Le Crédit Social met l'argent à sa place
Aujourd’hui, quand l’argent n’est pas là, on arrête de produire, même s’il y a des besoins pressants; on chôme, on ne fait rien.
Aujourd’hui, quand l’argent n’est pas là, les municipalités laissent de côté des travaux urgents, demandés par la population, alors même qu’il y a tout ce qu’il faut, en fait d’hommes et de matériaux, pour exécuter les travaux.
Quand l’argent n’est pas là, aujourd’hui, la construction ralentit ou arrête, même s’il y a des familles non logées, et même si des maçons, des charpentiers, des plombiers, attendent impatiemment un emploi.
Le Crédit Social change tout cela, et radicalement. Le Crédit Social secoue cette soumission à la finance. Il crie à tout l’univers:
C’est l’argent qui doit aller d’après la production possible; et non pas la production qui doit se mettre au pas de l’argent.
L'argent selon les besoins
La production, c’est quelque chose de réel. Ce sont des maisons, c’est de la nourriture; ce sont des vêtements, des chaussures, des moyens de transport. La production, ce sont des aqueducs, des égouts, des rues, des trottoirs. Ce sont des écoles, des hôpitaux, des églises.
L’argent, lui, qu’est-ce que c’est? C’est une abstraction, et non pas une réalité. L’argent, ce sont des chiffres sur une rondelle de métal, ou sur un rectangle de papier, ou dans un livre de banque. Des chiffres qui sont acceptés comme moyens de paiement.
Puisque ce sont des moyens de paiement, si l’on veut que la production marche, les chiffres doivent aller d’après les produits, et non pas les produits être restreints par insuffisance de chiffres.
Manquer de travailleurs, ou manquer de matériaux pour produire, pourrait se comprendre. Mais manquer de chiffres pour mobiliser travailleurs et matériaux, est une chose incompréhensible, inadmissible dans une société d’êtres intelligents.
L'argent doit être un serviteur
Le Crédit Social ôte le sacré de l’argent. Il fait de l’argent un simple serviteur, et non plus un maître, un dieu qui dicte, qui permet ou qui défend.
Le Crédit Social soutient que: Tout ce qui est physiquement possible et légitimement demandé doit, par le fait même, être financièrement possible.
S’il est possible de bâtir des maisons, de construire des routes, des aqueducs, il doit être possible de payer le travail et les matériaux pour bâtir, pour construire.
Sinon, c’est le système d’argent qui mène les hommes, et non pas les hommes qui mènent leur système d’argent.
Et puisque l’argent ne consiste qu’en chiffres gravés, ou en chiffres imprimés, ou en chiffres écrits à la main dans des livres de banque, il est plus qu’absurde, plus que stupide, il est criminel de laisser des familles sans maison, des collectivités sans utilités publiques, simplement par manque de chiffres.
Une comptabilité exacte
Sous un régime financier de Crédit Social: Toute production nouvelle serait financée par des crédits nouveaux, et non plus par des crédits liés à de la production déjà faite. Et les crédits, ainsi émis selon le régime de la production, seraient retirés et annulés seulement selon le régime de la consommation.
Autrement dit, le système d’argent serait un simple système de comptabilité, mais de comptabilité juste, conforme aux faits. L’argent naîtrait à mesure que la production se réalise; et l’argent disparaîtrait à mesure que la production disparaît.
Sous un régime de Crédit Social, les dettes publiques seraient donc impensables. Ce qu’un pays fait est une richesse: pourquoi la représenter par un endettement? Comment peuton concevoir des dettes sur le dos d’un pays, à moins que ses routes, ses aqueducs, ses égouts, ses édifices publics, soient faits par un pays étranger?
Les crises, les privations en face de possibilités, sont le fruit d’un système financier faux, dominant au lieu de servir. Et ces fruits mauvais disparaîtraient sous un régime de finance saine, sous un régime de Crédit Social.
La distribution financée adéquatement
Il ne suffit pas de financer la production. Il faut aussi que les produits aillent à ceux qui en ont besoin. C’est même la seule vraie raison d’être des produits: combler des besoins.
Il faut donc que les produits soient distribués. Comment le sont-ils aujourd’hui, et comment le seraient-ils sous un régime de Crédit Social?
Aujourd’hui, les produits sont offerts à un certain prix. Les personnes qui ont de l’argent achètent ces produits en y mettant le prix. Cela permet aux personnes qui ont de l’argent de choisir les produits qui leur conviennent.
Le Crédit Social ne bouleverserait point cette méthode de distribuer les produits. La méthode est souple et bonne — à condition, évidemment, que les individus qui ont des besoins aient en même temps du pouvoir d’achat pour choisir les produits qui conviennent à leurs besoins.
Du pouvoir d’achat entre les mains de ceux qui ont des besoins: c’est justement là que le système actuel a des défauts, et que le Crédit Social corrigerait ces défauts.
Quand la production est financée, elle fonctionne. Quand elle fonctionne, elle distribue l’argent qui sert à la financer.
L’argent ainsi distribué, sous forme de salaires, profits, dividendes industriels, constitue du pouvoir d’achat pour ceux qui le reçoivent. Mais:
Le pouvoir d'achat ajusté aux prix
Premièrement, l’industrie ne distribue jamais le pouvoir d’achat au même régime qu’elle bâtit ses prix.
Quand le produit fini est offert au public, il est accompagné de son prix. Mais une partie de l’argent figurant dans ce prix fut distribuée, peut-être, il y a six mois, un an, ou plus. Une autre partie le sera seulement après que le produit aura été vendu et que le marchand se sera servi de son profit. Une autre partie, dans dix ans peut-être, quand la machine, dont l’usure est inscrite en frais dans les prix, sera remplacée par une machine neuve. Etc.
Puis, il y a des personnes qui reçoivent de l’argent et ne s’en servent pas. Cet argent est dans les prix; il n’est pas dans le pouvoir d’achat de ceux qui ont besoin des produits.
