Transportation (KNX)

NEWSPAPERS/WEBSITES

  • Investors in Chesapeake Energy (CHK) cheered when it announced that CEO Aubrey McClendon will leave, but its problems won’t end there. Chesapeake cannot count on rising natural prices to help bail it out, and the company still needs to sell at least $4B in assets in 2013 to keep afloat, the Wall Street Journal reports
  • The yen's recent drop is giving hard-hit corporate Japan its biggest break in years, raising hopes of a long-awaited earnings recovery. Daiwa Securities estimates that profit growth at the top 200 Japanese companies will nearly double to 13% for the fiscal year through March, reversing a 16% decline in the previous year, assuming exchange rates remain roughly at current levels for two months, the Wall Street Journal reports
  • Glencore (GLNCY) is becoming a Russian oil trade leader from an outsider by mending fences in just one year with Rosneft, and is extending its grip to a sector where it played second fiddle to companies such as rival trader Vitol or Royal Dutch Shell (RDS.A), Reuters reports
  • Citigroup (C) is looking to pull out of consumer banking in more countries in an effort to lower costs and boost profits, sources say, Reuters reports
  • Diminishing rubber supplies and record car sales are extending a five-month bull market that’s poised to raise costs for tire makers (GT, BRDCY, CTB), Bloomberg reports
  • Johnson & Johnson (JNJ) President Andrew Ekdahl told jurors the company recalled 93,000 all-metal hip implants because they “did not meet the clinical needs for the product” and not because they were unsafe, Bloomberg reports

SYNDICATE

Adecogro (AGRO) 13.9M share Spot Secondary priced at $8.00
AmeriGas (APU) files to sell 29.57M common units for holders
Fleetmatics (FLTX) 7M share Secondary priced at $25.00
Golar LNG Partners (GMLP) announces offering of 3.9M common units
Idera Pharmaceuticals (IDRA) files to sell 9.08M shares of common stock for holders
Keryx (KERX) 6.58M share Spot Secondary priced at $8.49
TRI Pointe Homes (TPH) 13.689M share IPO priced at $17.00
Towerstream (TWER) to offer common stock
Vanguard Natural (VNR) commences offering of 8M common units

Your rating: None

Gazprom bills Ukraine $7bn

Gazprom (RIA Novosti / Mikhail Mokrushin)

Gazprom (RIA Novosti / Mikhail Mokrushin)

Russia and Ukraine are again involved in an energy dispute, after Gazprom accused Naftogas of importing less gas in 2012. Experts worry a “full-blown trade war between Russia and Ukraine” may emerge “over this issue.”

Gazprom sent Ukraine a $7bn bill for failing to meet the import requirements stipulated in the 2009 contract, the Financial Times (FT) reports.

In 2012 Ukraine bought 32.9bn cubic metres of Russian gas, with Naftogas importing 24.9bn and Ostchem Holding – the other gas supplier to Ukraine – the remaining 8bn cubic meters. Gazprom insists that under a 2009 contract Ukraine should buy 52bn cubic metres of Russian gas a year, with the possibility of it being reduced by 20% – to 42bn cubic metres. The lower volumes are linked to the ‘take it or pay it’ clause in the contract, which means Ukraine needs to pay for a set minimum of 42bn cubic metres of gas whether the country uses it or not.

Ukraine says the requirement should be lowered to 33bn cubic metres, provided there is enough warning, since Ostchem Holding began sharing gas importing responsibility with Naftogas in April 2011, according to Kommersant daily.

Neither Gazprom nor Naftogas has so far given any detail on whether Ostchem coming to the market changed the terms of the gas deal between Russia and Ukraine.

The bill, that exceeds 4% of the country’s GDP, comes at a time when Ukraine is already struggling to pay about $10bn of external sovereign debt due to mature this year.

Gazprom’s demand also casts a shadow on the developments of the $15bn IMF bailout package that Ukraine is striving to get to patch up its budget holes. An IMF mission is scheduled to arrive in Kiev on Tuesday.

Naftogaz told Kommersant newspaper it wasn’t going to pay the bill.“We perceive that as an element of pressure on Ukraine at a time of continuing negotiations to set up a gas transport consortium and cut gas prices for Ukraine. This way Gazprom seeks to forge better terms for creating the consortium on the base of the Ukrainian gas pipeline network,” the paper quotes its sources as saying.

The current claim by Gazprom may have a political context, experts agree. The Russian gas major will try to escape court hearings and is simply producing formal requirements to strengthen its position in negotiations on gas prices for Ukraine, as well as some other issues, according to Dmitry Marunich, head of the Kiev Institute for Energy Strategy. In 2010 Ukraine imported 36bn cubic metres of gas, while Gazprom remained silent, Marunich said.

Also, a contract between Gazprom and Naftogas “stipulates distribution of gas supplies by quarters” and “the absence of claims to the quarterly results allowed them to think that there was an agreement between the parties,” added Michael Korchyomkin, a head at East European Gas Analysis.

Should Ukraine choose to go to an international court, Gazprom is highly likely to lose, as it was the case with German RWE, when the Russian monopoly wanted to sue for $500mn for a purchase shortage under take –or –pay clause, added Vitaly Kruykov from IFD – Kapital.

Gazprom experts in Ukraine point to the country’s effort to cut its dependence on Russian gas. Among the current alternatives are German gas delivered through Poland, with extraction of shale gas also being in the pipeline.

The most recent case of Ukraine diversifying its energy ties was a deal with Royal Dutch Shell – Europe’s biggest oil company. They agreed to section products developed at Yuzovsky field in the Kharkov and Donetsk regions. Ukraine hopes to get at least 10bn cubic meters of gas from the field, with the prime cost of $250 per thousand cubic meters.

“Clearly, Kiev angered Moscow by signing the gas shale deal with Shell,” as the FT quotes Timothy Ash, head of emerging market research at Standard Bank. “The Russians are now expected to play real hardball with Ukraine. Things look set to get very testy. The dangers are now building of a full-blown trade war between Russia and Ukraine over this issue.”

Gold Backed Bonds – An Alternative To European Austerity?

From GoldCore

Gold Backed Bonds - An Alternative To European Austerity?

Today’s AM fix was USD 1,670.25, EUR 1,243.39, and GBP 1,058.93 per ounce.
Yesterday’s AM fix was USD 1,677.00, EUR 1,258.06, and GBP 1,059.18 per ounce.

Silver is trading at $31.55/oz, €23.54/oz and £20.04/oz. Platinum is trading at $1,689.00/oz, palladium at $723.00/oz and rhodium at $1,200/oz.


Cross Currency Table – Bloomberg

Gold dropped $17.90 or 1% in New York yesterday and closed at $1,667.70/oz. Silver slipped to a low of $31.60 and finished with a loss of 1.8%. Most traders were at a loss to explain the counter intuitive losses given the bullish backdrop.

Gold in Euros – 5 Years (Daily) - Bloomberg

Overnight gold bounced back from an almost 2 week low and was again especially strong in yen terms - strengthened by the Bank of Japan’s stance on aggressive monetary easing.

Russia’s Central Bank said it will continue to buy gold bullion as it seeks to diversify its foreign reserves away from paper assets, such as the euro, it views as more risky.

At Davos, George Soros, one of the largest buyers of gold in the world today, warned of currency wars and that “interest rates are going to take a big leap” - probably this year.

Bank of America warned of a “bond crash” comparable to 1994 that would trigger a string of upsets across the world. In 1994, the bond crash bankrupted Orange Country, California, and set off the Tequila Crisis in Mexico. 

Today, the world is much more fragile and the increasingly likely bond crash could lead to a Lehman style systemic crisis – but on an even greater scale.

These risks and the recent price drop has fuelled buying interest in physical metal and a minority of smart money gold buyers continue to diversify into allocated gold on the dip .

At 1500 GMT new U.S. new home sales data is released.

Across Europe, economic growth is faltering and in many Eurozone countries, sovereign debt yields are dangerously high and austerity measures are creating much hardship.

The World Gold Council has been exploring ways that Eurozone member states could use their gold reserves to help bring down the cost of borrowing.

The Eurozone is the largest sovereign holder of gold in the world and has over 10,000 tonnes of gold reserves. The Eurozone, including the ECB, has 10,787.4 tonnes of gold worth over a significant €450 billion.  Some of the countries worst affected by the crisis, including Portugal and Italy, own a significant proportion of these assets. Italy alone holds nearly 2,000 tonnes of gold. 

The Eurozone as a whole has 32.6% more gold reserves than the U.S. which has 8,133.5 tonnes of gold.

Due to the ongoing global debt crisis and significant systemic and monetary risk, it would be financial and monetary folly of the highest order to sell gold. Indeed, prudent creditor nation central banks are continuing to add to their gold reserves.

Most agree that outright sales of gold are not the answer. Aside from the obvious problem that the outstanding debt level of the struggling European countries far surpasses the value of their gold reserves, existing EU laws prohibit such a move to finance governments, as do the provisions of the Central Bank Gold Agreement, which limits gold sales.

To illustrate this point, the gold holdings of the crisis hit Eurozone countries (Portugal, Spain, Greece, Ireland and Italy) represent only 3.3% of the combined outstanding debt of their central governments.

A one-time sale of all of their gold reserves would probably not cover even one year’s worth of their debt service costs. This would be akin to an individual selling everything they owned in order to make one month’s mortgage payment.

However, there may be an alternative to selling gold for desperate cash strapped nations facing vicious austerity. The alternative is to use European gold reserves in a way that will buy time for growth to take hold. 

The World Gold Council and leading academics and international think tanks believe that using a portion of a nation's gold reserves to back sovereign debt would lower sovereign debt yields and give some of the Eurozone's most distressed countries time to work on economic reform and recovery.

According to research done by the World Gold Council using the European gold reserves as collateral for new sovereign debt issues would mean that without selling an ounce of gold, Eurozone countries could raise €413 billion. This is over 20% of Italy's and Portugal's two year borrowing requirements. 

The move to back sovereign bonds with gold would lower sovereign debt yields, without increasing inflation, which would help to calm markets. This should give European countries some vital breathing space to work on economic reform and recovery.

Some citizens would be concerned that there may be a risk that the sovereign nations who pledge their gold as collateral could ultimately end up losing their gold reserves to the ECB, or whoever the collateral of the gold reserves are pledged to, in the event of a default.

Unlike currency debasement and the printing and electronic creation of money to buy sovereign debt, under schemes such as Draghi's “outright monetary transactions” (OMT), the use of gold as collateral would not create fiscal transfers between Eurozone members, long term inflation or currency devaluation risk.

The proposal shows how gold is being increasingly seen as a safe haven asset and currency.

Indeed, it suggests that those who have suggested returning to some form of gold standard are not as deluded as they have often been portrayed.

Mobilising Europe's gold is a temporary move which the World Gold Council and leading academics believe will help to create a more permanent solution which in time would help the Eurozone extract itself from its debt crisis.

Europe and the world faces an exceptionally challenging period and unconventional policy responses are called for. 

A gold-backed bond may offer at least a partial solution to Europe’s woes. 

The video 'Leveraging Gold Reserves To Help Lower Eurozone Sovereign Debt Yields' explores why such a measure could offer an alternative to austerity for the Eurozone: 'Leveraging Gold Reserves To Help Lower Eurozone Sovereign Debt Yields' 

NEWS

Gold Seen by Morgan Stanley Extending Rally as QE3 Runs to 2014 - Bloomberg

Gold bounces from near 2-week low on euro, Japan policy - Bloomberg

Interest Rates Will Spike This Year: Soros - CNBC

Petrol Price Rise On Way As 'Floodgates Open' – Sky News

Russia central bank to keep buying gold: Ulyukayev - Brecorder

Ghana may repatriate Gold reserves from US, Europe – Bullion Street

COMMENTARY

Video: Gold Price To Rise In 2013 – The Telegraph

Bank of America issues `bond crash' alert on Fed tightening fears – The Telegraph

Video: Dalio's Perspective on Gold's Importance As Diversification - CNBC

Who Are the Whales Buying Gold? – Economic Policy Journal

For breaking news and commentary on financial markets and gold, follow us on Twitter.

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Mehdi’s Morning Memo: Obama Introduces Beyonce

The ten things you need to know on Tuesday 22 January 2013...

1) OBAMA: FORWARD TOGETHER

President Obama made a pretty good go of being the warm up act for Beyonce yesterday, as he urged Americans to move “forward together” during his second inaugural address.

Obama stumbled a little as he swore the oath of office. But seeing as the real swearing in actually took place on Sunday he won’t have to do the whole thing all over again like last time.

HuffPost’s White House correspondent Sam Stein: “The president, who has spent the first four years navigating Washington as much as shaping it, used his platform on Monday to announce that his next four years will be marked by a more assertive approach. The speech wasn't devoid of the classic, Obama-esque ideal that the country itself, and the two political parties in particular, must come together for the common good. But the appeal he made wasn’t so much to the good nature of each individual lawmaker as it was to the need to confront the severity of the issues at hand.”

The president put equality at the centre of his speech, calling for equal rights for women and gay people as well as focusing on climate change, gun control and income inequality.

Today's Memo is edited by Ned Simons as Mehdi Hasan is operating a delayed service due to heavy snow.

2) THIS SOUNDS FAMILIER

David Cameron’s warning of a “generational struggle” against terror in the Commons yesterday evoked memories of Tony Blair’s response to September 11 – leaving many observers to wonder the extent of Britain’s future involvement in Mali and North Afrida.

The Times reports this morning that the prime minister has committed the UK to a “fully-fledged battle” against al-Qaeda in the continent as troops begin to be withdrawn from Afghanistan.

“Units from the Army, Royal Navy and RAF are on ‘high readiness’ to deploy if requested in support of France, which is attempting to repel Islamist extremists from the north of the country,” the paper says.

Cameron will chair a meeting of the National Security Council to consider what additional surveillance and transport help can be provided to the assault on rebels in the neighbouring country on top of two RAF C17 transport aircraft despatched last week.

3) YOU AND WHOSE ARMY?

However any plans to increase Britain’s military commitment in Africa may not go down too well with defence chiefs, as the MoD announces a third round of redundancies later today.

About 5,000 jobs are expected to go as part of cuts already announced by ministers to reduce Army numbers from 102,000 to 82,000 by 2017.

4) ‘I’VE KILLED’

The papers are full of reports this morning about Prince Harry’s acknowledgement he has killed while serving in Afghanistan.

Now that the 28-year-old is bound for the UK after his second deployment to the war-torn country, it can be reported he took enemy fighters "out of the game" during his 20-week posting.

"Take a life to save a life," he says during a TV interview. "That's what we revolve around, I suppose. If there's people trying to do bad stuff to our guys, then we'll take them out of the game, I suppose."

5) ROYAL EQUALITY

Prince Harry also spokes about looking forward to being an uncle. And today MPs will debate changing the law to ensure if he has a niece she will become queen, even if his brother and sister-in-law subsequently have a son.

Given Obama's call for greater gender equality the reelected president will no doubt be pleased. Although. He probably isn't too keen on the whole monarchy thing - memories of 1776 and all that.

The Daily Telegraph reports Nick Clegg will tell MPs: “The other Commonwealth countries where Her Majesty The Queen is head of state have just given us the green light to change the law, and we are wasting no time.

“At the moment, if the first child of the Duke and Duchess of Cambridge is a girl, any younger brothers she has will overtake her in line to the throne. We’re modernising these out of date rules so that men and women in line to the throne have equal rights.”

The proposed changes would also end the ban on royals marrying Catholics. “The reasons for this go back 300 years, to the days when Britain was worried about the threat from its Catholics neighbours, such as Louis XIV of France,” Clegg will say. “Times have changed, along with our attitudes towards each other. It is time for us to bring these arcane laws up to date.”

MPs are unlikely to adopt proposals from Labour’s Paul Flynn which would allow the adopted son or daughter of a gay king or queen to take the throne.

BECAUSE YOU'VE READ THIS FAR: US Senator Chuck Schumer Photobombs The Oath Of Office (PHOTO)

6) FIVE POINTS DOWN

Labour's lead over the Conservatives has been cut to five points, according to a poll released today.

The ICM poll for The Guardian put Ed Miliband's party on 38% (down two points since a similar poll last month), David Cameron's Tories on 33% (up one), with Nick Clegg's Liberal Democrats on 15% (up two) and the UK Independence Party on 6% (down one).

Labour's advantage is the narrowest recorded by ICM since August last year, and follows a period in which the party has consistently racked up double-digit leads over the Conservatives.

