Tuesday, June 28, 2011

Greeks v. Banks

We'll see tomorrow if the Greek parliament approves the austerity measures and the deep-discount privatizations the ECB and the richer European countries are demanding for another alleged "bailout." To me, the most likely scenario floating around is that the Greeks will go along with the demands for legislative actions tomorrow, and then just not implement most of them as they come due.

If the parliamentarians are paying attention to the riots in the streets, though, they just
might say "no" to the package. If that happens, we'll have to see what ensues. A collapse of the Eurozone is a real possibility, and that certainly would be disruptive to the world economy.

Of course, there are some of us who think it just might be time to do it and have done with it. Having a single monetary policy and more than two dozen fiscal policies, from my perspective, is not a formula for success. It worked well enough when credit was cheap, borrowing standards were lax, and government leaders could buy support with all that borrowed money. Granted, the Greeks went a bit more overboard than most — and lied their way into the Eurozone to begin with — but the
system was and is essentially flawed.

Whatever the original sins of Greek leaders, though, I could not condemn them if they tell the rest of Europe to screw itself. The interest Greece has to pay on the debt it incurs right now is in the junk bond category. How much higher could it go, and would it really make a difference? Greece can't afford to pay current rates, so higher rates mean nothing. The only sensible thing to do is default now, rather than enter into dubious refinancing schemes and then default for even more later.

The popular jargon for the current bailout proposal is "kicking the can down the road." It makes sense, though, to look at how the road might change a few kicks ahead.

Sarkozy has worked out a deal with private French banks that hold Greek debt to, essentially, roll it over — offer new loans to pay off the old ones (only at higher rates.) The immediate advantage of that for the banks is that it would mean they will not have to
write down the bad debt for another three to five years, leaving their balance sheets looking healthier for a while. If the bailout deal goes through, we can expect other private holders of Greek debt to do the same.

back a little bit, though, and we see what French, German, Swiss, Belgian, and other private European banks have been doing since the last bailout — that is, selling off their Greek debt to the European Central Bank. If they can continue to do that, private losses can be minimized. Losses by the ECB would have to be offset by infusions of capital from European governments — in other words, by the European people as a whole. Fat cats, hedge funds, and corporate investors will transfer their gambling losses to ordinary people.

For the Greeks themselves, selling off public assets like their ports, utilities, railroads, etc. at this time seems like an especially foolish move. As the people in the streets and squares of Greek cities understand very well, not only would the sale of those assets sharply increase unemployment, but they would bring only a fraction of what they're worth. It makes a lot more sense to default first — tell their creditors they're not going to be paid — and save the assets for later sale, when Greece really needs the money. Cut off from credit, Greece finally would be forced to slice away the corruption and patronage from its economy. The nest egg provided by asset sales, if they turn out to be necessary, could be the country's key to survival.

US exposure to Greek debt is quite small, and the predicted domino effect on Portugal, Ireland, Spain, and Italy also would not have great impact on American holders of European debt. What we
don't know, however, is the exposure of US banks and related corporations in the form of credit default swaps. How much of the impending European losses are insured in the US, or in European subsidies of US banks?

Well, we're still kind of in the
process of writing the transparency rules on derivatives, so nobody actually knows.

Thursday, June 23, 2011

"Withdrawal" symptoms

Well, the president finally has decided what to do regarding Afghanistan and, to nobody's surprise, it seems to be another of his bloody "compromises." Announced as an "acceleration" of troop withdrawal, by the end of next year it still will leave more than twice as many troops in Afghanistan as there were before the "surge."

The military, needless to say, really didn't want any troop withdrawal at all. First, as long as we're over there killing Taliban (and any civilians who happen to be in the wrong place at the wrong time), we can deny that we've lost the war. I imagine there are those who hate to think the 1500 American troops killed in action haven't "died in vain" — although, of course, they have died in vain, and the thousands more with severe combat related disabilities have been disabled in vain. Another factor important to the careerists is that combat is where the promotions are to be found, and a less bellicose United States would hinder their advancement.