Le remboursement des prêts bancaires à terme fixé et le système fiscal actuel accentuent encore la discordance entre les prix et le pouvoir d’achat. D’où l’accumulation des produits. D’où le chômage, et le reste.
Eh bien, le Crédit Social corrigerait ce chaos, puisqu’il considère l’argent comme une comptabilité, il ajusterait constamment la somme des prix et la somme du pouvoir d’achat, pour qu’ils s’équilibrent. Il ferait simplement les opérations comptables nécessaires pour réaliser l’accord.
Un dividende pour le progrès
Deuxièmement, la production ne distribue pas de pouvoir d’achat à tout le monde. Elle n’en distribue qu’à ceux qui sont employés par elle. Et plus la production provient des machines, moins elle provient du travail humain. Elle augmente alors même que l’emploi nécessaire diminue. Il y a donc conflit entre le progrès qui supprime le besoin de labeur, et le règlement qui ne distribue de pouvoir d’achat qu’à l’emploi.
Pourtant, tout le monde a le droit de vivre. Et tout le monde a droit aux nécessités de la vie. Les biens de la terre ont été créés pour tous les hommes, pas seulement pour les employables.
C’est pourquoi le Crédit Social ferait ce que le système actuel ne fait pas. Sans supprimer la récompense au travail, il distribuerait à tous un revenu périodique, appelé dividende social — revenu lié à la personne et non pas à l’emploi.
Et plus le progrès libérerait de l’emploi, plus le dividende prendrait de place dans le pouvoir d’achat. Ce serait faire tout le monde bénéficier des fruits du progrès. Ce serait considérer tous les citoyens comme sociétaires, ayant droit à une part de l’abondante production résultant du progrès, capital commun, et non plus du labeur individuel qui, lui, est reconnu par le salaire.
Ce serait une véritable libération, permettant aux individus de s’épanouir, au lieu de les obliger à chercher des occupations matérielles nouvelles, en suscitant des besoins matériels superflus, ou en faisant travailler pour la destruction, comme dans les industries de guerre.
Ce serait aussi la fin des rongeants et perpétuels soucis du lendemain, dans un pays où l’on est sûr que les produits ne manqueront pas plus demain qu’aujourd’hui. Quel soulagement dans la vie des individus et des familles!
Louis Even
martedì 29 giugno 2010
The Continuing Crisis: Lessons from the American Response
The Continuing Crisis: Lessons from the American Response
Remarks at the Athens Economics University, June 8, 2010.
By James K. Galbraith
Thank you very much indeed. It's a great pleasure to be back in Athens.
I thought I would devote my remarks to two topics: the great crisis and the small one. The great crisis obviously has been underway for two years, although in some respects I think we may look back and say that it really is just beginning. We may say that the consequences of the crisis have not yet been felt; that we shall see them in the general decline in standards of living that will follow for a long time -- unless we somehow figure out how to deal with it.
The small crisis is a crisis among we who are economists, and it has been going on for much longer. It is obviously much less significant in and of itself, but it has proven in its own way to have the gravity and intractability of the great one.
In America the small crisis is rooted in what I call 'the grand illusion of the great moderation'. The 1980s which I remember very well as a young man with a policy position were a very turbulent decade.
A decade of de-industrialization in parts of the country, the collapse really of the power of labor unions and of infrastructure investment, and in the larger world, the conditions of international debt crisis which ultimately contributed to the collapse of the Soviet Union and its neighbors, and to the opening of the world markets and natural resources -- the commodity markets -- and then finally the rise of China as a workshop for the world's supply of wage goods.
It was a decade, too, of a rising value for the dollar, and many countries subjected to financial instability came to use the dollar as a reserve. And for all of these reasons, at least as far as the United States is concerned, the decade saw the termination of inflation and the institution of a world monetary system of which the dollar held the central position.
In retrospect the economics profession reduced all of this to a tale of the credibility of central banking – of the Federal Reserve -- and of fiscal responsibility, of probity, plus an element of accelerated technological change. Within that world, what they created was a mental vision of self-stabilizing markets guided inanimately by hands-off policy makers. These in turn were motivated by the greater good, but disciplined by the recognition of the limits of power; of the limits of intervention.
Thus there was a general acceptance, for example, of forecasts and concepts of the natural rate of of unemployment; recognition that pushing too hard to lower the unemployment rate would produce undesirable consequences in the form of accelerating inflation. If there was an argument within this widely-accepted narrative, it was between the purists, who believe that government need never intervene to support employment, and those who were a bit more, say, agitated in their attitudes, and who thought that temporary, targeted measures were sometimes useful, so long as they weren't too big and and didn't last too long.
There's a certain irony for me personally in this general view of the range of opinion in the economics profession. A great deal of the conceptual structure of that view rested on alleged improvements in the transparency and credibility of monetary policy. And part of that was attributed in the United States to the procedures that were instituted in the middle 1970s for regular oversight and discussion of the role and purposes of the Federal Reserve. I find that to be extraordinarily amusing, because one of the first things I did as a young member of the staff of the House Banking Committee in 1975-76 was to invent the process of monetary policy oversight. And I was in charge of those hearings at the staff level for six or seven years. I also drafted the statutory language that went the Federal Reserve Act of 1978 which made those hearings part of the regular U.S. code. So, if I thought they were in fact as important as the economics profession later would deem them to be, I suppose I could claim some credit for the institutional structure behind the Great Moderation.
In Europe -- and this is history obviously familiar to all of you -- the same ideas underlay the architecture of the European Union and the Eurozone. These relied very heavily on the theoretical stability of markets and on the capacity of a system to function when its governmental structure simply adheres broadly to prescriptions and rules. Seven years ago, I wrote about this, in an essay in Le Monde Diplomatique, of which I'll just read a few sentences, because to me they seem to summarize reasonably well the situation. I wrote, "in Europe, here we see rising a curious project of monetary union, free-trade and capital flow -- an economic superstate married to an entirely pre-Keynesian vision of its capacities and responsibilities. European countries are enjoined by the Stability and Growth Pact to limit their unified budget deficits almost at all costs and notably irrespective of the rates of unemployment. They and their private sector companies are enjoined to pay interest at whatever rate the central authority demands. There are no facilities for a lender of last resort to help them when in the end they cannot pay."