It is likely to spark speculation that Mr Cameron's standing has been boosted by his handling of the crises in Algeria and Mali and by reports he is planning to offer an in/out referendum on future British membership of the European Union.

7) THE LONDON SPEECH

David Cameron will deliver his long-awaited speech on the EU on Wednesday morning in a central London location. Suggestions include on the doorstop of Ukip HQ or inside the Dutch embassy. At least if it gets called off again the travelling political press won’t have such a difficult journey back to their offices – depending on how many snowflakes have fallen on the Victoria line of course.

8) BIBI’S BACK

Benjamin Netanyahu seems poised for re-election as Israel's prime minister in Tuesday's voting, the result of the failure of his opponents to unite behind a viable candidate against him – and the fact that most Israelis no longer seem to believe it's possible to reach a peace settlement with the Palestinians.

The widely held assumption of a victory by Netanyahu comes despite his grim record: there is no peace process, there is growing diplomatic isolation and a slowing economy, and his main ally has been forced to step down as foreign minister because of corruption allegations.

Even so, Netanyahu has managed to convince many Israelis that he offers a respectable choice by projecting experience, toughness and great powers of communication in both native Hebrew and flawless American English.

9) BENEFIT OF HINDSIGHT

Labour has failed to block the coalitions plans to cap benefit rises at 1%, as the proposals passed through the Commons.

From the BBC: “The Welfare Benefits Up-rating Bill, which will cap the benefit rises until 2016, passed by 305 votes to 246. Work and Pensions Secretary Iain Duncan Smith said spending had to be brought ‘back under control’ or the ‘poorest in society will fare the worst’. Labour's Liam Byrne said ‘compassionate Conservatism’ was no longer believable.”

Labour was forced into a quick, clarification, last night, after Stephen Timms said it was Labour’s policy to increase benefits by the rate of inflation each year. “In our view uprating should be in line with inflation and it should be assessed as it always has been at the end of the proceeding year,” he said.

However the Labour leadership was quick to distance itself, insisting that in hindsight Timms was saying what Labour would do in office now, rather than setting out policy for the future.

10) THE PLANET HAS ITS BLINDS DRAWN

The global jobless total will rise to a record 202m this year, says the UN's jobs watchdog, the International Labour Organisation, The Guardian reports today.

Quoting from the report the newspaper adds: “Entering 2013, the crisis in the Euro area constitutes the single biggest risk to global employment trends for the year ahead. The financial crisis in the Euro area, brought on by a combination of banking sector distress and protracted financial and household deleveraging, coupled with high levels of sovereign debt and unsustainably high government bond yields in some countries, has emerged as a disruptive and destabilizing force not only in the Euro area itself, but also for the global economy as a whole.”

140 CHARACTERS OR LESS

@BarackObama "I want to look out one more time. I'll never see this again." http://OFA.BO/qWUrWy

@JBeattieMirror I'm guessing the MoD redundancies announced today will not include Capt Wales

900 WORDS OR MORE

Rachel Sylvester in The Times: "Algeria head good – Europe head bad. The EU is an old and damaging distraction for Mr Cameron. He looks stronger dealing with modern issues ."

Polly Toynbee in The Guardian: "These Tory backbenchers will bang on until they hit self-destruct. The Conservative right is pushing David Cameron ever further from the centre ground. Don't they see he's their biggest asset?"

Benedict Brogan in The Daily Telegraph: "Cameron’s message is Tory, but his enemies have drowned it out."

Got something you want to share? Please send any stories/tips/quotes/pix/plugs/gossip to Mehdi Hasan ([email protected]) or Ned Simons ([email protected]). You can also follow us on Twitter: @mehdirhasan, @nedsimons and @huffpostukpol

The World Is In Trouble

Via Mark J. Grant, author of Out of the Box,

The United States is in Trouble
 
We make more than we’ve ever made, we owe more than we’ve ever owed, and we have less than we've had in decades which is distributed to those that did not earn the money. This is a working definition of Trouble. The stock market is at an all-time high while the financial condition of the country has seriously deteriorated. We are printing $90 billion a month of little green pieces of paper while the Democrats yell at the Republicans to up the debt ceiling as they want to spend even more money to promote social welfare programs. We cannot afford the bills that we have now and we are being asked to add more to them. This is a recipe for disaster and I am reminded of those months right before the financial crisis of 2008/2009 where no documentation loans for Real Estate flourished and easy money was the normal course of things.

Perhaps the landscape has shifted from “money for nothing” for property to “money for nothing” for our national debt. Fiscal responsibility has evaporated in a grand scheme to get voters and Obama has put the Chavez Plan in place which appeals to the poorest of citizens, hands them money and expects their support at the polls. Hard work and earning a living are the ethics of past generations that are slowly being ground to dust in the flurry to socialize America and re-distribute wealth and having succeeded and having money is now thought of as a crime not far behind rape and arson. The White Knight is walking backwards and the Red Queen has lost her head and the Mad Hatter is in charge of the tea party.
 
“The trouble with practical jokes is that they very often get elected.”
 
                        -Will Rogers
 
Europe is in Trouble
 
The sovereign debt accounting is a fraud. Liabilities are not counted, contingent liabilities are not recognized and the balance sheet of the ECB is worse than America’s. Collateral considerations are a joke and loans are disguised, hidden and placed in various locked drawers and central bank vaults. The economies of Spain, Italy, Portugal, Cyprus, Greece, Ireland continue to deteriorate as their sovereign yields fall due to the Draghi put and the creation of their little pieces of blue paper which must be used somewhere for something. There is, once again, easy money in the United States but easier money in Europe and so the game continues as anyone with any common sense begins to wonder how it all will blow up and when. Is it to be Inflation or Valuation and will Gold be the next currency or are there going to be other answers.
 
Asia is in Trouble
 
Japan, once thought to be an ascending power, has drifted into a nightmare of insolvency and no growth where Deflation rules and the debts of the country now exceed the ability of their citizens and institutions to own them. The push is on for Inflation as the only way out as they argue with China over some islands that might have some oil reserves. In China growth is slowing, their one party system will not allow outside investment past a certain point, their banks are a shadow of the demands of the country and in disarray as political/economic scapegoats and the numbers that China provides for growth make no sense and so are discounted as maybe-maybe statistics. The central banks of both nations follow the tendrils of the American and European ones and the entire globe is encased in a soap bubble of our own making as some may see the fire but no one knows how to get safely out of the theatre.
 
Find two elephants, two zebras and two giraffes and start building the boat.
 
The World is in Trouble
 
The scheme has worked because there is no place to go, no place to run; no place to hide. The collusion is past anything we have ever seen in history. The central banks of the world are supporting intervention and massive protection of the State and we are witnessing the results while all of the newly created paper must be put somewhere and so bonds rise in price, absolute yields on sovereign debt will fall more, compression will continue and the equity markets will rise. All of this is not the result of fundamentals or of economics but solely the result of little pieces of paper being printed, distributed and having to find a home.
 
“God didn't make the little green apples, and it don't rain in Indianapolis in the summer time. And there's no such thing as Dr. Seuss or Disneyland and Mother Goose, no nursery rhymes.”
 
                -Roger Williams, Little Green Apples
 
Pricked
 
The world is in a gigantic bubble and it is going to get pricked. Now it takes certain magical incantations and special spells to determine all of this but we learned a few things from our last go round so the crystal ball is less cloudy and my wand is at hand. Our last fiasco whacked the banks on the backside as the valuation of their holdings, most noticeably their ownership of subprime mortgages and of mortgage securitizations raised the specter of default and of systemic carnage. This time it will be certain sovereign nations that will be the catalyst. It may be the mundane running out of cash that will cause the torrent to flow as Greece, Cyprus, Spain, Italy, Ireland or Portugal that lines up for more money and is refused by various governments on the Continent. It may be a refusal by a sovereign nation to accede to the demands of the IMF/EU/ECB for funding or it may be social unrest in the spring that unseats some government as nationalism overcomes the grand European experiment. The giant central bank slosh of money has lowered yields but it has not improved the financial condition of any nation on the Continent and so push will come to shove once again. It may be that Germany refuses to waste anymore of their citizen’s money or that Britain will have had enough of being run out of Berlin or it could even be a refusal to fund America’s debt which comes from China and other Asian countries as our creditworthiness deteriorates. There are many pressure points pressing against the Bubble and one of them will give just as the subprime mess was where the prick took place last time. It was all the cause of “money for nothing and chicks for free” and while I am unsure about the chicks I am quite sure that the incredible amount of easy money will take its toll once again. Money, you know, ceases to be money when all that anyone sees is paper and not the guarantee that is imprinted on it. It could be Inflation on a grand scale or worse, Valuation that determines the charade and calls it for what it is and neither result will be pleasant.
 
You cannot keep printing money without consequences and when absolute and intrinsic valuations replace relative valuations then the game is afoot. Lower and lower yields also eventually have a serious impact on the people of a nation, pension funds, insurance companies and backlashes are certainly possible as the lives of people and institutions are put at financial risk. When the survival of the State puts its people in dire straits then, eventually, the citizens will rebel as the nation has forgotten just who composes its constituents. The people and institutions that have the capital will only go along quietly for so long when nations try to take what they have earned and dispossess it for others. The rich will become poorer and the poor will become poorer and when those with the capital have been deprived of it so that everyone is worse off then the Lords of Chaos will be in control once again. Look for securities that float, States that have no debt in Municipals, the few countries in the world that are still fiscally responsible and get ready to hold on to your hat. The charade goes on a little longer but it will not go on indefinitely and the time for preparation is now. When one plus one no longer equals two then something will give. Make sure you are not the one crying “Uncle.”
 
The trouble with going with the flow is that you might be the one that is sucked down the drain!

Your rating: None Average: 4.4 (12 votes)

What are the German Bankers Thinking?

Context: As yet there are no context links for this item.

Transcript

PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I'm Paul Jay in Baltimore.

I've been wondering for a while what is in the minds of German bankers, who seem willing to let Europe go into a deep recession and do not seem to be having any flexibility on how they collect their debts. Now joining us to try to unpack all of this is Michael Ash.Michael is a professor of economics and chair of the economics department at the University of Massachusetts Amherst. Thanks very much for joining us, Michael.MICHAEL ASH, PROF. ECONOMICS, UMASS: Thanks for having me, Paul.JAY: So German banks look at this situation. They see Greece going into deep recession, Spain, Portugal. Even France is starting to teeter, in a sense. What is in the minds of these German bankers?ASH: Well, I think you've asked the question just the right way. And it's really important that we focus our attention on the German banks. I mean, a fish rots from the head down. And really, if you want to look at the [unintel.] causes of the European problem and have good predictions about what's going to happen next, it's essential to think about what's going on in the German banking system. This is really the birthplace of the crisis. So asking what next from them is a really valuable question. You've asked: how can they let things slide this far? Well, to be honest, I'm shocked at how far they have let things go. I think at this point an ideology has taken hold that, hey, we've been paying the bills for Southern Europe for so long, we're going to stop. That ideology's completely backwards. I can explain why, if you're interested.JAY: Yeah, sure. Yeah, go ahead. Explain.ASH: So, well, the ideology is, we've been writing—we the Germans have been writing the checks for these profligate Southern Europeans. And in fact, it's almost the opposite situation. In fact, it's Southern Europeans who have been buying the German goods that have kept the German economy afloat until now.So I think you've got kind of a collision coming between this growing Northern European ideology that they've been paying the bills and the fact that much of their reasonably good times before the crisis were made possible by the earning and spending of Southern Europeans. I mean, you really have a circular-flow economy in Europe, and it's been very badly disrupted in the south. And I think that, you know, there's going to be some unpleasant consequences as they spread from the south up through France and Germany.JAY: So German banks are essentially undermining, weakening, destroying their own best markets. Most of German exports have been going to these quote-unquote "peripheral" countries of Europe. So, you know, what is this a strategy about? I mean, whether it's a strategy or not, what they're going to end up with is much lower wages in all these countries. They're going to try to unravel, and probably will, in Greece and Spain, at least, and Portugal, unravel much of the social safety net. And Italy, I should say, as well. So they're going to have this big pool of skilled, cheap labor who can't buy as much product. So what is the objective here? To better compete in the developing world? In Asia and China and India, Brazil, and such?ASH: I think strategy is overstating what we're seeing from the German banks. I think it helps if you think about the German banks as kind of a four-faced statue or four-faced monster, that there isn't—nobody is at the wheel. And so it's a mistake to think somebody old and sensible is in charge. There's really nobody in charge at the German banks. There are just kind of fragments of several systems.So, you know, there's this one German banker who's incredibly inflation-o-phobic. We're told, oh, the memory of the Weimar inflation—90 years ago at this point—haunts this banker so much, couldn't possibly imagine an expansionary monetary policy. So that's one of the faces of the German banker. And this guy is dead-set against any sort of expansionary activity. It might cause inflation—very, very scary. And then you've got this other guy who seems nothing like his very conservative anti-inflationary counterpart. He's the gambler who went down to the Spanish Riviera looking for some action and just loved rolling the dice and was willing to take these very large gambles on Southern European real estate, on, you know, coastal real estate in Spain, float the Greek sovereign debts because it seemed really profitable. So this was the kind of let the good times roll German [crosstalk]JAY: And you could add to that their plays in the American real estate market, and not just subprime mortgage. I mean, I think Deutsche Bank now owns one of the biggest casinos in Las Vegas.ASH: Yeah. So, right. So it wasn't just playing their own real estate markets. I mean, I think they picked up the lesson. I think you can—you know, there's kind of a lesson here that bad banking drives out good, that this German banker, the high-roller, looked across the Atlantic, saw the American cousin, his cowboy cousin, making out like a bandit, so he said, I want to take some of those big bets too, and then did, on Southern European real estate, Greek sovereign debt, but also buying CDSs (credit default swaps) and other exotic derivatives straight from the U.S. market. So that high-roller was really a newcomer to German banking.The inflation-o-phobe and the kind of really very careful German banker were one wing of German banking. Then we got these high-rollers. Their combination—the high-rollers brought on the immediate crisis. And their combination has led to the, you know, stern, nasty bill collector German banker, who says, ah, the bill must be paid, and is really insisting that the bills be paid even if that collection effort is going to, you know, ultimately drive the German economy into the ground. And it's already done a very—it's done very serious damage to the Portuguese, Spanish, Greek, and Irish economies. And really, I think, you know, Italy is kind of teetering on the brink. You've got these three.Let me tell you about the last German banker, the one who's been kind of shoved into the corner, who was actually the first one I learned about, and he's a fairly likeable fellow. That's the benevolent social planner. That's the German banker from the '60s and '70s who owned a lot of stock in German companies and was therefore willing to make long-term plans for the future, wasn't too averse to talking to labor, would invite labor to the table, would even invite labor to be on the board of directors. So that was kind of the good face. So you've got these four faces. The good face has kind of been crammed into the corner, and these other three are sort of staring at each other, not really in full agreement, but kind of paralyze because they don't know what to do next.JAY: I mean, is part of this that they kind of all buy into this Austrian school of economics, that there needs to be a catharsis, there needs to be a cleansing, capitalism needs to go through these periods where it gets rid of excess capacity and better disciplines the workforce? I mean, do they not just believe that capitalism just is resilient, and to go through, quote-unquote, the pain, and out the other side will come a vibrant Europe? But I don't know what the evidence for that is. But is that what they believe? They've got to believe something here.ASH: I don't know that there's such a Randian fellow at work in the German banks. I mean, I think that the stern bill collector simply has a—the bills must be paid; we made the loans, you must pay back the loans; you know, kind of a very—you know, sort of the you must pay the rent landlord who comes to the door, you know, the evil drooping mustache.So I don't think that, you know, the cleansing, a cleansing dose of capitalism, liquidate, liquidate, liquidate is really what these bankers have in mind. I think that they've more kind of hit a number of contradictions and that they sort of don't know which of these bankers is bought. They know that the high-roller got them into very serious trouble, so they're not willing to start lending. The inflation hawk and the stern bill collector are maybe of a piece, that they are unwilling to try anything too expansionary. You know, I think it's—nobody is planning enough for this to be a kind of a well-coordinated strike on the European welfare state. I think that the European bankers are willing to sweep up a couple of chips along the way if they fall on the table and they're easy pickings. But I think it's sort of—too much planning would be involved to say, oh, this was an engineered crisis that allowed [crosstalk]JAY: But whether it's an engineered crisis or not, they're certainly taking advantage of the crisis. And, I mean, what you're seeing is massive amounts of privatization, you know, in Greece and some of these other same countries. You're going to see lower wages. They're—you're—enormous pressure on the social safety net. And years—I don't see how it's anything but years of deep recession and high unemployment. I mean, that much is objective, is it not?ASH: Yeah. I think these are good points, and they bring to mind a couple of thoughts. The first is that capitalists can't live with stagnation either. So taking advantage of the recession, as I said, to sort of pick up a couple of quick hits, you know, some chips have fallen on the table, some free $20 bills on the sidewalk. I can see that well and good.But I really think that the extent to which the bankers have allowed the European situation to really at this point spiral out of control is self-destructive, but they can't do anything about it. They are really—it is not in their constitution. It's really going to take, I think, a new political political movement, a kind of a new political orientation in Europe to do something about this. I think the bankers have hit the end—you know, sort of hit the end of their bag of tricks, and they simply cannot envision themselves overseeing a Keynesian-type expansion. But they also—I don't think it's planned for a fully stagnated economy [crosstalk]JAY: This has to come back and bite them in the bum. I mean, how can this not lead eventually to much more serious stagnation in Germany itself?ASH: Well, it has to. I mean, as you pointed out, they've cut off the fuel to their main markets. They are not—they've cut off the fuel to their main markets. They are not—I do not think they can realistically expect to make up the sales, even with the burdgeoning elite in China, in number, if not in percent. So I really think that they have backed themselves into a rough corner.Now let me make a couple—I want to take a step back and make a couple of other observations. The first is that it's interesting to think about where the German working class has been during this period. The German working class on the one hand has stayed employed. So they don't have the problems of mass unemployment that the Spanish and Portuguese and Greek working class. On the other hand, the German working class has really taken it on the chin in the last generation. They've been kind of an unwilling or a semi-willing participant in the Germans' euro-based plan. So they've accepted increasingly low wages. And the German wage share has fallen something like 10 percentage points, which is a massive redistribution from labor to capital in Germany over the last generation. The German working class has been told that's the price of staying employed. So you won't be as rich, you know, you won't have as big a share of the pie, but you at least won't be in the same boat that the Southern Europeans have found themselves in.So it'd be very interesting to see what happens as this promise becomes increasingly untenable, the promise of, well, at least you're employed, even if you're not paid as much. That becomes increasingly untenable. It'd be very interesting to see if there is mobilization by the German working class and other working class, other union labor movement in Northern Europe.JAY: Alright. Well, thanks for joining us, Michael.ASH: Well, thanks very much for having me.JAY: And thank you for joining us on The Real News Network.

