Home > Uncategorized > Links. You can’t solve a financial crisis by lowering wages edition. 2 graphs.

Links. You can’t solve a financial crisis by lowering wages edition. 2 graphs.

Why are so many right wing economists so afraid for an economists like Varoufakis, who wants less debt, and why do they continue to push for lower wages and more lending?

1) On Project Syndicate Yanis Varoufakis dissects the financial shenanigans surrounding Greek debts:

” In 2012, the insolvent Greek state borrowed €41 billion ($45 billion, or 22% of Greece’s shrinking national income) from European taxpayers to recapitalize the country’s insolvent commercial banks. For an economy in the clutches of unsustainable debt, and the associated debt-deflation spiral, the new loan and the stringent austerity on which it was conditioned were a ball and chain. At least, Greeks were promised, this bailout would secure the country’s banks once and for all.In 2013, once that tranche of funds had been transferred by the European Financial Stability Facility (EFSF), the eurozone’s bailout fund, to its Greek franchise, the Hellenic Financial Stability Facility, the HFSF pumped approximately €40 billion into the four “systemic” banks in exchange for non-voting shares. A few months later, in the autumn of 2013, a second recapitalization was orchestrated, with a new share issue. To make the new shares attractive to private investors, Greece’s “troika” of official creditors (the International Monetary Fund, European Central Bank, and the European Commission) approved offering them at a remarkable 80% discount on the prices that the HFSF, on behalf of European taxpayers, had paid a few months earlier. Crucially, the HFSF was prevented from participating, imposing upon taxpayers a massive dilution of their equity stake. Sensing potential gains at taxpayers’ expense, foreign hedge funds rushed in to take advantage. As if to prove that it understood the impropriety involved, the Troika compelled Greece’s government to immunize the HFSF board members from criminal prosecution for not participating in the new share offer and for the resulting disappearance of half of the taxpayers’ €41 billion capital injection”

2) Such articles explain why many people in the banking world are still afraid of him and try to tarnish him. The ‘Lisbon Council’ think tank, sponsored by Berenberg bank, (quote) ‘deploys a unique methodology’ to ascribe the post June 2015 decline of producer confidence in Greece to Yanis Varoufakis and even coin the phrase ‘the Varoufakis effect’ to lable this drop. Looking at the data, it however shows that it should be named: ‘The ‘Troika effect’ as consumer as well as producer confidence actually inched up after the first Syriza win and, while consumer confidence started to decline in april, producer confidence only took a big hit and reached the lowest level ever after the banks were closed down – by the Troika. the graph used by the Lisbon Council however suggests otherwise, as the dates below the graph are messed up a little. Unique indeed. And oh, did I mention that Varoufakis wants less debt, which is bad for banks like Berenberg?

3) According to the Lisbon council we have to lower wages to counter the consequences of such financial shenanigans – and in its latest Economic Bulletin the ECB agrees. Though the data do not corroborate such views the text of the articles states again and again that financial shocks have to be countered by lowering wages. Fortunately, the ECb saves me a lot of work by publishing the graphs below,the first of which clearly states that the austerity darlings have totally dismal ratings, 7 to (for the Baltics) 8 years after the crisis when it comes to any ‘rebound’ of employment. France does so much better. And the second shows that on the EA macro level the development of total hours worked has been dismal, too.

Which is all of course caused by using the wrong medicine to cure the financial disease. Cutting debts, not cutting wages was (and, alas, still is) the way ahead. preferably directly but if that does not work by increasing inflation – nominal income has to come at par with the ‘house price boom’ level of debts. For which we need higher, not lower wages.



  1. December 18, 2015 at 1:52 pm

    The graphs would describe a direction out of impending human specie suicide if the totalitarian nature of corporatism and the rank environmental destruction of European and US war and consumer culture was not their dominant feature.

  2. BC
    December 19, 2015 at 5:10 am

    Garrett, have you ever considered that the evolving obscene inequality is not happenstance but an imperative of the top 0.001-1%, which in turn is a prerequisite to an Elysium-like, rentier-socialist, corporate-state future and mass human ape die-off by no later than the 2030s-50s?

    As a kind of counterfactual to what most of us would perceive as a more desirable outcome for the vast majority of our fellow apes and ourselves to experience, what would one perceive the top 0.001-1% to desire to accomplish over the next generation were they NOT to assume, or be obligated to achieve, a similar outcome for the masses of human apes, and in turn would devise, reproduce, and reinforce a system that exclusively benefits themselves at the expense of the well-being and survival of the rest of the human ape species over the next 10-20 years?

    Were one to spend the necessary and sufficient time to consider fully the aspects of such a set of assumptions and associated mindset of the top 0.001-1%, and then to infer the likely, if not necessary, outcomes, one is left, arguably, with a rather grim, perhaps unspeakable, trajectory forward for the vast majority of the human ape species, including the majority in the affluent West.

    So, “impeding human specie suicide” is not far off the mark, only the top 0.001-1% intend to impose it on the bottom 90-99% as the cost to the rest of us for their privilege and power.

    Recall Toynbee’s quote about civilizations/empires committing suicide from within rather than experiencing murder from without. It is not that the masses commit mass suicide but that the elites construct, reproduce, and reinforce an unsustainable hierarchical structure that creates an income and wealth distribution that eventually results in the de facto murder of the labor division (and its productivity), labor’s capacity for subsistence, and an income and wealth distribution that cannot maintain labor and production to sustain the elites’ disproportionate share of labor, capital, and land’s capacity for productive wealth and its sustenance.

    This is in no way lost on the top 0.001-1% (and especially the top 0.00001%), and it is such that they will choose global war and mass destruction, gov’t default, a zombie apocalypse, and a police-state if necessary to retain their wealth, income, status, privilege, and power at the expense of the entire human ape species, if they deem necessary.

    IOW, the top 0.001-1% would prefer to destroy the civilization in order to save it were it to mean that they should give up even a modicum of their wealth, privilege, influence, and power.

    Throughout human ape history, such periods of circumstances testing the mettle of the elites has come at a prohibitive cost to the bottom 90%, and eventually the next 9% below the top 1%.

    Thus, the elite top 0.001-1% owe their wealth, status, privilege, and power to the next 9% who enjoy their socioeconomic status as a result of the power of the top 0.001-1% to co-opt the next 9% to exploit, compromise, and impoverish the bottom 90%. But the bottom 90% outnumber the top 0.001-1% by 9-900 to 1, and exceed the ratio to the next 9% by 10 to 1. This is an exceedingly high cost of complexity to sustain the pernicious exploitation and associated cost imposed by the top 0.001-1% on the next 9% and bottom 90%.

    Simply put, the current hierarchical structure of upward flows of resources, income, wealth, and social, economic, and political power is the definition of the precursor conditions for economic, social, and political inequality, injustice, instability, and r-evolution.

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