In America, the illusion of the Great Moderation justified an uncritical attitude toward the risk of financial instability. Yes, as the 1990s progressed, it was conceded there was a bit too much household debt, but on the other hand, home values were rising and balance sheets on the whole looked good, so the situation could not be that dangerous. And interest rates were low (it was said) partly because Alan Greenspan wanted them low -- particularly after 2000-2001 -- and partly because of the surplus of the Asian countries. Whatever problems might be rising in the shady fringes of housing finance could surely be contained.
Nothing could happen, surely, that the markets couldn't handle. So, for that matter, said Ben Bernanke, Chairman of the Federal Reserve, right up through July of 2007. And after that, by strong implication, what did happen was something no one could have foreseen. I've heard that phrase many times in the last several years.
What we now know of course was that it was perfectly well foreseeable. And indeed some very clever people did foresee it. And some of them made hundreds of millions of dollars by betting accurately and with great confidence on the collapse of the entire system.
That group however did not include any of the mainstream economists. Fortified in their faith, the American economists fundamentally missed the Achilles heel of their system. And that was something that lay in the half-hidden intersection of economics and law. The economists assumed that markets could fairly price any security; any bond. In this assumption, they overlooked the fact that fraudulent securities are intrinsically worthless. That fraud is something which is intrinsically concealed, because of this.
And they failed to notice that by the middle part of the 2000s an enormous share of the new mortgages issued in the United States were per se fraudulent. They failed to notice that there were people, including the Federal Bureau of Investigation, in Congressional testimony in mid-2004, who were saying so in public. For those who were close the industry this was not a secret. There was in fact an entire vocabulary, a language that described the conduct of business -- the business model -- in very explicit terms. The phrase Liars Loans. No-Doc Loans: loans issued to people who didn't provide documentation. NINJA loans: loans to people with no income no job or assets. Neutron loans: loans that were destined to explode destroying the people but leaving the buildings intact. Toxic waste: the worthless residue of collateralized debt obligations.
No one using those words could have been, in any serious way, in doubt about what was going on in this industry. What had happened was something that was, in important respects, encouraged to happen; encouraged to happen in very explicit ways. In the early part of the first term of the second Bush presidency, the director of the Office of Thrift Supervision, the principal regulatory office with responsibility for the quality of mortgage loans, came to a press conference, with colleagues of his from other regulatory agencies, holding a stack of the Code of Federal Regulations dealing with underwriting standards and a chainsaw. His colleagues who were more moderate brought pruning shears.
This was a message for the business press can which was not in a way subtle. It was not nuanced. It was just a clear signal that regulations which had previously been applied would no longer be enforced.
Economists had by that time all the tools they needed to analyze the situation. They had seen it happen already in the crisis of the savings and loans in the 1980s and they had had it explained for them by George Akerlof and Paul Romer in an article entitled Looting: The Economic Underworld of Bankruptcy for Profit in 1993. But they chose overwhelmingly to look the other way. And it was not until 2007 that one ratings agency, Fitch, did a study of the incidence of fraud in a very small sample of highly-rated residence mortgage backed securities and found that, in the language of the report, that the results were 'startling'. There was "fraud, abuse, or missing documentation in virtually every file." That is to say: fraud was the rule. It was practically universal by the time the housing bubble reached its peak.
I think in fact it's fair to say that the conclusion of the investigations now going on, and ultimately of historians, will be that mortgage origination in America by the middle part of the last decade had become a criminal enterprise. The origination was an act of counterfeiting. Bad loans were passed off as good ones. These were loans that were made to borrowers who couldn't document their incomes, who didn't have credit histories, on houses that had been appraised by appraisers chosen for their willingness to inflate the appraisals. And there is no honest reason why a lender would knowingly accept an inflated appraisal on a house. Loans were set with two or three year teaser rates so that the borrowers would face, necessarily, doubling or tripling their payments at the end of 24-36 months and they would be forced to refinance in order to give the lenders, the originators, a chance to earn another fee. The originators did not care whether the loans defaulted because they were able to sell them within 30 or 60 or 90 days and therefore refinance themselves, with the risk passed on to the buyers.
The buyers were there because of the laundering operation. The laundering operation was managed by the ratings agencies which took piles of loans which were destined to have very high default rates, which should've been raided BBB- at best, and found a way to package them so as to justify an AAA rating.
That's essentially the equivalent of money laundering.
And the investment banks and the others who passed these on to the investing public were playing the role of the fence. That is to say they took the fraudulent goods – the counterfeit mortgages -- and placed them on the open market; passing the bad paper to those who were naive enough to trust in the credibility of the ratings agency. As I say, the language of a criminal network is appropriate here because in effect that's precisely in technical terms what it was.
In Europe the intellectual failure was I think of a slightly different kind. It was a substitution of ideal types and model virtues for the study of historical cases and practical experience. In setting up the economic structure of the Union, Europeans appear to have asked what is good, rather than what works in practice. And they built constitutional structures that were essentially Confederate. We have experience in North America with this particular model; the model of confederation. We've had it twice.
Once failed by 1792 and the second one in 1865. A confederacy essentially is a currency union, with local responsibility for taxation and social welfare and even for the financing of Defense. It is vulnerable to tax evasion, free-riding, and prone to unstable financial flows that reinforce the regional concentration of wealth. All of these features contributed to the military failure of the southern Confederacy in the American Civil War.
I'll return a bit later to the fact that this was not a matter of remote history. These failures were not in fact resolved in North America for seven decades following the end of the Civil War.