End

DISCLAIMER: Please note that transcripts for The Real News Network are typed from a recording of the program. TRNN cannot guarantee their complete accuracy.


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What Are the German Bankers Thinking?

Paul Jay, Senior Editor, TRNN: Welcome to The Real News Network. I'm Paul Jay in Baltimore.

I've been wondering for a while what is in the minds of German bankers, who seem willing to let Europe go into a deep recession and do not seem to be having any flexibility on how they collect their debts. Now joining us to try to unpack all of this is Michael Ash.

Michael is a professor of economics and chair of the economics department at the University of Massachusetts Amherst. Thanks very much for joining us, Michael.

Michael Ash, Erof. Economics, UMass: Thanks for having me, Paul.

Jay: So German banks look at this situation. They see Greece going into deep recession, Spain, Portugal. Even France is starting to teeter, in a sense. What is in the minds of these German bankers?

Ash: Well, I think you've asked the question just the right way. And it's really important that we focus our attention on the German banks. I mean, a fish rots from the head down. And really, if you want to look at the [unintel.] causes of the European problem and have good predictions about what's going to happen next, it's essential to think about what's going on in the German banking system. This is really the birthplace of the crisis. So asking what next from them is a really valuable question.

You've asked: how can they let things slide this far? Well, to be honest, I'm shocked at how far they have let things go.

I think at this point an ideology has taken hold that, hey, we've been paying the bills for Southern Europe for so long, we're going to stop. That ideology's completely backwards. I can explain why, if you're interested.

Jay: Yeah, sure. Yeah, go ahead. Explain.

Ash: So, well, the ideology is, we've been writing—we the Germans have been writing the checks for these profligate Southern Europeans. And in fact, it's almost the opposite situation. In fact, it's Southern Europeans who have been buying the German goods that have kept the German economy afloat until now.

So I think you've got kind of a collision coming between this growing Northern European ideology that they've been paying the bills and the fact that much of their reasonably good times before the crisis were made possible by the earning and spending of Southern Europeans. I mean, you really have a circular-flow economy in Europe, and it's been very badly disrupted in the south. And I think that, you know, there's going to be some unpleasant consequences as they spread from the south up through France and Germany.

Jay: So German banks are essentially undermining, weakening, destroying their own best markets. Most of German exports have been going to these quote-unquote "peripheral" countries of Europe. So, you know, what is this a strategy about? I mean, whether it's a strategy or not, what they're going to end up with is much lower wages in all these countries. They're going to try to unravel, and probably will, in Greece and Spain, at least, and Portugal, unravel much of the social safety net. And Italy, I should say, as well. So they're going to have this big pool of skilled, cheap labor who can't buy as much product. So what is the objective here? To better compete in the developing world? In Asia and China and India, Brazil, and such?

Ash: I think strategy is overstating what we're seeing from the German banks. I think it helps if you think about the German banks as kind of a four-faced statue or four-faced monster, that there isn't—nobody is at the wheel. And so it's a mistake to think somebody old and sensible is in charge. There's really nobody in charge at the German banks. There are just kind of fragments of several systems.

So, you know, there's this one German banker who's incredibly inflation-o-phobic. We're told, oh, the memory of the Weimar inflation—90 years ago at this point—haunts this banker so much, couldn't possibly imagine an expansionary monetary policy. So that's one of the faces of the German banker. And this guy is dead-set against any sort of expansionary activity. It might cause inflation—very, very scary.

And then you've got this other guy who seems nothing like his very conservative anti-inflationary counterpart. He's the gambler who went down to the Spanish Riviera looking for some action and just loved rolling the dice and was willing to take these very large gambles on Southern European real estate, on, you know, coastal real estate in Spain, float the Greek sovereign debts because it seemed really profitable. So this was the kind of let the good times roll German [crosstalk]

Jay: And you could add to that their plays in the American real estate market, and not just subprime mortgage. I mean, I think Deutsche Bank now owns one of the biggest casinos in Las Vegas.

Ash: Yeah. So, right. So it wasn't just playing their own real estate markets. I mean, I think they picked up the lesson. I think you can—you know, there's kind of a lesson here that bad banking drives out good, that this German banker, the high-roller, looked across the Atlantic, saw the American cousin, his cowboy cousin, making out like a bandit, so he said, I want to take some of those big bets too, and then did, on Southern European real estate, Greek sovereign debt, but also buying CDSs (credit default swaps) and other exotic derivatives straight from the U.S. market. So that high-roller was really a newcomer to German banking.

The inflation-o-phobe and the kind of really very careful German banker were one wing of German banking. Then we got these high-rollers. Their combination—the high-rollers brought on the immediate crisis. And their combination has led to the, you know, stern, nasty bill collector German banker, who says, ah, the bill must be paid, and is really insisting that the bills be paid even if that collection effort is going to, you know, ultimately drive the German economy into the ground. And it's already done a very—it's done very serious damage to the Portuguese, Spanish, Greek, and Irish economies. And really, I think, you know, Italy is kind of teetering on the brink. You've got these three.

Let me tell you about the last German banker, the one who's been kind of shoved into the corner, who was actually the first one I learned about, and he's a fairly likeable fellow. That's the benevolent social planner. That's the German banker from the '60s and '70s who owned a lot of stock in German companies and was therefore willing to make long-term plans for the future, wasn't too averse to talking to labor, would invite labor to the table, would even invite labor to be on the board of directors. So that was kind of the good face.

So you've got these four faces. The good face has kind of been crammed into the corner, and these other three are sort of staring at each other, not really in full agreement, but kind of paralyze because they don't know what to do next.

Jay: I mean, is part of this that they kind of all buy into this Austrian school of economics, that there needs to be a catharsis, there needs to be a cleansing, capitalism needs to go through these periods where it gets rid of excess capacity and better disciplines the workforce? I mean, do they not just believe that capitalism just is resilient, and to go through, quote-unquote, the pain, and out the other side will come a vibrant Europe? But I don't know what the evidence for that is. But is that what they believe? They've got to believe something here.

Ash: I don't know that there's such a Randian fellow at work in the German banks. I mean, I think that the stern bill collector simply has a—the bills must be paid; we made the loans, you must pay back the loans; you know, kind of a very—you know, sort of the you must pay the rent landlord who comes to the door, you know, the evil drooping mustache.

So I don't think that, you know, the cleansing, a cleansing dose of capitalism, liquidate, liquidate, liquidate is really what these bankers have in mind. I think that they've more kind of hit a number of contradictions and that they sort of don't know which of these bankers is bought. They know that the high-roller got them into very serious trouble, so they're not willing to start lending. The inflation hawk and the stern bill collector are maybe of a piece, that they are unwilling to try anything too expansionary.

You know, I think it's—nobody is planning enough for this to be a kind of a well-coordinated strike on the European welfare state. I think that the European bankers are willing to sweep up a couple of chips along the way if they fall on the table and they're easy pickings. But I think it's sort of—too much planning would be involved to say, oh, this was an engineered crisis that allowed [crosstalk]

Jay: But whether it's an engineered crisis or not, they're certainly taking advantage of the crisis. And, I mean, what you're seeing is massive amounts of privatization, you know, in Greece and some of these other same countries. You're going to see lower wages. They're—you're—enormous pressure on the social safety net. And years—I don't see how it's anything but years of deep recession and high unemployment. I mean, that much is objective, is it not?

Ash: Yeah. I think these are good points, and they bring to mind a couple of thoughts. The first is that capitalists can't live with stagnation either. So taking advantage of the recession, as I said, to sort of pick up a couple of quick hits, you know, some chips have fallen on the table, some free $20 bills on the sidewalk. I can see that well and good.

But I really think that the extent to which the bankers have allowed the European situation to really at this point spiral out of control is self-destructive, but they can't do anything about it. They are really—it is not in their constitution. It's really going to take, I think, a new political political movement, a kind of a new political orientation in Europe to do something about this. I think the bankers have hit the end—you know, sort of hit the end of their bag of tricks, and they simply cannot envision themselves overseeing a Keynesian-type expansion. But they also—I don't think it's planned for a fully stagnated economy [crosstalk]

Jay: This has to come back and bite them in the bum. I mean, how can this not lead eventually to much more serious stagnation in Germany itself?

Ash: Well, it has to. I mean, as you pointed out, they've cut off the fuel to their main markets. They are not—they've cut off the fuel to their main markets. They are not—I do not think they can realistically expect to make up the sales, even with the burdgeoning elite in China, in number, if not in percent. So I really think that they have backed themselves into a rough corner.

Now let me make a couple—I want to take a step back and make a couple of other observations. The first is that it's interesting to think about where the German working class has been during this period. The German working class on the one hand has stayed employed. So they don't have the problems of mass unemployment that the Spanish and Portuguese and Greek working class.

On the other hand, the German working class has really taken it on the chin in the last generation. They've been kind of an unwilling or a semi-willing participant in the Germans' euro-based plan. So they've accepted increasingly low wages. And the German wage share has fallen something like 10 percentage points, which is a massive redistribution from labor to capital in Germany over the last generation. The German working class has been told that's the price of staying employed. So you won't be as rich, you know, you won't have as big a share of the pie, but you at least won't be in the same boat that the Southern Europeans have found themselves in.

So it'd be very interesting to see what happens as this promise becomes increasingly untenable, the promise of, well, at least you're employed, even if you're not paid as much. That becomes increasingly untenable. It'd be very interesting to see if there is mobilization by the German working class and other working class, other union labor movement in Northern Europe.

Jay: Alright. Well, thanks for joining us, Michael.

Ash: Well, thanks very much for having me.

Jay: And thank you for joining us on The Real News Network.

An Analytic Framework For 2013

Submitted by Martin Sibileau of A View From The Trenches blog,

In the same fashion that I proposed an analytic framework for 2012, I want to lay out today what I think will be the big themes of 2013. Their drivers were established in September 2012, and I sought to give a thorough description of them here, here and here.

An analytic framework for 2013

In one sentence, during 2013, I expect imbalances to grow. These imbalances are the US fiscal and trade deficits, the fiscal deficits of the members of the European Monetary Union (EMU) and the unemployment rate of the EMU thanks to a stronger Euro. A stronger Euro is the consequence of capital inflows driven by the elimination of jump-to-default risk in EMU sovereign debt. Below is a drawing I made to help visualize these concepts:

 

The drawing shows a circular dynamic playing out: The threat of the European Central Bank to purchase the debt of sovereigns (that submit to a fiscal adjustment program) eliminates the jump-to-default risk of this asset class. As explained and forecasted in September, this threat also forces a convergence in sovereign yields within the EMU, to lower levels. As long as the market perceives that the solvency of Germany is not affected, the Bund yields will not rise to that convergence level. So far, the market seems not to see that (Possunt quia posse uidentur). But the resulting appreciation of the Euro will eventually address that illusion.

This convergence, in my view, is behind the recent weakness in Treasuries. I proposed this thesis last September. However, the ongoing weakness in Treasuries does not mean I was right. In fact, I fear I may have been right for the wrong reasons. The negotiations on the US fiscal deficit and the latest announcement of the Fed with regards to debt monetization quantitative easing to infinity may also be behind this move. But until proven wrong, I will cautiously hold to my thesis.

The above factors drove capital inflows back to the European Monetary Union and strengthened the Euro. I believe this strength will last longer than many can endure. The circularity of this all resides in that the strength of the Euro will make unemployment and fiscal deficits a structural feature of the EMU, forcing the ECB to keep the threat of and eventually implementing the Open Monetary Transactions. The alternative is a social uprising and that will not be tolerated by the Euro kleptocracy.

All this -and particularly the strength of the Euro- is not sustainable. Ad infinitum, it would create a Euro so strong that the periphery would drag coreEuropein its bankruptcy. But while it lasts, the compression in sovereign yield will mask the increasing default risks in Euro corporate debt, specially the one denominated in US dollars. Both have been fuelling the rise in the value of equities globally.

The unsustainable framework rests upon the shoulders of the Federal Reserve, which thanks to the established USD swaps and unlimited Quantitative Easing, has completely coupled its balance sheet to that of the European Central Bank. In the end, as this new set of relative prices between asset classes sets in, it will be more difficult for the European Central Bank to sterilize the Open Monetary Transactions.

History provides an example of the current growth in imbalances

By now, it should be clear that the rally in equities is not the reflection of upcoming economic growth. Paraphrasing Shakespeare, economic growth “should be made of sterner stuff”.

Under the current framework, the European Central Bank can afford to engage in the purchase of sovereign debt because the Fed is indirectly financing the European private sector. The Fed does so with the backstop of USD swaps and tangible quantitative easing, which provides cheap USD funding to European banks and thus avoids a credit contraction of the sorts we began to see at the end of 2011.

This same structure was in place between the Federal Reserve and the central banks of France and England in 1927, 1928 and 1929 and, as a witness declared, (it) transformed the depression of 1929 into the Great Depression of 1931”. Something tells me that this time however it will be different. It will be worse. That little something is the determination of the new Japanese government to devalue its currency via purchases of European sovereign debt (ESM debt).

How fragile is this Entente?

Most analysts I have read/heard, focus on the political fragility of the framework. And they are right. The uncertainty over the US debt ceiling negotiations and the fact that prices today do not reflect anything else but the probability of a bid or lack thereof by a central bank makes politics relevant. Should the European Central Bank finally engage in Open Monetary Transactions, the importance of politics would be fully visible.

However, unemployment is “the” fundamental underlying factor in this story and I do not think it will fall. In the long term, financial repression, including zero-interest rate policies, simply hurt investment demand and productivity. I do not see unemployment dictating the rhythm in 2013, indirectly through defaults. Furthermore, in the meantime, the picture may look different, because “…we should not be surprised if, under zero-interest-rate policies in the developed world, we witness a growing trend in corporate leverage, with vertical integration, share buybacks and private equity funds taking public companies private…”. This is obviously supportive of risk.

No systemic meltdown in 2013?