As for Obama, I suppose it's not politically expedient to call it quits before the next election, considering all the bug-eyed, meat-rending Republicans who would call him both a sissy and a betrayer of American values — and also considering what a big deal he made in the last election about how Afghanistan was the right war to fight. On the other hand, perhaps he should pay more attention to the growing number of Republicans joining the Democratic left in demanding immediate withdrawal — mostly for fiscal reasons, but for other reasons as well. "If we're going to leave," said Dana Rohrabacher (R-CA), "we should leave. The centralized system of government foisted upon the Afghan people is not going to hold after we leave. So let's quit prolonging the agony and the inevitable."

Hear hear!

Saturday, June 18, 2011

Greece and the Eurozone

The street protests in Greece continue, as more and more Greeks figure out that they are being asked to transform themselves into citizens of a third-world country for a generation or so for the sake of minimizing losses by the banks of Europe. US exposure seems to exist mostly in the form of credit default swaps; how many, one wonders, were written by taxpayer owned AIG?

All in all, it looks like Greece, shortly followed by Portugal, Ireland, Spain, and Italy, soon will be forced to accept "bailouts" of the very rich by the middle classes and the poor.

? Uh huh. If it turns out to be "politically impossible" to persuade ordinary outer-edge Europeans to vote for governments that will impose the requisite "austerity" measures needed to keep the super-rich fat and happy, the availability of governments (through coalitions and similar tricks) will be sharply reduced — leaving only those "democratically elected" governments willing to play along.

Can it be stopped? Can the megacorps be compelled to take "haircuts" for fear of far greater losses, perhaps to neck level? It may depend on the Greeks.

From my perspective, it would be better to take our chances on a Greek default — and see what shakes out — than to keep the bailouts going and spreading until the eventual default becomes devastating to the point of worldwide depression. The Greeks, of course, will not be letting me write their economic policy — but maybe somebody that somebody listens to will start the conversation, and quiet the whining of the Germans and the European Central Bank.

The Eurozone — like NATO, perhaps — just expanded too fast. Letting Greece in in the first place was a sure indication of poor oversight. Right now, Greece really needs the drachma, Portugal needs the escudo, and Ireland needs the Irish pound You can't have a unified monetary policy without a unified fiscal policy — and for the Eurozon, such a policy is far, far away.

Thursday, June 16, 2011

War Powers

An odd grouping of Congress Critters (thanks again, Molly Ivins) is challenging Our President's Constitutional power to conduct warlike operations in foreign countries without congressional approval. Part of the group consists of the usual Republican cabal who "refudiate" (thanks again, Sarah Palin) anything Barack Obama is inclined to do. The other part consists of Dennis Kucinich and nine fellow travelers of the sorry remnant of the Democratic left.

The administration says the War Powers Resolution doesn't apply because what we're doing there doesn't rise to the level of "hostilities." Personally, I think if you're sitting in the middle of a drone-launched missile strike, you're inclined to think the people sending the drones are pretty hostile. Just because we're sending robots instead of troops doesn't mean we're not engaged in war.

To me, it's also pretty clear that NATO has far exceeded the UN resolution permitting the "protection of civilians" from the forces of Muamar Ghadaffi/Qadaffi/Gadhafi/Gadaffi/etc. (Why can't the English language news media agree on a common transliteration from the Arabic?) The object of the campaign, clearly, is to remove the variously spelled dictator from power. That's not at all the same as keeping government artillery from leveling Bengazi.

It would be lovely if Boehner and friends helped bring this controversy to the Supreme Court, and if the conservative court decided they'd rather screw Obama than protect the administrative right to start worthless wars We'll see. Most interesting, from my perspective, is that our involvement in Libya had little to do with our role as the military force of the multinationals — or maybe not...

French, Italian, and British corporations all have economic interests in Libya, long threatened by Gadaffi. What we seem to be seeing from Obama is the smallest possible response needed to satisfy our corporations' corporate allies and preserve NATO.

Obama and Boehner will be playing golf tomorrow, but they may not give each other quite so many mulligans as the US is likely to need. Bah.