It's sufficient to say that the view the economists took of the structures of the European Unification were rooted in notions of what was proper and virtuous and not in an examination of historical precedents. So the great crisis came to America as a breakdown fundamentally in the rule of law. It came to Europe as the banking panic which followed. It was essentially a run on the banks and on other assets which seemed to be at risk. It was a flight to safety precipitated in the first instance by the knowledge that there had been these vast losses -- exact scope undisclosed -- on American debts. The capacity and willingness of the authorities to manage the resulting damage to the financial system was at best doubtful.
As in all such panics the weaker borrowers were the primary victims. Just as in 1997, in Asia, the Thai crisis spread to Indonesia and Korea, so in 2008 the mortgage crisis spread to Greece. You can trace the widening of the spread between Greek and German bonds basically to the month when the crisis exploded in the United States. And so while my host said in introducing me that Greece was at the center of the universe, I'm afraid not. I think the reality is that there is no crisis of Greece specifically. Greece is an instance of a much larger global financial crisis which originates in the first great crisis that I've just described as coming out of the misgovernment of finance in the United States.
Now, I'm not going to defend the structure of society here or conduct of the previous Greek government, but the notion that the crisis was caused in some sense by irresponsible public finance in any small country is, it seems to me, clearly a misapprehension. It's the nature of credit booms that investors seek every small increase in returns that they can find; that the weak borrowers look good and that poor countries run big deficits financed by capital inflow. It's the nature of credit slumps that the weakest borrowers are singled out for being wicked. The discovery of bureaucrats, budget deficits, and tax-evaders, in Athens was exactly as relevant this crisis as the 1997 discovery of crony capitalism in Bangkok. It overlooks the fact that all capitalism is crony capitalism. It's just that some cronies control the narrative more effectively than others and sometimes the narrative is deemed to be more relevant than it is at other times.
But the crisis struck and to this day the story continues. The IMF, the EU, the OECD, and many private commentators have maintained that Greece, not to mention Latvia, Portugal, Spain -- and now Hungary and even Britain -- must cut their public services savagely and raise taxes in order to regain the confidence of the bond markets. This presupposes that it is possible to regain the confidence of the bond markets. But it is not.
It seems to me the original construction of the European Union had an element of fantasy, that virtuous conduct would be rewarded by stable results and prosperity, and this is also a kind of Victorian fantasy.
It’s a fantasy of a darker kind, practically a domination fantasy, whose satisfactions deserve study from a psychoanalytic point of view. It doesn't bear any close relation to the actual economics or politics of the situation. As economics it overlooks that fact that real damage is done by the budget cuts and that that damage will be felt on the foundations of economic life -- possibilities for economic growth. In politics it overlooks the presence of the political players. Of the bailout game if you like.
Now, the International Monetary Fund knows about the economics. I was in Princeton a few weeks ago and I heard Paul Krugman give a talk on this issue. And he described the IMF plan for Greece. He presented a slide showing the projected cuts and tax increases totaling 11.2% of GDP in three years time.
It was an interesting slide with a number of economic assumptions on it but I noticed there was one that was missing: The IMF had chosen not to put on that page its estimate of what would happen to Greek GDP. But it's obvious that if you cut 11 percentage points of GDP from total demand -- half of it from public spending and half of it from private spending -- you are going to get a terrific effect on GDP itself. It is not as though private banks or foreign investors will rush in to fill the gap. And not as though Greece can devalue its way out or impose capital controls as those with money flee the new taxes. So I raised this point with Paul, and he agreed, and he made a rather rueful remark, which I think was intended in part to apply to the technical staff at the IMF who were being tasked to produce these projections, but in part to all of us who discussed them with any degree of seriousness, that this kind of forecasting was making liars out of everybody.
On the political side, it's my belief that the government here has pretty well understood all along that, while cuts could not be avoided, their purpose was not to reopen a bond market that had already closed, but to play a role in a political drama whose objective was to satisfy the requirements of other governments in Europe. They were a blood price in other words for the voters of Angela Merkel. The only questions were how long would this game continue? Would the players bring it to an end before the disaster of an uncontrolled crisis took hold? And whether the end result would be something that would tolerable from the standpoint of the people of Greece.
I think that the answers are that the players chose to play this game right up to the last minute. That whether they manage to bring it to a successful and credible conclusion without it getting out of control is still unclear. And that the scale of the sacrifices being demanded are not in fact -- or should not be -- tolerable.
The question now is whether Europe will descend – as in fact Europe appears to be descending -- into a vicious circle; a black hole of competitive fiscal austerity in which there is no clear route back to economic growth and rising employment. With the result that one can see a progressive decline in employment possibilities; rising unemployment everywhere, and effectively the deterioration and collapse of welfare states that have been built up over half a century.
Eventually there will be very substantial increases in immigration from the most damaged countries to those who are less damaged.
And the question is, if that's indeed the situation, what, if anything, can be done about it? I want to talk for a few minutes about the American response to the crisis. As a model, or perhaps a partial model; certainly an inadequate model for what is going on here and now. Our response in effect came in two ways. The first has been described, in a very good article by Rob Thompson and Tom Ferguson in the International Journal of Political Economy, as the Paulsen Put: a prolonged effort to conceal the effective insolvency of the financial system and followed, when things could no longer be concealed, by the massive bailouts at the end of 2008. This succeeded in keeping the major financial institutions alive, but at the cost of absorbing their losses and overlooking their misdeeds.
And the second wave of this response was a very powerful fiscal reaction. It was comprised first of all of automatic stabilizers; the decline of tax revenues and increase in public spending that follows when there is a sharp decline in production and rise in unemployment, the stimulus package in early 2009, and the inventory cycle. And this too succeeded, for a time, in creating the impression that an ordinary business cycle expansion would get underway. That impression has now lasted for about six months.
There were, in fact, several months earlier this year when we actually moved into the territory of positive job creation for the first time in about a year and a half. But the problem always was that inventory cycles come to an end. Stimulus packages run out. And the burden of financing a continued expansion comes to fall on the banking sector. That was true in the 1990s when the banking sector eventually took over and fueled the credit boom that went from 1994-2000 and it was true in in the middle part of the last decade where the housing bubble took over from the Iraq war to fuel an expansion that lasted until 2007.