From earlier letters, you know that I believe quasi-fiscal deficits (i.e. deficits from a central bank) are a necessary condition for a meltdown to occur, and that these usually appear when deposits begin to seriously evaporate. So far, capital is leaving main street (via leveraged share buybacks and dividends), but at the same time, it is being parked at banks in the form of deposits. The case of Wells Fargo and the temporary pause in the flight of deposits from the periphery of the European Union suggest that the process towards a meltdown, if any (and I believe there will be one) will be a long agony. Furthermore, in the short term, at the end of January, European banks, have the option to repay the money lent by the European Central Bank in the Long-Term Refinancing Operations from a year ago, on a weekly basis. I expect them to repay enough to cause more pain to those still long of gold (including me, of course).

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“Time Often Heals What Reason Cannot”

From Mark Grant, author of "Out of the Box"

Quod ratio non quit saepe sanavit mora

Time often heals what reason cannot
 
It was three years ago, yesterday, when I first said that Greece would go bankrupt. The yield on the Greek ten year at the time was 4.38%.

What a long and wild ride it has been since then and the forks in the road have been marked with turmoil, disdain and an ever increasing amount of debt for this small nation. The solution for each and every problem has been more money appended by more taxes and more austerity measures and the Greeks keep lining up and will keep lining up until the cash dries up and then other conclusions will be found. You may think it is a never ending story and that the current act will go on forever but that would not be my bet nor do I think it is a likely conclusion. Whether it is the German Parliament or the IMF or some other nation in Europe under the guise of nationalism and prudence who has had enough and rightly says, “That is enough;” there is an ultimate endpoint to this game.

I think it will come during 2013 as the pre-eminent ward of the State gets shunted or, come spring, when the people are back in the Streets, the protests are peaceful no longer. The sovereign debt has been a great vehicle for trading as violent moves were marked by political expediency but the winning hands of last year may not play out quite so well in this year and the Barbarians have not yet left the gate.
 
The Europeans say the crisis is mostly over but given the hard numbers I say the worst of the crisis has not yet begun.
 
The financial conditions of Greece, Portugal and Spain are not better but worse than they were one year ago and the actual debt to GDP ratios are higher. All that stands between these countries and the guillotine is a promise by Mr. Draghi that will likely be put to the test during the next twelve months. When the white knights are talking backwards and the dormouse is threatened with keeping his head it is unwise to keep playing Croquet!
 
Municipal Bonds
 
The Federal tax exempt status of these securities goes back to the Constitution under the various provisions that separate the powers of the Federal government from the States. Much is to be found in the “Commerce Clause” but that is not the only repository of the separation of powers. The 1895 Supreme Court case, Pollock v. Farmers' Loan & Trust Co., is the basis for much of the law since then and while the 1988 case South Carolina v. Baker seemed to open the door for Congress to tax these securities if they so desired the outcome is hardly clear. As much is bandied about in the Press indicating that the laws could be changed at will; this is not the quite the case nor has it been tested. Any attempt by Congress to tax Municipal Bonds would undoubtedly be met by a hue and cry from many State governments and the legal challenges would take a good length of time so that the outcome of such a political move is not only unclear but the time that it would take to effectuate it, if possible, is years out into the future. This is why I feel that the ownership of Municipals continues to be relatively safe and that the definition of tax-exempt versus Federally taxable does not rest with Congress alone. There is a lot of legal minutia that applies to the purpose and function of Municipal Bonds and quirks abound but when it comes down to General Obligation Bonds and Revenue Bonds for general public use then to tax them would require an overhaul of the Securities Acts of 1933 and 1934 which would be problematic enough in itself. I do not say that the rabid and carnivorous in Washington won’t try but I do say that legislative changes would be formidable and that the Supreme Court would have the last word on the subject. Consequently any fears can be somewhat postponed due to the length of the process if attempted. 

The old paradox: Can God make a stone so heavy that he can´t lift it?”

            -Stephen Hawking

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Europe of discord: What will become with euro in 2013?

As the European debt crisis shows no signs of ending experts are divided on whether the Eurozone is doomed or the project is viable, even if some of its member drop out of the euro.

­“The eurozone is headed for deeper, more intense, and much less retractable trouble in 2013. There is no foreseeable way for the region to recover as it exists today in its current form,” economic expert Margaret Bogenrief from ACM Partners told RT.

With Greece’s exit from the Eurozone looming and a lack of agreement between EU leaders on crisis fighting measures, the region’s economy was on the verge of collapse several times last year.

Root of the Greece

In 2012 America’s Citigroup raised the chances of Greece leaving the euro in the next year to 90%.

"Over the next few years, the euro area end-game is likely to be a mix of EMU exit (Greece), a significant amount of sovereign debt and bank debt restructuring (Portugal, Ireland and, eventually, perhaps Italy, Spain and Cyprus) with only limited fiscal burden-sharing,” Citigroup said in its July report.

Since 2009 when Greece’s economy began falling apart under its huge debt burden the country has been dependent on international rescue loans with a total of €240 billion provided to Athens. As of now, €149 billion have been distributed to Greece from the Troika of international lenders.

That hardly solves all of Greece’s problems, and experts seriously considered the scenario of Greece’s default and probable exit from the Eurozone. According to the ECB it would be manageable but very expensive, not only for the crisis-troubled country, but for the whole region.
“It would be associated with a loss of growth and higher unemployment and it would be very expensive – in Greece, Europe as a whole and even in Germany,” ECB policymaker Joerg Asmussen said in August.

By the end of the year Greece managed to gain back investor confidence. Standard & Poor's ratings agency upgraded Greece’s credit grade to a B-, the highest since June 2011, although the bonds are still at junk status. Athens successfully accomplished a bond buyback, and reduced its debt by €20 billion. Trying to hold control of the economy at the end of 2012 Greece adopted a 2013 budget that involves €9.4 billion of spending cuts, mainly in state wages, pensions and benefits, all of which have already been significantly reduced over the past two years. The decision resulted in strikes and protest across the country. Tough austerity measures have also led to a drastic surge of unemployment – in the third quarter of 2012 it reached a record 24.8%, up from 17.7% during the same period in 2011.

Greece’s neighbor Cyprus also found itself on the verge of default, crippled by the losses on Greek bonds. S&P slashed Cyprus' credit rating by two notches to CCC+ last December. Cyprus's request for an EU bail-out, which could amount to €17.5 billion, will be considered by eurozone finance ministers in Brussels on 21 January. Cyprus’s President has already said the international aid could cost the country its financial sovereignty. Earlier in 2012 the island nation got a €2.5 billion loan from the Russian government. Then three major companies provided the government with a €175m loan to stay afloat.

European creditors EU, IMF and ECB, said they consider a further reduction of Greece’s debt if the country manages to achieve a significant primary surplus by 2016. Earlier they agreed to cut Greece’s debt by €40 billion, reducing it to 124% of GDP by 2020 from around 190% in 2013.

Hard times not over

Europe saw its public debt reach 90% of the value of the union's economy at the end of the second quarter of 2012, according to the data provided by Eurostat. Meanwhile the total jobless rate in the eurozone reached a record high of 11.7%, meaning 19 million people in the bloc were out of work with Southern member countries among the worst affected.

Experts warn that though the situation in Greece is under better control now, the crisis still poses risk to euro stability.

“Unfortunately, the eurozone crisis is likely to remain with us for years to come, sustaining the likelihood of coercive debt restructurings and eurozone exits,” Nouriel Roubini, a professor at NYU’s Stern School of Business wrote in his article for Project Syndicate in December. “The fundamental crisis of the eurozone has not been resolved, and another year of muddling through could revive these risks in a more virulent form in 2014 and beyond,” Roubini said, citing ‘Grexit’ and probable massive loss of market access in Italy and Spain.

So far the debt-stricken countries are determined to continue unpopular austerity reforms which have already resulted in mass protests across Southern Europe throughout 2012. The looming multi-billion bailout for Spain, Europe’s fourth largest economy, has become a major headache for the eurozone. Last September Spain announced its plan for drastic economic reform, and a tight 2013 budget which includes 58% spending cuts and 42% increase in taxes. As the Spanish crisis spread several regions asked for bailout, while Catalonia, the country’s richest region accounting for fifth of GDP turned down “participation in the liquidity fund,” the 18bn euro body set up by Madrid to finance troubled regions and called for independence.

Saving the euro

In 2012 eurozone countries managed to agree on two ambitious initiatives aimed at keeping the Eurozone afloat – the establishment of a European stabilization fund and a banking union. The two instruments will be operational in various spheres: the European stabilizing fund will offer help to weak economies pumping money from the strong ones. EU has also agreed to appoint the ECB the single regulator for the biggest banks in the euro zone as a step towards a "banking union," or common euro area approach to dealing with failing banks.

The only thing which European politicians do not want to do is to let debt-stricken countries carry out free floating. However, here they are pursuing their selfish interests, Chief of the Analytical Department of the IK Grandis Capital Denis Barabanov told the Voice of Russia.

"The strong countries of the eurozone are getting big preferences and advantages as the members of the eurozone because on the one hand, they are killing rivalry in weaker countries and on the other hand, they always have a reliable and profitable commodity market, which enables them to sell highly competitive goods within the framework of their union," Barabanov said.

With all the efforts, even optimistic experts don’t expect the Europe’s economy to recover in the near future.  In its new paper “New Recession in the Eurozone” S&P rating agency suggests the eurozone GDP will shrink by 0.8% in 2012. Growth in 2013 is expected to be zero compared to the earlier forecast of up 0.3%, according to the study.

Splitting the eurozone is still considered to be an option by some experts. Billionaire George Soros proposed Germany, Europe’s so far best performing economy, should leave to save the Eurozone, among other options. "The problem would disappear into thin air," as the value of the euro declines and yields on the bonds of debtor countries adjust, CNBC quoted Soros as saying. On the other hand, euro-sceptic and financial consultant Stephan Werhahn, grandson of a statesman seen as the architect of the EU, believes the euro should be limited to a handful of similar northern European countries, the Daily Mail reports. "Europe will fail' if debt-stricken countries are forced to stick with the euro," Werhahn said.

However, Italy, Greece and Spain are very unlikely to leave the Eurozone, according to Maksim Zaytsev, senior analyst at Nord Capital Group. “They have made significant progress over the recent months in reducing their budget deficit,” Zaytsev told RT. “Now their budget gaps are lower than 9% – a critical level when countries face problems with debt refunding.”

The ECB has also contributed to easing the situation in Europe, he added. “ECB launched a bond-buying program which also supported debt markets,” Zaytsev said. “This program allows the ECB to buy bonds without limits while setting aside some funds to avert a risk of inflation.”  The 700bn euro European Stability mechanism is also very important as it de facto issues euro bonds supported by all.

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Mike Whitney Plunging retail sales and rising inflation have rocked Japan’s anemic economy and cast doubt on the future of Abenomics. While the US Commerce...

France Approves Largest Austerity Package In Years

Luis R. Miranda  RINF Alternative News Citing the legitimacy of the French government and that of the European Union as well as the credibility of France...

Rogue Reactors & Putin’s No-Bama Zone In Crimea

Another week into the ‘Crimea Crisis’ and the kamakizi war rhetoric is still spewing out of Washington, London and their multinational corporate media arms. You’d...

Cheerleading Ukrainian Fascism

Cheerleading Ukrainian Fascismby Stephen LendmanMajor media scoundrels praise what demands condemnation. They reinvent history doing it. Managed news misinformation substitutes for legitimate journalism. More on this below.Ukraine's fascist coup agains...

Ukraine Protests Carefully Orchestrated

F. William Engdahl  RINF Alternative News The recent protests in Ukraine have the stench of a foreign-orchestrated attempt to destabilize the government of Viktor Yanukovych after...

IMF Wants a 71 Percent Tax Rate

Think Cyprus Kurt Nimmo Old fashioned taxation is out. Expect outright grand larceny at the local bank enforced by the government. Romain Hatcheul's largely passed over article...

BlackRock Is The Biggest Investor In The World – Is Its Dominance A Problem?

ASK conspiracy theorists who they think really runs the world, and they will probably point to global banks, such as Citigroup, Bank of America...

German grand coalition to intensify austerity policies in Europe

29 November 2013 An important political lesson must be drawn from the coalition agreement struck after two months of negotiations between Germany's conservative parties...

A Billionaire’s Plea for Higher Taxes

When billionaires start complaining about taxation policies that are too lenient on the rich, you know something is out of whack. According to billionaire Bill...

Ireland Has Been Attacked and Dominated by Outside Powers for Centuries — Now It’s...

The oppressors have demanded austerity and...

Ireland: Ground Zero for the Austerity-driven Asset Grab. The Bank Guarantee That Bankrupted Ireland

The Irish have a long history of being tyrannized, exploited, and oppressed—from the forced conversion to Christianity in the Dark Ages, to slave trading...

RINFORMATION

USA Topics 9/11 Agenda 21 Assassinations Banks Bush, George Jr Boston Bombings Bohemian Grove CIA Cointelpro Corruption DARPA Democrats Disinformation Congress Drones Eugenics FBI Federal Reserve Guantanamo HAARP ...

Gold Wars

I do not know what role facts, evidence, or a desire to know the truth any longer play in American lives. This article ...

US treasuries losing cachet

The $11.6 trillion U.S. government bond market is losing some of its luster. America's borrowing costs are on the cusp of exceeding the rest of...

China should Reduce its Holdings of US Treasuries, Diversify its Reserves, “There are...

The US political crises and its Debt limit problem is a warning sign for China over its $1+Trillion it holds in US treasuries. ...

China should Reduce its Holdings of US Treasuries, Diversify its Reserves, “There are...

The US political crises and its Debt limit problem is a warning sign for China over its $1+Trillion it holds in US treasuries. ...

China should Reduce its Holdings of US Treasuries, Diversify its Reserves, “There are...

The US political crises and its Debt limit problem is a warning sign for China over its $1+Trillion it holds in US treasuries. ...

China should Reduce its Holdings of US Treasuries, Diversify its Reserves, “There are...

The US political crises and its Debt limit problem is a warning sign for China over its $1+Trillion it holds in US treasuries. ...

China should Reduce its Holdings of US Treasuries, Diversify its Reserves, “There are...

The US political crises and its Debt limit problem is a warning sign for China over its $1+Trillion it holds in US treasuries. ...

China should Reduce its Holdings of US Treasuries, Diversify its Reserves, “There are...

The US political crises and its Debt limit problem is a warning sign for China over its $1+Trillion it holds in US treasuries. ...

China should Reduce its Holdings of US Treasuries, Diversify its Reserves, “There are...

The US political crises and its Debt limit problem is a warning sign for China over its $1+Trillion it holds in US treasuries. ...

China should Reduce its Holdings of US Treasuries, Diversify its Reserves, “There are...

The US political crises and its Debt limit problem is a warning sign for China over its $1+Trillion it holds in US treasuries. ...

China should Reduce its Holdings of US Treasuries, Diversify its Reserves, “There are...

The US political crises and its Debt limit problem is a warning sign for China over its $1+Trillion it holds in US treasuries. ...

China should Reduce its Holdings of US Treasuries, Diversify its Reserves, “There are...

The US political crises and its Debt limit problem is a warning sign for China over its $1+Trillion it holds in US treasuries. ...

China should Reduce its Holdings of US Treasuries, Diversify its Reserves, “There are...

The US political crises and its Debt limit problem is a warning sign for China over its $1+Trillion it holds in US treasuries. ...

China should Reduce its Holdings of US Treasuries, Diversify its Reserves, “There are...

The US political crises and its Debt limit problem is a warning sign for China over its $1+Trillion it holds in US treasuries. ...

China should Reduce its Holdings of US Treasuries, Diversify its Reserves, “There are...

The US political crises and its Debt limit problem is a warning sign for China over its $1+Trillion it holds in US treasuries. ...

China should Reduce its Holdings of US Treasuries, Diversify its Reserves, “There are...

The US political crises and its Debt limit problem is a warning sign for China over its $1+Trillion it holds in US treasuries. ...

China should Reduce its Holdings of US Treasuries, Diversify its Reserves, “There are...

The US political crises and its Debt limit problem is a warning sign for China over its $1+Trillion it holds in US treasuries. ...

China should Reduce its Holdings of US Treasuries, Diversify its Reserves, “There are...

The US political crises and its Debt limit problem is a warning sign for China over its $1+Trillion it holds in US treasuries. ...

China should Reduce its Holdings of US Treasuries, Diversify its Reserves, “There are...

