US Gross External Debt

from Jorge Buzaglo

Source: US Department of the Treasury

According to the Treasury department, US gross external debt was, in June 2013, 16 trillion dollars — about 100% of GDP. Since 2003, the earliest data posted by the Treasury, the trend-exponential rate of growth was over 8% per year. The figure shows a decline in the rate of growth of the debt since the crisis of 2007-08, but it is still growing, in spite of GDP stagnation, mainly because of an irreducible US trade deficit of about half a trillion dollars per year. The Bureau of Economic Analysis of the US Department of Commerce normally posts longer historical series of both gross and net foreign debt (international investment position), but presently, as it states: “Due to the lapse in government funding, http://www.bea.gov will be unavailable until further notice. This includes access to all data and the e-File system.”

Greece and Those Wild and Crazy Guys at the ECB

from Dean Baker

I have been following the European sovereign debt crisis since it first developed more than two years ago. It was evident from the beginning that the conditions on the debtor nations being demanded by the “troika” of the European Central Bank, the European Union, and the International Monetary Fund were both onerous and counterproductive.

This view has been confirmed by the fact that the debtor countries have missed target after target and that growth has consistently come in far below projections. (Actually, the crises countries have been contracting for much of the last two years.)  This could leave analysts guessing as to what economic reasoning lies behind the troika’s conditions.

Last week I got the answer when I had occasion to meet with a high-level EU official. There is no economic reasoning behind the troika’s positions. For practical purposes, Greece and the other debt-burdened countries are dealing with crazy people.

Argentina collapsed before default (graph)

from Dean Baker

Ezra Klein’s WonkBlog has an interesting piece asking whether Greece is going to have the dubious honor of having the largest economic downturn in modern history. The piece quotes Uri Dadush, a former World Bank official, who predicts a decline of 25-30 percent, which would beat both Argentina’s 20 percent decline in 1998 to 2002 and Latvia’s 24 percent decline in the current crisis.
The piece is a bit sloppy on one point, saying that Argentina’s decline followed the default on its debt in December of 2001. Actually, the vast majority of the decline preceded the default. Argentina’s economy had already contracted by more than 16 percent by the time of the default. It shrank by around 5 percent following the default before turning around in the second half of 2002. 

Michael Hudson on the making of the crisis

from Merijn Knibbe

I stumbled upon what for me is the best analysis of the crisis I’ve read up to know: an article from Michael Hudson. An excerpt:

In this new financialized warfare, governments are being directed to act as enforcement agents on behalf of the financial conquerors against their own domestic populations. This is not new, to be sure. We have seen the IMF and World Bank impose austerity on Latin American dictatorships, African military chiefdoms and other client oligarchies from the 1960s through the 1980s. Ireland and Greece, Spain and Portugal are now to be subjected to similar asset stripping as public policy making is shifted into the hands of supra-governmental financial agencies acting on behalf of bankers – and thereby for the top 1% of the population.

The Euro is leaving Greece – and a new Great Depression has entered.

from Merijn Knibbe

Do Great Depression’ policies lead to ‘Great Depression’ results? Yes, they do. Look at this chart showing the development of the money supply in Greece:

Debt Britannia (with 16 graphs)

from Steve Keen

As much as I criticize the US of A for its economic management, I can’t fault its statistical agencies on the collection and dissemination of data: data is readily available and almost always in an easily accessible format. That, and the fact that it’s the world’s biggest economy, is why most of my analysis is of the US. Australia’s ABS deserves similar accolades for making data readily accessible and relatively easy to locate.

The UK data source, the Office of National Statistics, is almost impenetrable by comparison—it’s the statistical system that Sir Humphrey Appleby would design. It gives the appearance of accessibility, yet either drowns you in so much data in response to any query that you give up, or which, when you get to what you think you want, returns rubbish.

The ECB’s high wire act

from Dean Baker

At this point the sovereign debt crisis in Europe is almost getting boring. We’ve seen the same script played out over and over with country after country. The basic story is the markets begin a run on the debt of a country: Greece, Ireland, Italy, Spain etc.

The troika, the European Central Bank (ECB), the European Union (EU), and the International Monetary Fund (IMF) then demand a series of austerity measures. In addition, they sometimes demand measures unrelated to fiscal policy, such as a lower minimum wage in Ireland or weaker employment protection legislation in Italy, that are intended to weaken workers’ bargaining power. As a quid pro quo, the troika then arranges enough bond purchases or other supports to get through the immediate crisis.

Student loans: the new bubble? (chart)

from Merijn Knibbe

At this moment I’m using the work of Reinhart and Rogoff, “This time is different. Eight centuries of financial folly”.

1. To avoid a common misunderstanding: this book is not just about government debt – it is about how all kinds of debt again and again destabilized entire countries. And about the endemic vulnerability of monetary, debt based economies (no single emerging economy ever escaped a phase of default. Not one.). To quote Reinhart: 

No, no, no. Ireland is, alas, not an austerity role model (charts).

from Merijn Knibbe

The European Central Bank (ECB) is very concerned about its ‘credibility’. But shouldn’t that at the very least mean that members of the board know what they are talking about? Jurgen Stak, still a member, was clearly not aware of basic facts when he stated that Ireland is a role model for austerity. But is it? Do suffering and frugality and disempowering labor lead to export success and economic growth, as Mr. Stark indicated in a speech in Ireland this week

Time for an Alexander Hamilton moment?

from Anne Mayhew

Perhaps what the technocrats of Europe need is an “Alexander Hamilton moment,” in which they reflect upon the proposals that Hamilton made when the newly formed United States was faced with massive debts left from the revolutionary war.  The debts were those of the Continental Congress and of the states and Hamilton boldly proposed that the financially strapped new nation “refund” all of these debts, which had greatly depreciated in exchange value, and that they be refunded at full face value. 