But the banking sector is itself on life support as a result of the American response. It is sitting passively borrowing from the central bank at zero lending back to the treasury at 4% and facing a clientele, the American middle class, which is substantially insolvent -- because of a vast oversupply of houses, because of the inability to sell those houses, because of the resetting of the bad mortgages, and because of the presence of home equity loans, and the whole structure of finance leftover from before the crisis, which renders a very large share of the population upside down – they owe more on their houses than the houses are worth. It leaves an even greater share in an uncertain condition because they don't know what their houses are worth at all.
It seems extremely unlikely that this financial system is going to be in a position any time soon to take over the job of financing a continued economic expansion. And we may already be seeing the end of this phase as in the last unemployment reports it was revealed that only 22,000 private-sector jobs were created. All the rest -- almost 400,000 -- were simply temporary government jobs to take the Census.
The failure to resolve the American banks when the opportunity presented itself a year ago, and the failure to take meaningful action to restructure private debts, thus emerges as a game changer. And it seems to me that this situation is not dissimilar to one that will surface, by-the-by, in the condition of the European banks. That Europe lacks any central fiscal authority simply makes matters that much more difficult. Conclusion, or inference: there does not appear to be, either here or on our side of the ocean, any powerful reason for optimism that these large economies that are central to the functioning of the world system will have strong recoveries for any near term.
So what's next? In his talk at Princeton, Paul Krugman spoke -- and you may already be aware of this, I don't know if it was reported in Greece -- of the possibility of an exit from the Eurozone. And he sketched a scenario of an exit that would follow a run on the banks; essentially a forced conversion of assets. I'm skeptical. I think most people here are highly skeptical. Because it would be something that would be extremely difficult to manage and to control; it's probably best if that possibility is left off the table for the time being.
The second possibility is to restructure debts inside the Euro area. Again, I have sort of personal experience with this. I was the author, at the age of 23, of the legislation that provided financial rescue for the city of New York; which at that time was the third largest government in the United States after the state of California and the Federal Government. And as the United States Congress in that bill insisted on a restructuring of the New York City's municipal bonds as part of a package in order to lighten the burden of cuts that would otherwise fall on public services and on the unions. The United States in fact has provisions -- Chapter 9 of its Bankruptcy Code applies to municipal governments -- and the point of those provisions is to permit an orderly restructuring of public debts while preserving the most essential parts of public services. And I know that Professor Raffer, Kunibert Raffer of the University of Vienna, has been writing about the desire for the application of those provisions to sovereign debt in Europe.
The difficulty of course is that such action would expose the losses in the banking system and, except to the extent that those losses have already been shouldered by an entity, the central bank, that would be willing to write them down. And it is not difficult -- it's not easy to manage losses on a massive in a highly leveraged banking system. I learned, at the peak of the U.S. crisis of 2008, that the Reagan administration in 1982 had a plan for the complete nationalization of the large New York banks and would have put that plan into effect had a single large Latin American country -- Brazil, Argentina, or Mexico -- declared a default on sovereign debts at that time.
So I've lain out three possibilities. One is the black-hole scenario of continued economic decline. The second is the chaos of monetary dissolution. And the third is the awkward, and also inadequate, process of debt renegotiation. Which may well be inevitable but, as you know because of the size of the primary deficit, is hardly a formula for economic growth and recovery. This would still imply very severe fiscal intervention.
I wanted to ask if there was a fourth possibility. Going out beyond the realm of what is probable or likely, is there something that could be done in an understanding of the extreme character of the situation? I mentioned before that the second U.S. confederacy failed in 1865 and that the economic failure continued for seven decades, 68 years actually, until Franklin Roosevelt took office in 1933. A failure that was interrupted only by the very short-term boom of the first World War and the speculative explosion in real estate and in the stock market in the mid-late 1920s. It was a failure that left the United States, over this entire period, a deeply divided nation with no unified national economy. Essentially, we were a currency union and a customs union with a large region, the South, which remained chronically depressed: backward, share-cropping, mired in poverty, malnutrition, illiteracy. Immigration for most people to the North, to the extent that it was possible at all, was the only way out.
Franklin Roosevelt was perhaps the first president of the post civil war period who understood just what the South was. And the New Deal, which many of us think of as the reaction to the Great Depression, was in fact far more than that. It was in some ways more fundamentally a project of structural transformation on a grand scale. It began with financial reform, with decisive action to remove the insolvent banks from the system, and move very quickly to agricultural adjustment, a process of setting prices and controlling production in agricultural, vast conservation programs which in the end planted over a billion trees, the Tennessee Valley Authority which industrialized that region of the deep South, the Rural Electrification Administration, employment programs, the Works Progress Administration, public works programs, the Public Works Administration, and continuing into the mid-1930s the establishment of the common Social Security system, the enactment of the minimum wage, and collective bargaining rights on the national level . In the course of all that the New Deal built a million kilometers of roads, a thousand airfields, it built 2500 hospitals and 45,000 schools and I just scratched the surface of an extraordinary list of accomplishments great and small. In the course of four years if you count and we must those people who were working for the New Deal as employed, unemployment in America fell from 25% in early 1933 to under 10% by 1936. Only then did the United States as it presently exists really emerge, and the New Deal, moreover set off a process extended by the Great Society in the 1960s which brought the South from its position of deep penury and backwardness right into the mainstream of American economic life. So that average incomes in the South are now roughly average with the rest of the country as a whole; it is neither poor nor rich by comparison with the rest.
Over seven decades, in other words, the failure of the seven decades following the civil war, was gradually, progressively, and successfully reversed. But it required the creation, in a very short period of time, and implementation of a whole set of institutions that could operate at the level of a continent.