The US political crises and its Debt limit problem is a warning sign for China over its $1+Trillion it holds in US treasuries. ...

China should Reduce its Holdings of US Treasuries, Diversify its Reserves, “There are...

The US political crises and its Debt limit problem is a warning sign for China over its $1+Trillion it holds in US treasuries. ...

China should Reduce its Holdings of US Treasuries, Diversify its Reserves, “There are...

The US political crises and its Debt limit problem is a warning sign for China over its $1+Trillion it holds in US treasuries. ...

China should Reduce its Holdings of US Treasuries, Diversify its Reserves, “There are...

The US political crises and its Debt limit problem is a warning sign for China over its $1+Trillion it holds in US treasuries. ...

China should Reduce its Holdings of US Treasuries, Diversify its Reserves, “There are...

The US political crises and its Debt limit problem is a warning sign for China over its $1+Trillion it holds in US treasuries. ...

China should Reduce its Holdings of US Treasuries, Diversify its Reserves, “There are...

The US political crises and its Debt limit problem is a warning sign for China over its $1+Trillion it holds in US treasuries. ...

China should Reduce its Holdings of US Treasuries, Diversify its Reserves, “There are...

The US political crises and its Debt limit problem is a warning sign for China over its $1+Trillion it holds in US treasuries. ...

China should Reduce its Holdings of US Treasuries, Diversify its Reserves, “There are...

The US political crises and its Debt limit problem is a warning sign for China over its $1+Trillion it holds in US treasuries. ...

China should Reduce its Holdings of US Treasuries, Diversify its Reserves, “There are...

The US political crises and its Debt limit problem is a warning sign for China over its $1+Trillion it holds in US treasuries. Although...

Fitch Threatens Downgrade; Boehner to Surrender

Despite mounting evidence that the government will have more than enough money to pay its essential bills and that the real national debt is...

Which Obligations Has the U.S. ALREADY Defaulted On?

The U.S. Has Already Defaulted On Some Obligations We noted earlier this week that the U.S. has partially or fully defaulted on its debt...

The return of the Euro crisis

4 October 2013 ...

The return of the Euro crisis

4 October 2013 ...

US Economy is just One Giant Hedge Fund

Max Keiser, the host of RT's ‘Keiser Report,' is a former stockbroker, the inventor of the virtual specialist technology, virtual currencies, and prediction markets....

Crazy Like Foxes

I think one of the major misunderstandings (willful, in many cases) of this budget mess is that it's about Republicans just running around willy-nilly...

McGrath: “If You Think the Crisis of 2008 is Over, Then You’re Falling Right...

The game is rigged, the pain is coming, and we're all about to become victims of greed and government once again. Charlie McGrath of Wide...

How Congress could blow up economy

The consequences of default on the national debt may be far worse than Congress knows. In fact, it™s hard to tell what Congress knows. Congress...

Obama’s Backdown and the New World Order Project

“We are on the verge of a global transformation. All we need is the right major crisis and the nations will accept the New...

Russia on Syria: Alternative to Peace Is Bloody Chaos

Russia on Syria: Alternative to Peace is Bloody Chaos by Stephen Lendman Russian Foreign Minister Sergei Lavrov addressed Obama's intended lawless aggression. He did so forthrightly....

18 Signs That Global Financial Markets Are Entering A Horrifying Death Spiral

You can see it coming, can't you? The yield on 10 year U.S. Treasuries is skyrocketing, the S&P 500 has been down for 9...

Detroit: Government Chooses Big Banks Over the American People Once Again

Government Sides with the Big Banks Every Time Ellen Brown noted recently that Detroit is yet another example of the government choosing big banks over the...

James K. Galbraith: How to Stop the Path of Economic and Social Destruction

Economist James K. Galbraith recently addressed an audience in Greece to examine why members of his profession have done such a poor job of diagnosing economic problems and recommending appropriate policy solutions.

Former MF Global Head Jon Corzine Sued for Theft of Customer Funds

The sanctions sought against Jon Corzine, the former head of MF Global, by the U.S. Commodity Futures Trading Commission (CFTC) in a lawsuit filed in...

Former MF Global Head Jon Corzine Sued for Theft of Customer Funds

The sanctions sought against Jon Corzine (shown), the former head of MF Global, by the U.S. Commodity Futures Trading Commission (CFTC) in a lawsuit filed...

Lawlessness Is The New Normal

In various articles and in my latest book, The Failure of Laissez Faire Capitalism And Economic Dissolution Of The West, I have pointed out...

19 Reasons To Be Deeply Concerned About The Global Economy As We Enter The...

Is the global economic downturn going to accelerate as we roll into the second half of this year? There is turmoil in the Middle...

Austerity Blitz: Eurozone Notes From Beyond the Grave

The global financial crisis that erupted in the United States in 2007-08 has already gone down in history as the most destructive capitalist crisis...

EU makes bank creditors bear losses as Cyprus bail-in becomes blue-print for rescues

Bruno Waterfield telegraph.co.uk June 28, 2013 The new guidelines have the aim of ensuring that taxpayers are no longer the first in line to...

German bank to cut over 5,000 jobs

The entrance of a Commerzbank is seen in Cologne, western Germany. (file photo)Germanyâ„¢s second biggest lender, Commerzbank, plans to slash more than 5,000...

Cross Purposes at the United Nations: Sabotaging Hope for a Negotiated Peace in Syria

United Nations General Assembly A/67/L.63, adopted by a slim majority on May 15, 2013, is a deliberate and pathological refusal to acknowledge reality, in...

Alter-Summit in Athens: Pseudo-Left Response to Growing Social Opposition in Europe

Last weekend, approximately 200 European trade unions, political NGOs (non-governmental organizations), charity groups, and feminist, environmentalist and pseudo-left groupings organized a so-called Alter-Summit in...

Strong Economic Medicine: The IMF’s “Mistakes” on Greece are Nothing New

The IMF’s self-admitted errors in the Greek bailout were not just “mistakes”: they were the deliberate reproduction of a classical ideological script. Three years since...

IMF admits mistakes over Greece bailout

Headquarters of the International Monetary Fund in Washington, DC, United States (file photo)The International Monetary Fund (IMF) has admitted that it made serious mistakes...

Peak Gold: Demand Will Soar As Global Supplies Dwindle

It’s been said that all of the gold mined throughout the history of mankind could fit into just three Olympic-sized swimming pools. With rising fuel...

Peak Gold: Demand Will Soar As Global Supplies Dwindle *Video*

It’s been said that all of the gold mined throughout the history of mankind could fit into just three Olympic-sized swimming pools. With rising fuel...

The Fight against Consumerism and Planned Obsolescence. The Everlasting Light Bulb

by Miriam Valero The founder of the SOP movement has hit out against planned obsolescence by making an everlasting light bulb and establishing a movement...

UK banks trim 189,000 jobs bringing employment to 9yr low

Britain’s four biggest banks will have cut a quarter of their staff worldwide by the end of this year from peak staffing levels of...

Threat to the Hegemony of the US Dollar? Rigged Gold Bullion Market

Over the past month there has been a statistically improbable concurrence of events that can only be explained as a conspiracy to protect the...

Washington Signals Dollar Deep Concerns

Paul Craig RobertsPrisonPlanet.comMay 19, 2013 Over the past month there has been a statistically improbable concurrence...

Washington Signals Dollar Deep Concerns – Paul Craig Roberts

Over the past month there has been a statistically improbable concurrence of events that can only be explained as a conspiracy to protect the dollar from the Federal Reserve’s policy of Quantitative Easing (QE). Quantitative Easing is the term given to the Federal Reserve’s policy of printing 1,000 billion new dollars annually in order to…

The post Washington Signals Dollar Deep Concerns — Paul Craig Roberts appeared first on PaulCraigRoberts.org.

Cyprus Crisis Reveals Shadowy World of Tax and Money Laundering Haven

James Henry: Bailout deal includes capital controls and punishing big Russian depositors to pay off European banks -- leaves Cyprus looking for a "new way to make a living." PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. And welcome ...

Grand Theft Cyprus

Cyprus is tiny. Its population numbers about a million. Its GDP is miniscule by Western standards. It's 0.2% of Europe's economy. It's entrapped under Eurozone straightjacket rules.

How Deregulation Resurrected American Economic Insecurity

John N. Gray, a distinguished intellect and retired professor of intellectual history at the London School of Economics, disagrees with the view that “the end of history” has placed humanity on a course of ethical and economic progress.

Thousands March to ‘Lift the Burden’ of Austerity in Ireland

Over 100,000 Irish citizens took to the streets Saturday in protest of six years of severe austerity cuts and rocketing costs of living since the financial crisis plunged the country's banking system into an endless debt spiral. (Photo @kierfoley via ...

Iran Central Bank Head Fired After Crushing Currency

While in some places crushing your currency is a badge of honor for every formerly independent central banker (and now merely an operative of the fourth branch of government), this appears to not be the case in Iran. Because after having done what wes...

FACT: A handful of companies control the global economy

Andrew Gavin Marshall | In October of 2011, New Scientist reported that a scientific study on the global financial system was undertaken by three complex systems theorists at...

The End of Prosperity

By Stephen Lendman - RINF | From too much of a good thing. From the 1980s and 1990s excesses. From the longest ever US bull...

Record Corporate Bailout Reveals the Bankruptcy of American Capitalism

WSWS | The US government takeover of the mortgage finance giants Fannie Mae and Freddie Mac has dealt a shattering blow to the ideology of...

Eulogy For The “Ownership Society”

By Mike Whitney | The Fed's emergency rescue plan for the financial markets is hopelessly flawed. It's a scattershot approach that doesn't address the...

The Brutal Racial Politics of Climate Change and Pollution

As I watched coverage of Harvey's flood damage in Houston, Irma's wreckage in the Caribbean, the devastating record monsoons in South Asia, and the...

Behold a Pale Horse

Indian Independence: Forged in Washington?

India commemorates the end of British rule 70 years ago on 15 August. Now might be an apt moment to consider where India might...

America’s Invasion of Syria

Will it finally end now? Eric Zuesse, originally posted at strategic-culture.org The U.S. government has invaded and occupies Syria to overthrow its President, Bashar al-Assad and...

A Grain of Truth: RCEP and the Corporate Hijack of Indian Agriculture

The plight of farmers in India has been well documented. A combination of debt, economic liberalisation, subsidised imports, rising input costs and a shift...

Corrupt & Corrupter: US govt seeks rights to ‘Dumb & Dumber To’ from Malaysia’s...

The Justice Department is going Hollywood as a way to recover $540 million in assets that...

Puerto Ricans to vote between statehood & independence

Puerto Rico is preparing to vote on becoming the 51st US state, but there are several...

When the Alleged Fix Increases Systemic Fragility

All the “fixes” have fatally weakened the real economy, and created a dangerous illusion of “wealth,” “growth” and solvency. The “fix” of the last eight...

#NoDAPL: ING bank sells loan shares in controversial pipeline

Published time: 22 Mar, 2017 21:25 Financial giant ING has sold its stake in its financing of...

Leaping Beyond the Prison Walls

In the first week of February, thirteen students—all incarcerated adolescents serving time in an adult correctional facility—gather to think through a provocative question posed to...

Greece Under Continuous Siege: Syriza's Disastrous Political Stance

Prime Minister Alexis Tsipras of Greece at his office, in Athens, on November 23, 2015. (Photo: Tomas Munita / The New York Times) It's...

2017: Spectacular for Gold and Silver

2017 has just started but some longer-term trend changes already seem to develop. It is interesting how a new year combined with a new...

Saudi Arabia lobbies to amend JASTA law which allows 9/11 victims to sue the...

Saudi Arabia has been pressing US legislators to make amendments to the controversial law that clears the way for lawsuits seeking damages from the...

Why EU Must End in Tears

The latest consequence of economic mismanagement in Europe was the failed attempt at constitutional reform in Italy this week. The Italian people have had enough...

Entrenching Capitalist Agriculture in India Under the Guise of Development

Colin Todhunter Washington's long-term plan has been to restructure indigenous agriculture across the world and tie it to an international system of trade based on...

Trump and the Fed

REUTERS: Is it reasonable to expect to see a return to a 3 to 4 percent pace of U.S. economic growth under Trump’s policies; if...

The Looters vs. the Looted

From the conclusion of my earlier post on the topic: It is the state against the people; it is the stakeholders against the subjects. Significant power...

Wall Street and the Pentagon

Wall Street and the Pentagon greeted the onset of 2016 as a ‘banner year’, a glorious turning point in the quest for malleable regimes...

How Washington Turned Ireland Into an International Scofflaw

Roger Cole of PANA, Sinn Féin’s Aengus Ó Snodaigh, and Edward Horgan of Shannonwatch, a group that monitors U.S. military flights in and out...

Is Gandhi Still Relevant?

Colin Todhunter Mention Gandhi in certain circles and the response might be one of cynicism: his ideas are outdated and irrelevant in today's world. Such...

More Confessions of an Economic Hit Man

Twelve years ago, John Perkins published his book, Confessions of an Economic Hit Man, and it rapidly rose up The New York Times’ best-seller...

On the Edge of a Black Hole

The world economy is now at its most dangerous point in history. In virtually every major country or region, there are problems of a...

Monsanto and Bayer: Why Food And Agriculture Just Took A Turn For The Worse

Colin Todhunter News broke this week that Monsanto accepted a $66 billion takeover bid from Bayer. The new company would control more than 25 per cent...

A Sinkhole of Economic and Moral Perversion

An Interview With Hans-Herman Hoppe in the Polish weekly Najwyższy Czas! What is your assessment of contemporary Western Europe, and in particular the EU? All major political...

Imagining a Different Europe: Brexit and the Future of NATO

Everyone’s talking about the future of the European Union after the Brexit. Should we not also be wondering about the future of NATO? The two...

Just Say NO to the State

This year, the 4th of July simply makes me sad. I was trying to summon up a rush of pride to write about what makes...

Panic in High Places

When David Cameron decided to let the British people vote on Brexit, he did not realize that he would open a real can of...

Brexit Vote: A Very British Affair

A deal David Cameron (pictured in a happier time) cut with his party came back to bite him – and the entire UK. (Photo:...

Neoliberalism and The Globalization of War. America’s Hegemonic Project 

The world is at a dangerous crossroads.  The United States and its allies have launched a military adventure which threatens the future of humanity....

No more ‘US & UN trickery’: Bankrupt Puerto Ricans flood San Juan demanding decolonization

Ahead of next week’s visit by the UN decolonization committee and buried in economic debt, some...

Will the UK Write Freedom History?

We are one week away from the EU referendum, the moment when the British people will be called upon to make a historic decision...

Media Trumpwash Clinton’s Reckless Foreign Record

Hillary Clinton’s support for regime change in countries like Iraq, Libya, Syria and Honduras is seldom recalled when comparing her foreign policy to Donald...

G7 Boldly Displays Its Lies Regarding Anti-Russia Sanctions

Eric Zuesse, originally posted at The Saker The official statement from the G7 group, of leading industrialized countries, publicly exposes the entire G7 group, by...

Imperial Blues: On Whitewashing Dictatorship in the 21st Century

Gino Santa Maria | Shutterstock.com    “For goodness sakes, this is the 21st century. We’ve got to get over what happened 50, 100, 200 years ago and let’s...

From Albrecht to Monsanto: A System Not Run for the Public Good Can Never...

The following extract is from the 2011 lecture ‘Healthy Soils, Healthy People’ by Professor John Ikerd. The lecture discussed the legacy of renowned agronomist...

LEAKED: Tories want to ram EU-Canada trade deal through parliament without MPs’ consent

Leaked minutes of a meeting in Brussels suggest Downing Street is trying to fast-track an...

The West’s Needless Aggression

Last week at the United Nations, Russian President Vladimir Putin made another futile appeal for sanity in international relations. He commented that the recent...

Cheerleader for US Aggression, Pushing the World to the Nuclear Brink: Britain’s Defence Secretary...

Michael Fallon is British Defence Secretary. He is adept at making the types of statements that epitomise the pro-neoliberal, militaristic rhetoric that people in...

The Great Leap Backward: America’s Illegal Wars on the World

Can we face it in this election season? America is a weapons factory, the White House a war room, and the president the manager...

Big sky country: Texas secession to be voted on at state GOP convention

The Lone Star State could be on its way to becoming the Lone Star Nation. A...