Tuesday, June 7, 2011

Poll numbers

According to a Washington Post/ABC News poll, 60% of Americans do not approve of the job President Obama has done in managing the economy. My question is, "Who the hell are those people in the other 40%?"

The right insists that Obama can't do anything right, and the left is not far behind in its disapproval. Long-term readers of this blog may remember that Obama lost my support when he surrounded himself with the Robert Rubin gang before he was elected.

Granted, the president doesn't actually manage the economy — the Fed does the monetary policy and the Congress does the fiscal policy. On the other hand, one ought to be able to look to the president for some leadership. Leadership has been notably absent as Obama has consistently crumbled under the weight of Republican demands even before sitting down to play at negotiation.

Yes, I said play. If any authentic negotiation has taken place, I haven't noticed it. Right now, as the Republicans hold hostage the economic health of the entire world by refusing to increase the debt ceiling, the only real discussion seems to be about just how austere the austerity must be. Nobody at all is talking about the need for further stimulus.

For most Americans, though, Obama's negatives are based not on any particular policies. Their poor opinions are based on looking around — at the unemployed and underemployed, at the way wages have lagged behind the price of staples like food and energy, and (despite a good deal of shouting about the need to shrink government) reductions in government services that have an adverse impact on quality of life.

So, who are those people in the approving 40%?

Some have to be Obama loyalists who will support him no matter what he does — there's a lot of cognitive dissonance theory at work among those who drank the Kool-Aid in 2008. Then, I guess, there are the respondents who are doing reasonably well at the moment and don't much care what's happening to others. Finally, I suspect, there are those Democrats who tell the pollsters they approve in the hope that the poll results won't look too bad.

The same poll had Mitt Romney ahead of Obama among registered voters, but nobody liked him very much either, and the other Republican hopefuls fared considerably worse. It's not looking like employment is going to pick up much, if at all, by next year; and if we have to wait for the housing market to recover for the economy to recover, the next presidential term will be just as much a downer as the current one.

Okay, I seem to recall swearing off predictions a while ago. Let's just say that, like a lot of others, I'm not feeling optimistic.

Saturday, June 4, 2011

Double Dip?

Bad news all around this past week — jobs, housing, the markets, what-not — but, especially, politics. The Republicans are determined to drive the US economy into a hole it can't climb out of, and the Democrats are going along for the ride.

All but a few corporately connected economists see the budget deficit as a medium- to long-term problem. Do we have to deal with it? Of course — but we don't have to balance the budget next year, the year after, or the year after that. Anyway, the best way to balance a budget is through economic growth, and austerity programs — no matter what certain ideologues have to say about it — never lead to growth.

The whole idea that businesses will fail to invest because they are afraid their taxes will go up is idiotic. Taxes can only be a percentage of profits (after the usual heavily lobbied deductions and exclusions), so if that percentage is something less than 100%, investments that increase profit margins make economic sense. If a company makes an extra billion that is taxed at 50%, that's still an extra half-a-billion.Even if it's a risky investment, if it pays off it amounts to greater profits. If it fails, it's a write-off, and the tax rate doesn't matter — it may even save the company some money on the taxation of its more profitable ventures.

I do not advocate allowing the US to default on its debt, and I think a responsible Congress would have voted to increase the debt ceiling last week with no commitments to deficit reduction. Now is not the time to play dumb political games. As a matter of fact, now is a time to stimulate job growth through greater deficit spending — enough, this time, to make a real difference.

It won't happen, of course, because too many Americans are economic illiterates, and because the Republican commitment to further enriching the rich is the foundation of the current party's existence. Only by shrinking government can further upper-income and corporate tax cuts be made possible.

I am trying to learn more about Gary Johnson, a dark horse candidate for the Republican presidential nomination. I'm starting to think that a libertarian Republican just might be a better choice for 2012 than a corporatist Democrat — and that somebody (possibly with Tea Party endorsement) has to turn the Republican Party away from its own corporatist commitments. With Johnson (or, even, Ron Paul), progressives just might get more than they will out of Obama.