If I had a cheap alternative to the present situation I would surely offer it. But I don't. Europe can of course choose a path that could lead to, let's say, seven decades of economic stagnation interrupted by a credit bubble somewhere once in a while. And I don't want to dramatize, but it does seem to me that is the course that Europe is presently on. Or the alternative is serious work, despite all the ideological difficulties, at the one thing which historical experience tells us might actually work. This is a very long-term project. I would not begin to suggest that there's anything short-term that can be done to completely fix the situation that one is in, but it does seem to me that perhaps there is a responsibility for economists to begin to articulate a path that could begin here and now. And it might be useful to have that begin with the people who have the most to lose otherwise: you my professional colleagues here in Greece.
Thanks very much.
(Transcript by Amy Masarwe)
Remarks at the Athens Economics University, June 8, 2010.
By James K. Galbraith
Thank you very much indeed. It's a great pleasure to be back in Athens.
I thought I would devote my remarks to two topics: the great crisis and the small one. The great crisis obviously has been underway for two years, although in some respects I think we may look back and say that it really is just beginning. We may say that the consequences of the crisis have not yet been felt; that we shall see them in the general decline in standards of living that will follow for a long time -- unless we somehow figure out how to deal with it.
The small crisis is a crisis among we who are economists, and it has been going on for much longer. It is obviously much less significant in and of itself, but it has proven in its own way to have the gravity and intractability of the great one.
In America the small crisis is rooted in what I call 'the grand illusion of the great moderation'. The 1980s which I remember very well as a young man with a policy position were a very turbulent decade.
A decade of de-industrialization in parts of the country, the collapse really of the power of labor unions and of infrastructure investment, and in the larger world, the conditions of international debt crisis which ultimately contributed to the collapse of the Soviet Union and its neighbors, and to the opening of the world markets and natural resources -- the commodity markets -- and then finally the rise of China as a workshop for the world's supply of wage goods.
It was a decade, too, of a rising value for the dollar, and many countries subjected to financial instability came to use the dollar as a reserve. And for all of these reasons, at least as far as the United States is concerned, the decade saw the termination of inflation and the institution of a world monetary system of which the dollar held the central position.
In retrospect the economics profession reduced all of this to a tale of the credibility of central banking – of the Federal Reserve -- and of fiscal responsibility, of probity, plus an element of accelerated technological change. Within that world, what they created was a mental vision of self-stabilizing markets guided inanimately by hands-off policy makers. These in turn were motivated by the greater good, but disciplined by the recognition of the limits of power; of the limits of intervention.
Thus there was a general acceptance, for example, of forecasts and concepts of the natural rate of of unemployment; recognition that pushing too hard to lower the unemployment rate would produce undesirable consequences in the form of accelerating inflation. If there was an argument within this widely-accepted narrative, it was between the purists, who believe that government need never intervene to support employment, and those who were a bit more, say, agitated in their attitudes, and who thought that temporary, targeted measures were sometimes useful, so long as they weren't too big and and didn't last too long.
There's a certain irony for me personally in this general view of the range of opinion in the economics profession. A great deal of the conceptual structure of that view rested on alleged improvements in the transparency and credibility of monetary policy. And part of that was attributed in the United States to the procedures that were instituted in the middle 1970s for regular oversight and discussion of the role and purposes of the Federal Reserve. I find that to be extraordinarily amusing, because one of the first things I did as a young member of the staff of the House Banking Committee in 1975-76 was to invent the process of monetary policy oversight. And I was in charge of those hearings at the staff level for six or seven years. I also drafted the statutory language that went the Federal Reserve Act of 1978 which made those hearings part of the regular U.S. code. So, if I thought they were in fact as important as the economics profession later would deem them to be, I suppose I could claim some credit for the institutional structure behind the Great Moderation.
In Europe -- and this is history obviously familiar to all of you -- the same ideas underlay the architecture of the European Union and the Eurozone. These relied very heavily on the theoretical stability of markets and on the capacity of a system to function when its governmental structure simply adheres broadly to prescriptions and rules. Seven years ago, I wrote about this, in an essay in Le Monde Diplomatique, of which I'll just read a few sentences, because to me they seem to summarize reasonably well the situation. I wrote, "in Europe, here we see rising a curious project of monetary union, free-trade and capital flow -- an economic superstate married to an entirely pre-Keynesian vision of its capacities and responsibilities. European countries are enjoined by the Stability and Growth Pact to limit their unified budget deficits almost at all costs and notably irrespective of the rates of unemployment. They and their private sector companies are enjoined to pay interest at whatever rate the central authority demands. There are no facilities for a lender of last resort to help them when in the end they cannot pay."
In America, the illusion of the Great Moderation justified an uncritical attitude toward the risk of financial instability. Yes, as the 1990s progressed, it was conceded there was a bit too much household debt, but on the other hand, home values were rising and balance sheets on the whole looked good, so the situation could not be that dangerous. And interest rates were low (it was said) partly because Alan Greenspan wanted them low -- particularly after 2000-2001 -- and partly because of the surplus of the Asian countries. Whatever problems might be rising in the shady fringes of housing finance could surely be contained.
Nothing could happen, surely, that the markets couldn't handle. So, for that matter, said Ben Bernanke, Chairman of the Federal Reserve, right up through July of 2007. And after that, by strong implication, what did happen was something no one could have foreseen. I've heard that phrase many times in the last several years.
What we now know of course was that it was perfectly well foreseeable. And indeed some very clever people did foresee it. And some of them made hundreds of millions of dollars by betting accurately and with great confidence on the collapse of the entire system.
That group however did not include any of the mainstream economists. Fortified in their faith, the American economists fundamentally missed the Achilles heel of their system. And that was something that lay in the half-hidden intersection of economics and law. The economists assumed that markets could fairly price any security; any bond. In this assumption, they overlooked the fact that fraudulent securities are intrinsically worthless. That fraud is something which is intrinsically concealed, because of this.