Capitalism And Global Agribusiness: From Ford To Monsanto, It’s For Your Own Good

“We must… build our own local food systems that create new rural-urban links, based on truly agroecological food production... We cannot allow Agroecology to...

Exposing the Libyan Agenda: A Closer Look at Hillary’s Emails

Critics have long questioned why violent intervention was necessary in Libya. Hillary Clinton’s recently published emails confirm that it was less about protecting the...

IMF issues new warning on global economy

Via WSWS. This piece was reprinted by RINF Alternative News with permission or license.  As Chinese exports plunge Nick Beams The International Monetary Fund warned this week...

Poisoned, Marginalised, Bankrupt and Dead: The Role of Agroecology in Resisting the Corporate Stranglehold...

It is becoming increasingly apparent that food and agriculture across the world is in crisis. Food is becoming denutrified, unhealthy and poisoned with chemicals...

Donald Trump Is Right – Here Are 100 Reasons Why We Need To Audit...

Michael Snyder (RINF) - When one of our major politicians gets something exactly right, we should applaud them for it.  In this case, Donald Trump’s...

World War 3 Could Start This Month: 350,000 Soldiers In Saudi Arabia Stand Ready...

Michael Snyder (RINF) - 350,000 soldiers, 20,000 tanks, 2,450 warplanes and 460 military helicopters are massing in northern Saudi Arabia for a military exercise that...

Italy hit by banking crisis

Marianne Arens Sharp turbulence on the Milan stock exchange in January focused attention on Italy’s deep economic and financial crisis. At the same time, the...

Gates Foundation’s “Corporate Merry-go-round”: Spearheading the Neo-liberal Plunder of African Agriculture

The Bill and Melinda Gates Foundation (BMGF) is dangerously and unaccountably distorting the direction of international development, according to a new report by the...

How America’s Corrupt Press Are Destroying the Country

Eric Zuesse Even the best of America’s major mainstream and alternative-news media understate enormously the degree to which America’s government is corrupt; and, as a...

Ecological Meltdown And Nuclear Conflict: The Relevance Of Gandhi In The Modern World

A few months ago, entrepreneur Charles Devenish contacted me to tell me about his plans to develop various mining enterprises across India. He spoke...

Monsanto in the Dock! Rolling Back the Destructive Influence of the Global Agribusiness Cartel

And now for the good news. As the rest of the world eats denutrified, poisoned 'food' and capitulates to the criminal cartel of US agribusiness,...

Corporate Parasites And Economic Plunder: We Need A Genuine Green Revolution

Over the past few centuries, Western countries embarked on a road to material affluence at the expense of the environment and other peoples across...

4 Harbingers Of Stock Market Doom That Foreshadowed The 2008 Crash Are Flashing Red...

Michael Snyder (RINF) - So many of the exact same patterns that we witnessed just before the stock market crash of 2008 are playing out...

We Have Never Seen Global Trade Collapse This Dramatically Outside Of A Major Recession

By Michael Snyder (RINF) - If you have been watching for the next major global economic downturn, you...

Poisoned Agriculture: Depopulation and Human Extinction’

There is a global depopulation agenda. The plan is to remove the ‘undesirables’, ‘the poor’ and others deemed to be ‘unworthy’ and a drain...

Obama v. Putin: Their Debate on Crimea

The Source of the ‘New Cold War’: The Basic Disagreement Between Obama and Putin Eric Zuesse, originally posted at strategic-culture.org INTRODUCTION The basic disagreement between U.S. President...

Modi and Monsanto: A Wake Up Call For India

Immediately prior to Narendra Modi being elected India’s PM last year, there were calls from some quarters for him to usher in a Thatcherite-style...

Can Jeremy Corbyn Stem the Tide of Neoliberalism and Militarism?

Jeremy Corbyn has won the British Labour Party’s leadership election by a landslide. Corbyn comes from the left of the party, a party that...

Don’t Worry Warring Nations: The Bankers Have Our Backs

The erasure of national sovereignty leads, not to Shangri-La as some would have us believe, but to a supranational consolidated ‘sovereignty’ presided over by...

Europe’s Next Bad Idea: Bring in the Technocrats

One of the ideas floating around in the aftermath of the sack of Athens has been that of, in effect, deposing the Syriza party...

Perhaps This Is Obama’s Grand Strategy

Eric Zuesse Washingtonsblog’s anonymous founder and principal commentator is one of the most deeply knowledgeable writers on current events, and on July 19th he headlined "Governments...

Agency to Enslave Greeks Is Established

Eric Zuesse Late on Thursday, July 16th, German Economic News headlined “Greece: Debt Restructuring Through the Back Door,” and reported that, “The majority of Greece’s...

The German Siege Of Greece Begins (No, This Is Not A Repeat From 1941)

Michael Snyder (RINF) - Did you notice that Greece’s creditors are not rushing to offer the Greeks a new deal in the wake of the...

7/7 led to wars abroad and loss of freedoms at home… but do we...

For the London media 7/7 is 'done and dusted', but for Tony Gosling, who helped cover the IRA London bombing campaign for the BBC,...

How Fascist Capitalism Functions: The Case of Greece

Eric Zuesse There is democratic capitalism, and there is fascist capitalism. What we have today is fascist capitalism; and the following will explain how it...

Vladimir Putin States Russia’s New Strategy

Eric Zuesse Russian President Vladimir Putin presented, on July 3rd, to Russia’s Security Council, the nation’s new National Security Strategy, which encompasses not merely military,...

Food Security: a Hostage to Wall Street

In October of last year, World Food Day celebrated ‘Family Farming: Feeding the world, caring for the earth’. According to the UN Food and...

Obama Wants Regime Change in Ecuador

by Stephen Lendman (RINF) - Obama is no man of the people. He never was throughout his political career. He serves powerful monied interests exclusively. As...

Has a new financial collapse started?

Michael Snyder (RINF) - Is the financial collapse that so many are expecting in the second half of 2015 already starting? Many have believed that...

War Threat Rises As Economy Declines – Paul Craig Roberts

War Threat Rises As Economy Declines Paul Craig Roberts, Keynote Address to the Annual Conference of the Financial West Group, New Orleans, May 7, 2015 The defining events of our time are the collapse of the Soviet Union, 9/11, jobs…

The post War Threat Rises As Economy Declines — Paul Craig Roberts, appeared first on PaulCraigRoberts.org.

CFR Says China Must Be Defeated, & TPP Is Essential to That

Eric Zuesse (RINF) - Wall Street's Council on Foreign Relations has issued a major report, alleging that China must be defeated because it threatens to...

Suicide Mission: Why a War With Iran Will End in Another Defeat for the...

Timothy Alexander Guzman (RINF) - On Hardball with Chris Matthews, a U.S. mainstream media program interviewed President Barack Obama and was asked about Russia’s decision on...
SI W 25 Apr 15

Gold And Silver — The U S Is A Corporation. PMs Stand In The...

Where have all the trillions of newly created “money” gone? Into the failed and bankrupt banking scam conducted by the elites. All world-wide monetary...

Agribusiness And The Four Horsemen Of The Apocalypse

US citizens constitute 5 percent of the world’s population but consume 24 percent of global energy. On average, one person in the US consumes as...

Globalization: Global Agribusiness Hammering Away At The Foundations Of Indian Society


RINF, Countercurrents, Global Research

https://twitter.com/colin_todhunter

According to the World Bank in the nineties, it was expected (and hoped) that some 400 million people in Indian agriculture would be moving out of the sector by 2015. To help them on their way, farming had to be made financially non-viable and policies formulated to facilitate the process.

Food and trade policy analyst Devinder Sharma describes the situation: 

“India is on fast track to bring agriculture under corporate control... Amending the existing laws on land acquisition, water resources, seed, fertilizer, pesticides and food processing, the government is in overdrive to usher in contract farming and encourage organized retail. This is exactly as per the advice of the World Bank and the International Monetary Fund as well as the international financial institutes.” 

He notes that in its 2008 World Development Report, the World Bank wanted India to hasten the process by accelerating land acquisitions and launching a network of training institutes to train younger people in rural areas so as to make them eligible for industrial work. This is now happening, especially the highly contentious push to facilitate private corporations' access to land, which has been sparking mass protests across the country. 

Sharma describes how US subsidies and global trade policies work to benefit hugely wealthy agribusiness corporations, while serving to cripple the agricultural sectors of poorer countries. The massive subsidies doled out by the US to its giant agribusiness companies lower global produce prices and buck markets in favour of Washington. The US has also included non-trade barriers (such as various health standards and regulations) to keep agricultural imports out. At the same time, India has opened its markets and support for its own farmers is being cut. Farmers are thus being left to the vagaries of a global market slanted in favour of US interests.

As India's farmers face increasing financial distress and foreign private players try to move in to secure land and the seed, food processing and food retail sectors, what is happening courtesy of compliant politicians is tantamount to cannibalizing the country at the behest of foreign interests. 

Western agribusiness has already gained an influential foothold in India and many of the country’s national public bodies. Along with US food processing giants Cargill and Archer Daniels Midland, agribusiness aims to recast the rural economy (and thus Indian society, given that hundreds of millions depend on it for a living) according to its own needs. This would mean eventually moving over 600 million (never mind the previously mentioned figure of 400 million) who depend on agriculture and local food processing activities into urban areas.

Monsanto already dominates the cotton industry in the country and is increasingly shaping agri-policy and the knowledge paradigm by funding agricultural research in public universities and institutes (see here). Moreover, public regulatory bodies are now severely compromised and riddled with conflicts ofinterest where decision-making over GMOs are concerned. 

But this is the nature of the 'globalization' agenda: the goal is to ‘capture’ and ‘exploit’ foreign markets and their policy/regulatory bodies. The culture of neoliberalism is exemplified by APCO Worldwide, a major ‘global communications, stakeholder engagement and business strategy’ company that Narendra Modi has been associated with in the past. In APCO’s India Brochure, there is the claim that India’s resilience in weathering the global downturn and financial crisis has made governments, policy-makers, economists, corporate houses and fund managers believe that India can play a significant role in the recovery of the global economy in the months and years ahead. APCO describes India as a trillion dollar market.

No mention of ordinary people or poor farmers. The focus is on profit, funds and money because for the readers of such documents all of this constitutes ‘growth’ – a positive sounding notion sold to the masses that in reality means corporate profit. It forms part of an ideology that attempts to disguise the nature of a system that has produced austerity, disempowerment and increasing hardship for the bulk of the population and the concentration of ever more wealth and power in the hands of the few who now dictate policies to nation states.

Take a brief look at what happened in Britain when the neoliberal globalization strategy took hold there. As with Modi, Margaret Thatcher was a handmaiden to rich interests.

During the eighties, the Thatcher government set the wheels in motion to shut down the coal mining industry. The outcome destroyed communities across the country, and they have never recovered. Crime-ridden, drug-ridden and shells of their former selves, these towns and villages and the people in them were thrown onto the scrapheap. The industry was killed because it was deemed ‘uneconomical'. And yet it now costs more to keep a person on the dole than it would to employ them at the minimum wage, the country imports coal at a higher cost than it would to have kept the pits open and Britain has to engage in costly illegal wars to secure its oil and gas energy needs, which coal could largely provide (Britain has over 1,000 years of coal supply in the ground). In fact, before 1970, Britain got all its gas from its own coal.

The economics just do not add up. Former miners’ leader Arthur Scargill fought to save the mining industry and now asks where is the sense in all of this (see thisthis and this).   

The same happened across the manufacturing sector, from steel to engineering to shipbuilding. And a similar process occurred in the fishery and agriculture sectors. In 2010, there were over eight million unemployed (over 21 percent of the workforce), despite what the official figures said.

Britain decided to financialize its economy and move people out of manufacturing to integrate with a neoliberal globalized world order. Ordinary people’s livelihoods were sacrificed and sold to the lowest bidder abroad and the real economy was hollowed out for the benefit of giant corporations who now have near-monopolies in their respective sectors and record massive profits. People were promised a new service-based economy. Not enough jobs materialized or when they did many soon moved to cheap labour economies or they were automated. 

Although it’s a vastly different country, if we look at agriculture in India, a similar trend is seen. Almost 300,000 farmers have taken their lives in India since 1997 and many more are experiencing economic distress or have left farming as a result of debt, a shift to cash crops and economic ‘liberalization’.

In a recent TV interview, Devinder Sharma highlighted the plight of agriculture:

“Agriculture has been systematically killed over the last few decades… the World Bank and big business have given the message that this is the only way to grow economically… Sixty percent of the population lives in the villages or in the rural areas and is involved in agriculture, and less than two percent of the annual budget goes to agriculture… When you are not investing in agriculture, you think it is... not performing. You are not wanting it to perform... Leave it to the vagaries or the tyranny of the markets… agriculture has disappeared from the economic radar screen of the country… 70 percent of the population is being completely ignored…”

As policy makers glorify ‘business entrepreneurship’ and ‘wealth creation’ and acquiesce to hugely wealthy individuals and their corporations, it largely goes unrecognized that farmers have always been imbued with the spirit of entrepreneurship and have been creating food wealth for centuries. They have been innovators, natural resource stewards, seed savers and hybridization experts. But they are now fodder to be sacrificed on the altar of US petro-chemical agribusiness interests.

In his interview, Devinder Sharma went on to state that despite the tax breaks and the raft of policies that favour industry over agriculture, industry has failed to deliver; but despite the gross under-investment in agriculture, it still manages to deliver bumper harvests year after year:

“In the last 10 years, we had 36 lakh crore going to the corporates by way of tax exemptions... They just created 1.5 crore jobs in the last ten years. Where are the exports? … The only sector that has performed very well in this country is agriculture... Why do you want to move the population... Why can’t India have its own thinking? Why do we have to go with Harvard or Oxford economists who tell us this?” (36 lakh crore is 36 trillion; 1.5 crore is 15 million)

It all begs the question: where are the jobs going to come from to cater for hundreds of millions of former agricultural workers or those whose livelihoods will be destroyed as transnational corporations move in and seek to capitalize industries that currently employ tens of millions (if not hundreds of millions)?

The genuine wealth creators, the farmers, are being sold out to corporate interests whose only concern is to how best loot the economy. As they do so, they churn out in unison with their politician puppets the mantra of it all being in the ‘national interest’ and constituting some kind of ‘economic miracle’. And those who protest are attacked and marginalised. In Britain during the eighties, it was a similar situation. Workers' representatives portrayed as the 'enemy within'. 

Through various policies, underinvestment and general neglect, farmers are being set up to financially fail. However, it is corporate-industrial India which has failed to deliver in terms of boosting exports or creating jobs, despite the massive hand outs and tax exemptions given to it (see this and this). The number of jobs created in India between 2005 and 2010 was 2.7 million (the years of high GDP growth). According to International Business Times, 15 million enter the workforce every year (see here).

Again, this too is a global phenomenon.

Corporate-industrial India is the beneficiary of a huge global con-trick: subsidies to the public sector or to the poor are portrayed as a drain on the economy, while the genuinely massive drain of taxpayer-funded corporate dole, tax breaks, bail outs and tax avoidance/evasion are afforded scant attention. Through slick doublespeak, all of this becomes redefined necessary for creating jobs or fueling ‘growth’. The only growth is in massive profits and inequalities, coupled with unemployment, low pay, the erosion of welfare and a further race to the bottom as a result of secretive trade agreements like the TTIP.

India is still a nation of farmers. Around two thirds of the population in some way rely on agriculture for a living. Despite the sector’s woeful neglect in favour of a heavily subsidized and government-supported but poorly performing industrial sector, agriculture remains the backbone of Indian society.

Notwithstanding the threat to food security, livelihoods and well-being, the type of unsustainable corporate-controlled globalized industrial agriculture being pushed through in India leads to bad food, bad soil, bad or no waterbad health, stagnant or falling yields and ultimately an agrarian crisis. It involves the liberal use of cancer-causing pesticides and the possible introduction of health-damaging but highly profitable GMOs.

There was a famous phrase used in the eighties in Britain by the former Prime Minister Harold McMillan. He accused the Thatcher administration of 'selling the family silver' with its privatization policies and the auction of public assets that ordinary people had strived to build over many decades of dedicated labour. 

As Modi presses through with his strident neoliberal agenda and seeks to further privatize India's agricultural heritage, it begs the question: is it not tantamount to turning in on yourself and destroying the home in which you live? 

Globalization – Global Agribusiness Hammering Away At The Foundations Of Indian Society 

According to the World Bank in the nineties, it was expected (and hoped) that some 400 million people in Indian agriculture would be moving...