Divide and rule

from Grazia Ietto-Gillies

Two now familiar sights on our TV screens. First sight: Merkel and Sarkozy standing together on an international podium and giving us their deliberations about another country. Second sight: the Prime Minister of the country deliberated on returning meekly home with a 30+ page homework to do. We know of meetings between Merkel and Sarkozy but we never hear of meetings between the leaders of the loser countries.

“To the Parliament of the Republic, to the Political Parties”

Dear friends,

We submit to your kind attention a petition [at the bottom of this post] addressed to the Italian Parliament and to the political parties with some proposals concerning the current economic policy situation. We are asking for signatures from both our Italian and foreign colleagues and we shall publicise the petition both on the Italian and foreign mass media after a significant number of signatures is collected.

Crash Tax: Reparations to the 99%

from Edward Fullbrook

With the continuing fallout from the Global Financial Collapse and the global upsurge of real democratic sentiments, support seems to be growing for a Tobin or financial transactions tax.  Yesterday AlterNet stated the case for it as follows.  

Wall Street caused the crash. It caused devastating unemployment. It exacerbated deficit problems in the United States, Greece, Ireland, Portugal, Spain and Italy. If the market hadn’t crashed, sustained higher tax revenues would have prevented these difficulties from intensifying.
……. 
The crash tax is, essentially, a sales tax on financial transactions. The middle class pays sales tax on all the stuff it purchases. There should be no special exceptions. The 1 percent should be paying sales tax on the purchase of risky derivatives and on bets that derivatives will fail. This is equity. This is simple fairness. 

European Foolishness

from Peter Radford

There isn’t much to say: anyone who thought that the appointment of a couple of tired, traditional, economists as heads of Greece and Italy respectively would cure anything was decidedly deluded. Lucas Papedemos and Mario Monti are not elected, so they have little, if any, democratic legitimacy and yet will implement drastic revisions to the social contracts and institutions of their nations. In my opinion this rule by technocrats is just another example of the attempt by a failed elite to impose its unpopular vision on Europe.

If the Greek people got to negotiate directly with the ECB and the IMF

from Dean Baker

Greek Prime Minister George Papandreou touched off a firestorm last week when he proposed putting the austerity package designed by the “troika” (the I.M.F, the European Central Bank and the European Union) up for a popular vote. The idea that the Greek people might directly be able to decide their future terrified leaders across Europe and around the world. Financial markets panicked, sending stocks plummeting and bond yields soaring.

Europe’s crisis worsens due to economic mismanagement, especially by ECB

from Mark Weisbrot

Some of us have been warning for months about the crisis scenario that is accelerating today in Europe. In particular I have noted that the European authorities were pushing Italy down a dangerous path, similarly to what they did to Greece. The formula is deadly: force budget tightening on an economy that is already shrinking or on the edge of recession.  This shrinks the economy further, causing government revenue to fall and making further tightening necessary to meet the target budget deficit. The government’s borrowing costs rise because markets see where this is going.  This makes it even more difficult to meet the targets, and the whole mess can spiral out of control.

Italy on the Brink

from Peter Radford

By now you know the news: Italian bond prices have climbed to levels only recently reserved for the likes of Ireland, Portugal, and Greece. A catastrophe is on the horizon.

We need not dwell on the details because the situation is too fluid. The Italians have postponed remedial action for way too long, and the supposedly solid core nations – particularly the Germans – are steadfastly refusing to take the necessary steps to avoid disaster.

George Monbiot Seminar

from Steve Keen

This http://www.youtube.com/watch?v=YoaUTpr2SNo&feature=player_embedded is the link to video of the seminar I gave in Oxford earlier this month that The Guardian‘s George Monbiot attended. George then wrote the feature “It’s in all our interests to understand how to stop another Great Depression“, which briefly propelled the new edition of Debunking Economics to No. 89 on Amazon UK‘s Bestseller list. 

Trichet’s Rein at the ECB: No Party for Europe

from Dean Baker

Jean Claude Trichet will be retiring as head of the European Central Bank at the end of the month. He will step into retirement having wreaked the sort of destruction on the European economy that hostile powers can only dream about. Tens of millions of people across the eurozone countries are unemployed or underemployed because of his mismanagement of Europe’s economy. Meanwhile the world teeters on the brink of another financial crisis because of the ECB’s failure, along with the IMF, to effectively address the sovereign debt crisis. Most incredible of all, Trichet probably thinks he has done a good job.

Argentina’s economic success is key to presidential election

from Mark Weisbrot

As expected, Cristina Fernández de Kirchner won re-election as President of Argentina in a landslide victory yesterday, despite having faced hostility from the media for most of her presidency, and from many of the most powerful economic interests in the country. So it might be a good time to ask why this might happen.