And they failed to notice that by the middle part of the 2000s an enormous share of the new mortgages issued in the United States were per se fraudulent. They failed to notice that there were people, including the Federal Bureau of Investigation, in Congressional testimony in mid-2004, who were saying so in public. For those who were close the industry this was not a secret. There was in fact an entire vocabulary, a language that described the conduct of business -- the business model -- in very explicit terms. The phrase Liars Loans. No-Doc Loans: loans issued to people who didn't provide documentation. NINJA loans: loans to people with no income no job or assets. Neutron loans: loans that were destined to explode destroying the people but leaving the buildings intact. Toxic waste: the worthless residue of collateralized debt obligations.
No one using those words could have been, in any serious way, in doubt about what was going on in this industry. What had happened was something that was, in important respects, encouraged to happen; encouraged to happen in very explicit ways. In the early part of the first term of the second Bush presidency, the director of the Office of Thrift Supervision, the principal regulatory office with responsibility for the quality of mortgage loans, came to a press conference, with colleagues of his from other regulatory agencies, holding a stack of the Code of Federal Regulations dealing with underwriting standards and a chainsaw. His colleagues who were more moderate brought pruning shears.
This was a message for the business press can which was not in a way subtle. It was not nuanced. It was just a clear signal that regulations which had previously been applied would no longer be enforced.
Economists had by that time all the tools they needed to analyze the situation. They had seen it happen already in the crisis of the savings and loans in the 1980s and they had had it explained for them by George Akerlof and Paul Romer in an article entitled Looting: The Economic Underworld of Bankruptcy for Profit in 1993. But they chose overwhelmingly to look the other way. And it was not until 2007 that one ratings agency, Fitch, did a study of the incidence of fraud in a very small sample of highly-rated residence mortgage backed securities and found that, in the language of the report, that the results were 'startling'. There was "fraud, abuse, or missing documentation in virtually every file." That is to say: fraud was the rule. It was practically universal by the time the housing bubble reached its peak.
I think in fact it's fair to say that the conclusion of the investigations now going on, and ultimately of historians, will be that mortgage origination in America by the middle part of the last decade had become a criminal enterprise. The origination was an act of counterfeiting. Bad loans were passed off as good ones. These were loans that were made to borrowers who couldn't document their incomes, who didn't have credit histories, on houses that had been appraised by appraisers chosen for their willingness to inflate the appraisals. And there is no honest reason why a lender would knowingly accept an inflated appraisal on a house. Loans were set with two or three year teaser rates so that the borrowers would face, necessarily, doubling or tripling their payments at the end of 24-36 months and they would be forced to refinance in order to give the lenders, the originators, a chance to earn another fee. The originators did not care whether the loans defaulted because they were able to sell them within 30 or 60 or 90 days and therefore refinance themselves, with the risk passed on to the buyers.
The buyers were there because of the laundering operation. The laundering operation was managed by the ratings agencies which took piles of loans which were destined to have very high default rates, which should've been raided BBB- at best, and found a way to package them so as to justify an AAA rating.
That's essentially the equivalent of money laundering.
And the investment banks and the others who passed these on to the investing public were playing the role of the fence. That is to say they took the fraudulent goods – the counterfeit mortgages -- and placed them on the open market; passing the bad paper to those who were naive enough to trust in the credibility of the ratings agency. As I say, the language of a criminal network is appropriate here because in effect that's precisely in technical terms what it was.
In Europe the intellectual failure was I think of a slightly different kind. It was a substitution of ideal types and model virtues for the study of historical cases and practical experience. In setting up the economic structure of the Union, Europeans appear to have asked what is good, rather than what works in practice. And they built constitutional structures that were essentially Confederate. We have experience in North America with this particular model; the model of confederation. We've had it twice.
Once failed by 1792 and the second one in 1865. A confederacy essentially is a currency union, with local responsibility for taxation and social welfare and even for the financing of Defense. It is vulnerable to tax evasion, free-riding, and prone to unstable financial flows that reinforce the regional concentration of wealth. All of these features contributed to the military failure of the southern Confederacy in the American Civil War.
I'll return a bit later to the fact that this was not a matter of remote history. These failures were not in fact resolved in North America for seven decades following the end of the Civil War.
It's sufficient to say that the view the economists took of the structures of the European Unification were rooted in notions of what was proper and virtuous and not in an examination of historical precedents. So the great crisis came to America as a breakdown fundamentally in the rule of law. It came to Europe as the banking panic which followed. It was essentially a run on the banks and on other assets which seemed to be at risk. It was a flight to safety precipitated in the first instance by the knowledge that there had been these vast losses -- exact scope undisclosed -- on American debts. The capacity and willingness of the authorities to manage the resulting damage to the financial system was at best doubtful.
As in all such panics the weaker borrowers were the primary victims. Just as in 1997, in Asia, the Thai crisis spread to Indonesia and Korea, so in 2008 the mortgage crisis spread to Greece. You can trace the widening of the spread between Greek and German bonds basically to the month when the crisis exploded in the United States. And so while my host said in introducing me that Greece was at the center of the universe, I'm afraid not. I think the reality is that there is no crisis of Greece specifically. Greece is an instance of a much larger global financial crisis which originates in the first great crisis that I've just described as coming out of the misgovernment of finance in the United States.
Now, I'm not going to defend the structure of society here or conduct of the previous Greek government, but the notion that the crisis was caused in some sense by irresponsible public finance in any small country is, it seems to me, clearly a misapprehension. It's the nature of credit booms that investors seek every small increase in returns that they can find; that the weak borrowers look good and that poor countries run big deficits financed by capital inflow. It's the nature of credit slumps that the weakest borrowers are singled out for being wicked. The discovery of bureaucrats, budget deficits, and tax-evaders, in Athens was exactly as relevant this crisis as the 1997 discovery of crony capitalism in Bangkok. It overlooks the fact that all capitalism is crony capitalism. It's just that some cronies control the narrative more effectively than others and sometimes the narrative is deemed to be more relevant than it is at other times.