Ukraine’s Economy Plunges: So, Who Should Pay for It?

Eric Zuesse According to Ukrainian news-accounts, Ukraine’s economy is rapidly falling. On April 2nd was reported that “Sales of new cars in Ukraine fell to the lowest in...

Empire and Colonialism: Rich Men in London Still Deciding Africa’s Future

Some £600 million in UK aid money courtesy of the taxpayer is helping big business increase its profits in Africa via the New Alliance...

Empire And Colonialism: Rich Men In London Still Deciding Africa’s Future

RINF, 4th Media, Countercurrents, Global Research, Counterpunch, Information Clearing House, Regeneracion (Mexico), The News International (Pakistan newspaper 27/3/2015)

(all links are in italics)

Some £600 million in UK aid money courtesy of the taxpayer is helping big business increase its profits in Africa via the New Alliance for Food Security and Nutrition. In return for receiving aid money and corporate investment, African countries have to change their laws, making it easier for corporations to acquire farmland, control seed supplies and export produce.

Last year, Director of the Global Justice Now Nick Dearden said:

“It’s scandalous that UK aid money is being used to carve up Africa in the interests of big business. This is the exact opposite of what is needed, which is support to small-scale farmers and fairer distribution of land and resources to give African countries more control over their food systems. Africa can produce enough food to feed its people. The problem is that our food system is geared to the luxury tastes of the richest, not the needs of ordinary people. Here the British government is using aid money to make the problem even worse.”

Ethiopia, Ghana, Tanzania, Burkina Faso, Côte d’Ivoire, Mozambique, Nigeria, Benin, Malawi and Senegal are all involved in the New Alliance.

In a January 2015 piece in The Guardian, Dearden continued by saying that development was once regarded as a process of breaking with colonial exploitation and transferring power over resources from the ‘first’ to the ‘third world’, involving a revolutionary struggle over the world's resources. However, the current paradigm is based on the assumption that developing countries need to adopt neo-liberal policies and that public money in the guise of aid should facilitate this. The notion of ‘development’ has become hijacked by rich corporations and the concept of poverty depoliticised and separated from structurally embedded power relations. 

To see this in action, we need look no further to a conference held on Monday 23 March in London, organised by the Bill & Melinda Gates Foundation and the United States Agency for International Development (USAID). This secretive, invitation-only meeting with aid donors and big seed companies discussed a strategy to make it easier for these companies to sell patented seeds in Africa and thus increase corporate control of seeds.

Farmers have for generations been saving and exchanging seeds among themselves. This has allowed them a certain degree of independence and has enabled them to innovate, maintain biodiversity, adapt seeds to climatic conditions and fend off plant disease. Big seed companies with help from the Gates Foundation, the US government and other aid donors are now discussing ways to increase their market penetration of commercial seeds by displacing farmers own seed systems.

Corporate sold hybrid seeds often produce higher yields when first planted, but the second generation seeds produce low yields and unpredictable crop traits, making them unsuitable for saving and storing. As Heidi Chow from Global Justice Now rightly says, instead of saving seeds from their own crops, farmers who use hybrid seeds become completely dependent on the seed, fertiliser and pesticide companies, which can (and has) in turn result in an agrarian crisis centred on debt, environmental damage and health problems.

The London conference aimed to share findings of a report by Monitor Deloitte on developing the commercial seed sector in sub-Saharan Africa. The report recommends that in countries where farmers are using their own seed saving networks NGOs and aid donors should encourage governments to introduce intellectual property rights for seed breeders and help to persuade farmers to buy commercial, patented seeds rather than relying on their own traditional varieties. The report also suggests that governments should remove regulations so that the seed sector is opened up to the global market.

The guest list comprised corporations, development agencies and aid donors, including Syngenta, the World Bank and the Gates Foundation. It speaks volumes that not one farmer organisation was invited. Farmers have been imbued with the spirit of entrepreneurship for thousands of years. They have been "scientists, innovators, natural resource stewards, seed savers and hybridisation experts" who have increasingly been reduced to becoming recipients of technical fixes and consumers of poisonous products of a growing agricultural inputs industry. So who better than to discuss issues concerning agriculture?

But the whole point of such a conference is that the West regards African agriculture as a ‘business opportunity’, albeit wrapped up in warm-sounding notions of 'feeding Africa' or 'lifting millions out of poverty'. The West’s legacy in Africa (and elsewhere) has been to plunge millions into poverty. Enforcing structural reforms to benefit big agribusiness and its unsustainable toxic GMO/petrochemical inputs represents a continuation of the neo-colonialist plundering of Africa. The US has for many decades been using agriculture as a key part of foreign policy to secure global hegemony.

Phil Bereano, food sovereignty campaigner with AGRA Watch and an Emeritus Professor at the University of Washington says:

“This is an extension of what the Gates Foundation has been doing for several years – working with the US government and agribusiness giants like Monsanto to corporatize Africa’s genetic riches for the benefit of outsiders. Don’t Bill and Melinda realize that such colonialism is no longer in fashion? It’s time to support African farmers’ self-determination.” 

Bereano also shows how Western corporations only intend to cherry-pick the most profitable aspects of the food production chain, while leaving the public sector in Africa to pick up the tab for the non-profitable aspects that allow profitability further along the chain.

Giant agritech corporations with their patented seeds and associated chemical inputs are ensuring a shift away from diversified agriculture that guarantees balanced local food production, the protection of people’s livelihoods and agricultural sustainability. African agriculture is being placed in the hands of big agritech for private profit under the pretext of helping the poor. The Gates Foundation has substantial shares in Monsanto. With Monsanto’s active backing from the US State Department and the Gates Foundation’s links with USAID, African farmers face a formidable force.

Report after report suggests that support for conventional agriculture, agroecology and local economies is required, especially in the Global South. Instead, Western governments are supporting powerful corporations with taxpayers money whose thrust via the WTO, World Bank and IMF has been to encourage strings-attached loans, monocrop cultivation for export using corporate seeds, the restructuring of economies, the opening of economies to the vagaries of land and commodity speculation and a system of globalised trade rigged in favour of the West.

In this vision for Africa, those farmers who are regarded as having any role to play in all of this are viewed only as passive consumers of corporate seeds and agendas. The future of Africa is once again being decided by rich men in London


So You Want To Help Africa Mr Paterson? Then Stop Promoting Ideology And Falsehoods...

Countercurrents and RINF 23/2/2015, Global Research and The 4th Media 24/2/2015, Il Cambiamento 25/2/2015, London Progressive Journal 21/3/2015

According to Mathew Holehouse in the UK’s Telegraph newspaper (here), former UK Environment Minister Owen Paterson will this week accuse the European Union and Greenpeace of condemning people in the developing world to death by refusing to accept genetically modified crops. Speaking in Pretoria, South Africa, on Tuesday, Paterson will warn that a food revolution that could save Africa from hunger is being held back and that the world is on the cusp of a green revolution, of the kind that fed a billion people in the 1960s and 1970s as the world’s population soared.

After talking about a growing global population and the pivotal role of GMOs in feeding it, Paterson will assert:

"This is also a time, however, of great mischief, in which many individuals and even governments are turning their backs on progress. Not since the original Luddites smashed cotton mill machinery in early 19th century England, have we seen such an organised, fanatical antagonism to progress and science. These enemies of the Green Revolution call themselves ‘progressive’, but their agenda could hardly be more backward-looking and regressive… their policies would condemn billions to hunger, poverty and underdevelopment. And their insistence on mandating primitive, inefficient farming techniques would decimate the earth’s remaining wild spaces, devastate species and biodiversity, and leave our natural ecology poorer as a result.”

Instead of parroting the corporate spin of the pro-GMO lobby, Paterson would do better to consider more viable options that he likes to denigrate as 'backward-looking and regressive' by listening to what Russia’s Prime Minister Dmitry Medvedev stated in April of last year: 

“We don’t have a goal of developing GM products here or to import them.  We can feed ourselves with normal, common, not genetically modified products.  If the Americans like to eat such products, let them eat them.  We don’t need to do that; we have enough space and opportunities to produce organic food.” (see here)

Or maybe Paterson would benefit from heeding a Statement signed by 24 delegates from 18 African countries to the United Nations Food and Agricultural Organization in 1998:

“We strongly object that the image of the poor and hungry from our countries is being used by giant multinational corporations to push a technology that is neither safe, environmentally friendly nor economically beneficial to us. We do not believe that such companies or gene technologies will help our farmers to produce the food that is needed in the 21st century. On the contrary, we think it will destroy the diversity, the local knowledge and the sustainable agricultural systems that our farmers have developed for millennia, and that it will thus undermine our capacity to feed ourselves.”

Perhaps he should also listen to Viva Kermani (here - supported by data) when talking about the situation in India:

“… the statements that they [supporters of GMOs] use such as “thousands die of hunger daily in India” are irresponsible and baseless scare-mongering with a view to projecting GM as the only answer. When our people go hungry, or suffer from malnutrition, it is not for lack of food, it is because their right to safe and nutritious food that is culturally connected has been blocked. That is why it is not a technological fix problem and GM has no place in it.”

Paterson has a history of engaging in the type of emotional blackmail and smearing of critics that comes second nature to the pro-GMO lobby. Anyone (usually portrayed as affluent Westerners – which is not true, given many of the critics are not ‘Western’, affluent or reside in ‘developed’ countries) who opposes GM crops or food is painted as an enemy of the poor because they take food from their bellies (see this). Paterson is using a rhetorical device deliberately designed to mislead and stir up emotion. His tactics are based on spurious claims about the efficacy of GMO technology and are intended to divert attention away from the true nature and causes of hunger and food poverty.

Proponents of GM crops constantly claim that we need such technology to address hunger and to feed a growing global population. We are told by the GMO biotech lobby that GM crops are essential, are better for the environment and will provide the tools that farmers need in a time of climate chaos. They claim that GM crops provide higher yields and higher incomes for farmers around the world. All such claims have been shown to be bogus.

For example, let us take one report from the many that could be cited to show the fallacious nature of these claims. The Canadian Biotechnology Action Network (CBAN) last year released a report that concluded hunger is caused by poverty and inequality and that we already produce enough food to feed the world’s population and did so even at the peak of the world food crisis in 2008. The report went on to say that current global food production provides enough to feed ten billion people and the recent food price crises of 2008 and 2011 both took place in years of record global harvests, clearly showing that these crises were not the result of scarcity.

CBAN also noted that the GM crops that are on the market today are not designed to address hunger. Four GM crops account for almost 100 percent of worldwide GM crop acreage, and all four have been developed for large-scale industrial farming systems and are used as cash crops for export, to produce fuel or for processed food and animal feed.

The report also stated that GM crops have not increased yields and do not increase farmers’ incomes. GM crops lead to an increase in pesticide use and cause further harm to the environment. Pesticide reduction was the primary selling point for Bt cotton adoption in India, but overall pesticide use has not decreased in any state that grows Bt cotton, with the exception of Andhra Pradesh. Read the full report that contains over 100 references in in support of these claims.

Hunger, food security and ‘feeding the world’ is a political, social and economic problem and no amount of gene splicing is capable of surmounting obstacles like poor roads, inadequate rural credit systems and insufficient irrigation.

Paterson's talk about backward, regressive, primitive farming practices that would condemn millions to hunger and decimate the ecology is again playing on fear and emotion. What he says has no basis in reality.

Numerous official reports have argued that to feed the hungry in poorer regions we need to support diverse, sustainable agro-ecological methods of farming and strengthen local food economies: for example, see this UN report, this official report, this report by the UN Special Rapporteur on the right to food and this report by 400 experts which was twice peer reviewed. 

See also see this report that indicates GMOs are not necessary to feed the world.

So from where and from who is Paterson getting his information from? I think we know the answer.

It is after all small farms and peasant farmers (more often than not serving local communities) that are more productive than giant industrial (export-oriented) farms and which produce most of the world’s food (see this report from GRAIN). The experience with GM crops shows that the application of GM technology is more likely to actually undermine food security and entrench the social, economic and environmental problems created by industrial agriculture and corporate control (see this other report from GRAIN and this article by Helena Paul documenting ecocide and genocide in South America due to the imposition of GM crops there).

“The problem is that the poor have no money to buy food and increasingly, no access to land on which to grow it… GM is a dangerous distraction from real solutions and claims that GM can help feed the world can be viewed as exploitation of the suffering of the hungry. GM crops do not increase yield. Nor are there any GM crops that are better than non-GM crops at tolerating poor soils or challenging climate conditions. Thus it is difficult to see how GM can contribute to solving world hunger… The two major GM crops, soy and maize, mostly go into animal feed for intensive livestock operations, biofuels to power cars, and processed human food – products for wealthy nations that have nothing to do with meeting the basic food needs of the poor and hungry.”

This above quote is from the Open Earth Source report GMOs Myths and Truths. The report provides specific details about GM crops that have been specifically promoted as helping small-scale and poor farmers in Africa. However, the results were the opposite of what was promised and all these projects failed.

Owen Paterson is a staunch supporter of GM technology, so staunch in fact that fellow Conservative Party MP Zac Goldsmith stated Paterson was little more than an industry puppet (see this in the UK’s Independent newspaper that quotes Goldsmith).

Paterson is ignorant of or at least content to side line the devastating, deleterious health, environmental, social and economic impacts of GMOs, which are outined in the 'GMO Myths and Truths' report. He acts as a mouthpieces for the GMO biotech sector and has made numerous false claims about the benefits and safety of GMOs that fly in the face of research findings.

In the recent past, he was keen to reassure the British public that safety concerns over GMOs are based on "humbug" and that GM food is completely safe to eat. See this article, which outlines Paterson’s stance and critiques his claims. 

When Paterson talks about 'enemies' of the 'green revolution' as being fanatical Luddites, he may also like to consider that the ‘green revolution’ was not the resounding success he likes to portray it as. Raj Patel provides some revealing insight into how the ‘green revolution’ took credit for many gains in Indian agricultural that were due to other influences (see this). And, of course, the ‘green revolution’ was based on, among other things, massive external inputs, violence, severe environmental and human health degradation and debt (see this – the entire text of Vandana Shiva’s book ‘The Violence of the Green Revolution’ - and this and this, which both highlight the current agrarian crisis in Punjab, the original ‘poster boy’ of the ‘green revolution’).   

It comes as no surprise that Paterson would state the things he does. As Environment Minister, his support for GMOs was being carried out in partnership with a number of pro-GMO institutions, including the Agricultural Biotechnology Council (ABC), which is backed by GM companies such as Monsanto, Syngenta and Bayer CropScience. Last year, despite government attempts to throw a veil of secrecy over meetings and conversations it had with the industry, GeneWatch UK uncovered evidence that GMO companies are driving UK government policy in this area (see here). 

So if you were still wondering from where and whom Paterson is getting his information from, it should by now be clear. 

His attacks on Greenpeace and others who advocate a shift away from petrochemical/GM agriculture towards sustainable farming are part of the wider media campaign to demonize scientists and prominent anti-GMO campaigners. A number of hatchet pieces have in recent months branded Vandana Shiva a liar and a charlatan and the GMO lobby has assembled all the ingredients (not least a massive amount of money) of a classic yet predictable propaganda campaign (see this and this). From the UK, to Ghana (see this) and India (see this), there is a concerted campaign by the GMO lobby and its political handmaidens to demonize critics of GMOs. 

Paterson plays his role well.

Such tactics are used because the pro-GMO lobby has a big problem. It cannot provide a convincing case for GMOs. It therefore resorts to populism, intimidation, character assassination, emotional blackmail, falsehoods, panic mongering and unfounded claims (see this to see how its rhetoric about ‘sound science’ and dispassionate reason informing the debate on GMOs contradicts how it acts in reality). In fact, it goes above and beyond such things by tightening its grip on countries on the back of coups, war and conflict (see this to understand how big agritech concerns benefit from and fuel the situation in Ukraine).

Yes, it is a time of great mischief as Paterson says – but not because of what his critics say or do – but because of what he and his backers do by turning their backs on the type of sound science and progress in the way that he falsely he accuses GMO critics of doing. 

Paterson belongs to the pro-big business Conservative Party which champions the type of privatisation, public expenditure reduction, deregulation, tax avoiding and ‘free’ trade policies that have ceded policy decision making to powerful corporate players. This has in turn led to a concentration of wealth (see this) and imposed ‘austerity’ and drives hunger, poverty, land grabs and the disappearance of family/peasant farms (see this analysis of food commodity speculationthis description of the global food system and this report by the Oakland Institute on land grabs) – the very bedrock of global food production (see this).

What Paterson and the agritech cartel offer is more of the same by tearing up traditional agriculture for the benefit of corporate entities. Paterson talks of critics of GMO as being Luddites, fanatics and condemning billions (yes, he does say billions!) to poverty and underdevelopment with regressive policies. He should look closer to home.

He should realise that elite interests in the West have condemned tens of millions to hunger and poverty in Africa by enslaving them and their nations to debt and that agriculture has for many decades been an important means by which US foreign policy creates dependence and subservience (see here). But such things are not to be debates by Paterson. Like all good (or should that be bad?) politicians, he twists the truth and turns deception and hypocrisy into an art.  

The current global system of chemical-industrial agriculture and World Trade Organisation rules that agritech companies helped draw up for their benefit to force their products into countries (see  here) are a major cause of structural hunger, poverty, illness and environmental destruction. By its very design, the system is meant to suck the life from people, nations and the planet for profit and control (see  here). Blaming critics of this system for the problems of the system is highly convenient. And forwarding some bogus technical quick-fix will not put things right. It represents more of the same.

So you want to ‘help’ Africa Mr Paterson?

Daniel Maingi works with small farmers in Kenya and belongs to the organization Growth Partners for Africa. Maingi was born on a farm in eastern Kenya and studied agriculture from a young age. He remembers a time when his family would grow and eat a diversity of crops, such as mung beans, green grams, pigeon peas, and a variety of fruits now considered ‘wild’. Following the Structural Adjustment Programmes of the 1980s and 1990s and a green revolution meant to boost agricultural efficiency, the foods of his childhood have been replaced with maize, maize, and more maize. He says:

 "In the morning, you make porridge from maize and send the kids to school. For lunch, boiled maize and a few green beans. In the evening, ugali, [a staple dough-like maize dish, served with meat]… [today] it’s a monoculture diet, being driven by the food system – it’s an injustice.” (see here  and here for the sources that quote Maingi and other commentators mentioned below).

As much of Africa is so dry, it’s not suited for thirsty crops, and heavy use of fertilizer kills worms and microbes important for soil health. Maingi therefore argues that the model of farming in the West is not appropriate for farming in most of Africa and that the West should invest in indigenous knowledge and agro-ecology.

Growth Partners Africa works with farmers to enrich the soil with manure and other organic material, to use less water and to grow a variety of crops, including some that would be considered weeds on an industrial farm. For Maingi, food sovereignty in Africa means reverting to a way of farming and eating that pre-dates major investment from the West.

Mariam Mayet of the African Centre for Biosafety in South Africa says that many countries are subsidizing farmers to buy fertilizer as part of the chemical-industrial model of  agriculture, but that takes money away from public crop-breeding programmes that provide improved seeds to farmers at low cost:

“It’s a system designed to benefit agribusinesses and not small-scale farmers.”

She adds because so many institutions, from African governments to the World Bank, have ‘embraced’ the ‘green revolution’ so much that alternative farming methods are getting short shrift.

Elizabeth Mpofu, of La Via Campesina, grows a variety of crops in Zimbabwe. During a recent drought, neighbours who relied on chemical fertilizer lost most of their crops. She reaped a bounty of sorghum, corn, and millet using what are called agro-ecological methods: natural pest control, organic fertilizer, and locally adapted crops.

There is also concern about the increased reliance on expensive inputs and the dramatic drop in price of crops. This has resulted in poverty for the small farmer.

Daniel Maingi:

“What the World Bank has done, the International Monetary fund, what AGRA and Bill Gates are doing, it’s actually pretty wrong. The farmer himself should not be starving”.

He added that what the Gates Foundation/big agritech backed Alliance for a Green Revolution in Africa (AGRA) (see this) is doing is “out of sync with the natural process” by bringing in imported seeds, which are not adapted to the land and require excessive fertilizer and pesticides. 

In effect, giant agritech corporations with their patented GMO seeds and associated chemical inputs are working to ensure a shift away from diversified agriculture that guarantees balanced local food production, the protection of people’s livelihoods and environmental sustainability. The evidence provided by GRAIN and the Oakland Institute shows that small farmers are being displaced and are struggling to preserve their indigenous seeds and traditional knowledge of farming systems. 

Globally, agritech corporations are being allowed to shape government policy by being granted a strategic role in trade negotiations (see this). They are increasingly setting the policy/knowledge framework by being allowed to fund and determine the nature of research carried out in public universities and institutes (see this). They continue to propagate the myth that they have the answer to global hunger and poverty.

… take capitalism and business out of farming in Africa. The West should invest in indigenous knowledge and agro-ecology, education and infrastructure and stand in solidarity with the food sovereignty movement.” Daniel Maingi, Growth Partners for Africa.

Paterson and his corporate associates believe that the poor must be ‘helped’ by the West and its powerful corporations and billionaire 'philanthropists'. It harks back to colonialism. The West has already done enough damage in Africa as Michel Chossudovsky has described:

“The “economic therapy” imposed under IMF-World Bank jurisdiction is in large part responsible for triggering famine and social devastation in Ethiopia and the rest of sub-Saharan Africa, wreaking the peasant economy and impoverishing millions of people. With the complicity of branches of the US government, it has also opened the door for the appropriation of traditional seeds and landraces by US biotech corporations, which behind the scenes have been peddling the adoption of their own genetically modified seeds under the disguise of emergency aid and famine relief. Moreover, under WTO rules, the agri-biotech conglomerates can manipulate market forces to their advantage as well as exact royalties from farmers. The WTO provides legitimacy to the food giants to dismantle State programmes including emergency grain stocks, seed banks, extension services and agricultural credit, etc.), plunder peasant economies and trigger the outbreak of periodic famines.” See the full article (‘Sowing the Seeds of Famine in Ethiopia’) from which this extract is taken here


When Owen Paterson accuses critics of GMOs of being elitist and regressive, he is merely attempting to shift the focus from his own own elitist, regressive ideology. 

Hasn't the world had enough of the type of Western 'humanitarianism' that Paterson espouses?

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Monsanto’s Shares Surge as its Drive to Force GM Crops into India Gathers Pace

It was a case of Modi mania when Narendra Modi and his BJP ‘swept’ to power in last year’s Indian general election. It was...

Monsanto’s Shares Surge As Its Drive To Force GM Crops Into India Gathers Pace

RINF and Countercurrents 4/2/2015, The 4th Media and Global Research 5/2/2015, Morning Star 10/2/2015, Counterpunch 27/3/2015

It was a case of Modi mania when Narendra Modi and his BJP ‘swept’ to power in last year’s Indian general election. It was however hardly the sweeping endorsement from the voters that much of the corporate media liked to portray it as. The BJP might have took 282 of the 543 seats in the Lok Sabha, but it ‘swept’ to power on only 31 percent of the vote.

Parts of corporate India and the well-off middle classes nevertheless celebrated Modi’s rise to Prime Minister in the belief that they would materially benefit from a ‘Thatcherite-style’ revolution (see here). And many ordinary folk also swallowed the PR about Modi's ‘vibrant Gujarat’ PR campaign, which has been shown to be anything but ‘vibrant’.

Writing on the Countercurrents website, Rohini Hensman shows that GDP growth in Gujarat under Chief Minister Modi was nothing special compared with many other states in India and was supported by wholesale privatisation of public assets, which has in effect meant the state government abdicating responsibility for decision-making processes that impact millions of people's lives by handing them to elite interests (see here). In terms of poverty, rural population displacement, hunger, farmer suicides, corruption, disease and debt, Hensman demonstrates that under Modi the extreme economic neoliberalism practised was anything but a resounding success.

Now at the political helm nationally, Modi and his administration are helping to accelerate a process that could eventually result in the selling of the economic and social bedrock of the country - agriculture - to foreign GMO agribusiness, not least by pushing for open field trials of various GM food crops. (The BJP does not stand alone here, though, as the process was gathering pace under the previous Congress-led administration and Veerappa Moily near the end.)

Some might find it perplexing that a nationalist outfit like BJP would appear willing to hand over food sovereignty and security to foreign agribusiness, such as US giant Monsanto, which seeks to secure control over the supply and growing of seeds and thus the global food chain (for example, see this). (The GMO issue is ultimately about geopolitics, seed freedom and food democracy, see here.)

Investigative journalist and geopolitical analyst Shelley Kasli has outlined the makeover that Modi received from the US-Israeli led APCO Worldwide, a major 'global communications, stakeholder engagement and business strategy' company. Kalsi shows that APCO is well connected to the US/Israeli establishment, helping to promote militaristic policies, economic neoliberalism and the overall strategies of and engagements between governments and powerful corporate interests across the globe (see Kasli’s piece on APCO here).

This is who Modi has previously partnered with to promote Gujarat as ‘vibrant’ and thus himself as potential PM material. There was the suspicion that once in power, Modi would become the go-to man for foreign corporate interests, especially those which are part of the extensive APCO network (and that includes Monsanto).

Facilitating powerful Western corporations' entry into India is not unique to the current administration. The Knowledge Initiative on Agriculture helped the likes of Monsanto, Archer Daniel Midland, Cargill and Wal-Mart’s push into India’s seed, trade and retail sectors in return for concessions in the nuclear field (see here).

Under the Modi-led administration, however, there is a stated commitment to clear away ‘blockages’ that the previous administration was unwilling or unable to do and would no doubt hinder the type of economic neoliberalism Modi presided over in Gujarat. And it is increasingly apparent those ‘blockages’ include smoothing the way for the entry of GM crops.

Ignoring all the evidence and warnings

Writing in The Hindu last year, Aruna Rodrigues noted that the Technical Expert Committee (TEC) Final Report (FR) is the fourth official report exposing the lack of integrity, independence and scientific expertise in assessing GMO risk (see here). The four reports are: The ‘Jairam Ramesh Report’ of February 2010, imposing an indefinite moratorium on Bt Brinjal, overturning the apex Regulator’s approval to commercialise it; the Sopory Committee Report (August 2012); the Parliamentary Standing Committee (PSC) Report on GM crops (August 2012) and the TEC Final Report (June-July 2013). There is a remarkable consensus here.

The TEC recommended an indefinite moratorium on the field trials of GM crops until the government devised a proper regulatory and safety mechanism. No such mechanism exists, but open field trials are being given the go ahead, regardless of a history of blatant violations of biosafety norms, hasty approvals, a lack of monitoring abilities, general apathy towards the hazards of contamination and a lack of institutional oversight mechanisms (see this).

The BJP-ruled Maharashtra government has just granted ‘no-objectiion certificates’ for GM open-field trials of rice, chickpeas maize, brinjal and cotton. Some regard this as a game changer in the push to get GM crops into India. (Punjab, Haryana, Delhi and Andhra Pradesh have given NOCs for field trials of some biotech crops, while states like Madhya Pradesh and Rajasthan have banned such research activities.)

On the 2nd February, the Coalition for GM Free India posted the following on its website:

In the wake of media reports about the Maharashtra Govt granting No Objection Certificates (NOCs) for the open air field trials of GM crops in the state, the Coalition for a GM Free India along with the Coalition for a GM Free Maharashtra has sent a letter… to the Chief Minister of Maharashtra urging him not to overlook the growing scientific evidence on the adverse impacts of GM crops as well as the public opposition to it. The fact that the announcement regarding approvals of field trials was made on the sidelines of an event arranged by the International biotechnology industry lobby group, ISAAA, shows in a way the influence International biotech giants like Monsanto as well as their Indian promoters have in every government. Besides this there seems to be no basis on which these open trials could be permitted at a time every other credible agency be it the Parliamentary Standing Committee on Agriculture or the Supreme Court appointed Technical Expert Committee or the TSR Subraminiam committee appointed by the Union Minister of Environment, Forests and Climate Change to look into environmental laws in the country have cautioned against any open release of GMOs at this juncture…” (see here)  

The negative health, environmental and potential dangers of GM crops (not least the surrendering of food sovereignty and security to Western agribusiness and the US) have been well documented (see herehere  and here), while those who legitimately oppose and campaign against GMOs are smeared and portrayed by India's internal intelligence agency as working against the ‘national interest’ (see here).

Monsanto and the GM biotech sector forward the myth that GM food is necessary to feed the world’s burgeoning population. It is not (in India's case, see this and this). Aside from a report from GRAIN (here) that concluded small farms family/peasant farms are more productively efficient than large industrial-scale farms and that the former can (and virtually does) feed the world, the World Bank-funded International Assessment of Agricultural Knowledge and Science for Development Report also stated that smallholder, traditional farming can deliver food security in low-income countries through sustainable agri-ecological systems

By attempting to sideline opposition and ignoring expert advice and credible evidence pointing to potential catastrophic consequences if India were to adopt GM crops that it doesn't even need, no one can be in any doubt that there is an agenda at the highest level to push GMOs into India at any cost. It is clear the 'national interest' and (foreign) 'corporate interest' are being conflated (see here).

Agribusiness setting the agenda

If politicians fail to sanction GMO trials, there is a habit that they will be replaced until one of them does (see here). Backed by the US State Department (see here) and parts of the Indian political(-intelligence) elite (as alluded to above), the GMO agribusiness sector has gained a strategic and influential foothold in India and many of its national public bodies. Along with US food processing giants Cargill and Archer Daniels Midland, it threatens to destroy the rural economy by recasting it (and thus Indian society, given that hundreds of millions depend on it for a living) according to its own needs. This would mean moving over 600 million who depend on agriculture and local food processing activities into urban areas (as foreign interests move in). These sectors currently employ tens of millions. Livelihoods will be decimated. What will these people do?

Consider that the number of jobs created in India between 2005 and 2010 was 2.7 million (the years of high GDP growth). According to International Business Times, 15 million enter the workforce every year (see here).  

In APCO’s India Brochure, there is the claim that India’s resilience in weathering the global downturn and financial crisis has made governments, policy-makers, economists, corporate houses and fund managers believe that India can play a significant role in the recovery of the global economy in the months and years ahead. APCO describes India as a trillion dollar market. The emphasis is not on redistributing the country’s wealth among its citizens or the empowerment of farmers, but on positioning international funds and facilitating corporations’ ability to exploit markets and extract profit the best way they can.

In the mainstream media and among many politicians and economists, this constitutes growth and development, but it is neither. It is financial-corporate plunder under the guise of ‘globalisation’. The evidence doesn’t lie. In the West, decades of such policies have culminated in austerity, disempowerment and increasing hardship for the masses and the concentration of ever more wealth and power in the hands of the few.

The evidence doesn’t lie where global agriculture is concerned either. Last year, the Oakland Institute stated that the first years of the 21st century will be remembered for a global land rush headed by institutional investors (the kind of entities that 'global communications and business strategy companies' deal with to 'facilitate 'stakeholder engagement' and 'position funds' to 'exploit markets') of nearly unprecedented scale, often at the expense of local food security and land rights (see here). 

Small farmers are currently squeezed onto less than a quarter of the world’s farmland and the world is fast losing farms and farmers through the concentration of land into the hands big agribusiness and the rich and powerful. According to the report GRAIN (referred to earlier), the concentration of fertile agricultural land in fewer and fewer hands is directly related to the increasing number of people going hungry every day. 

US agribusiness via the World Bank/IMF/WTO has for some time been eyeing Indian agriculture as a cash cow for themselves (see here), and the Modi-led administration is promoting GMO biotechnology as business investment opportunity for foreign companies under the trendy-sounding 'Make in India' campaign. The political subjugation of India by the US partly rests on Monsanto’s overriding control of the nation’s agriculture (see here). Monsanto already dominates the cotton industry in the country and is increasingly shaping agri-policy and the knowledge paradigm by funding agricultural research in public universities and institutes (see here). Moreover, public regulatory bodies are now severely compromised and riddled with conflicts of interest where decision-making over GMOs are concerned, as outlined by Aruna Rodrigues in her article in The Hindu (referred to earlier).

Responding to the decision to sanction the field trials in Maharashtra, Monsanto India shares jumped 18 percent on Monday 2 February and the company was headed towards its biggest daily gain since September 2014. 

Mark Halton, head of Global Marketing and Communications for Monsanto has praised APCO for helping the GMO giant to:

“… understand how Monsanto could better engage with societal stakeholders surrounding our business and how best to communicate the social value our company brings to the table.” (see here

As far as powerful corporations are concerned, not least big agribusiness, it is increasingly clear that Modi is the go-to man. But that's what some in India feared all along. 

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