But the crisis struck and to this day the story continues. The IMF, the EU, the OECD, and many private commentators have maintained that Greece, not to mention Latvia, Portugal, Spain -- and now Hungary and even Britain -- must cut their public services savagely and raise taxes in order to regain the confidence of the bond markets. This presupposes that it is possible to regain the confidence of the bond markets. But it is not.
It seems to me the original construction of the European Union had an element of fantasy, that virtuous conduct would be rewarded by stable results and prosperity, and this is also a kind of Victorian fantasy.
It’s a fantasy of a darker kind, practically a domination fantasy, whose satisfactions deserve study from a psychoanalytic point of view. It doesn't bear any close relation to the actual economics or politics of the situation. As economics it overlooks that fact that real damage is done by the budget cuts and that that damage will be felt on the foundations of economic life -- possibilities for economic growth. In politics it overlooks the presence of the political players. Of the bailout game if you like.
Now, the International Monetary Fund knows about the economics. I was in Princeton a few weeks ago and I heard Paul Krugman give a talk on this issue. And he described the IMF plan for Greece. He presented a slide showing the projected cuts and tax increases totaling 11.2% of GDP in three years time.
It was an interesting slide with a number of economic assumptions on it but I noticed there was one that was missing: The IMF had chosen not to put on that page its estimate of what would happen to Greek GDP. But it's obvious that if you cut 11 percentage points of GDP from total demand -- half of it from public spending and half of it from private spending -- you are going to get a terrific effect on GDP itself. It is not as though private banks or foreign investors will rush in to fill the gap. And not as though Greece can devalue its way out or impose capital controls as those with money flee the new taxes. So I raised this point with Paul, and he agreed, and he made a rather rueful remark, which I think was intended in part to apply to the technical staff at the IMF who were being tasked to produce these projections, but in part to all of us who discussed them with any degree of seriousness, that this kind of forecasting was making liars out of everybody.
On the political side, it's my belief that the government here has pretty well understood all along that, while cuts could not be avoided, their purpose was not to reopen a bond market that had already closed, but to play a role in a political drama whose objective was to satisfy the requirements of other governments in Europe. They were a blood price in other words for the voters of Angela Merkel. The only questions were how long would this game continue? Would the players bring it to an end before the disaster of an uncontrolled crisis took hold? And whether the end result would be something that would tolerable from the standpoint of the people of Greece.
I think that the answers are that the players chose to play this game right up to the last minute. That whether they manage to bring it to a successful and credible conclusion without it getting out of control is still unclear. And that the scale of the sacrifices being demanded are not in fact -- or should not be -- tolerable.
The question now is whether Europe will descend – as in fact Europe appears to be descending -- into a vicious circle; a black hole of competitive fiscal austerity in which there is no clear route back to economic growth and rising employment. With the result that one can see a progressive decline in employment possibilities; rising unemployment everywhere, and effectively the deterioration and collapse of welfare states that have been built up over half a century.
Eventually there will be very substantial increases in immigration from the most damaged countries to those who are less damaged.
And the question is, if that's indeed the situation, what, if anything, can be done about it? I want to talk for a few minutes about the American response to the crisis. As a model, or perhaps a partial model; certainly an inadequate model for what is going on here and now. Our response in effect came in two ways. The first has been described, in a very good article by Rob Thompson and Tom Ferguson in the International Journal of Political Economy, as the Paulsen Put: a prolonged effort to conceal the effective insolvency of the financial system and followed, when things could no longer be concealed, by the massive bailouts at the end of 2008. This succeeded in keeping the major financial institutions alive, but at the cost of absorbing their losses and overlooking their misdeeds.
And the second wave of this response was a very powerful fiscal reaction. It was comprised first of all of automatic stabilizers; the decline of tax revenues and increase in public spending that follows when there is a sharp decline in production and rise in unemployment, the stimulus package in early 2009, and the inventory cycle. And this too succeeded, for a time, in creating the impression that an ordinary business cycle expansion would get underway. That impression has now lasted for about six months.
There were, in fact, several months earlier this year when we actually moved into the territory of positive job creation for the first time in about a year and a half. But the problem always was that inventory cycles come to an end. Stimulus packages run out. And the burden of financing a continued expansion comes to fall on the banking sector. That was true in the 1990s when the banking sector eventually took over and fueled the credit boom that went from 1994-2000 and it was true in in the middle part of the last decade where the housing bubble took over from the Iraq war to fuel an expansion that lasted until 2007.
But the banking sector is itself on life support as a result of the American response. It is sitting passively borrowing from the central bank at zero lending back to the treasury at 4% and facing a clientele, the American middle class, which is substantially insolvent -- because of a vast oversupply of houses, because of the inability to sell those houses, because of the resetting of the bad mortgages, and because of the presence of home equity loans, and the whole structure of finance leftover from before the crisis, which renders a very large share of the population upside down – they owe more on their houses than the houses are worth. It leaves an even greater share in an uncertain condition because they don't know what their houses are worth at all.
It seems extremely unlikely that this financial system is going to be in a position any time soon to take over the job of financing a continued economic expansion. And we may already be seeing the end of this phase as in the last unemployment reports it was revealed that only 22,000 private-sector jobs were created. All the rest -- almost 400,000 -- were simply temporary government jobs to take the Census.
The failure to resolve the American banks when the opportunity presented itself a year ago, and the failure to take meaningful action to restructure private debts, thus emerges as a game changer. And it seems to me that this situation is not dissimilar to one that will surface, by-the-by, in the condition of the European banks. That Europe lacks any central fiscal authority simply makes matters that much more difficult. Conclusion, or inference: there does not appear to be, either here or on our side of the ocean, any powerful reason for optimism that these large economies that are central to the functioning of the world system will have strong recoveries for any near term.
So what's next? In his talk at Princeton, Paul Krugman spoke -- and you may already be aware of this, I don't know if it was reported in Greece -- of the possibility of an exit from the Eurozone. And he sketched a scenario of an exit that would follow a run on the banks; essentially a forced conversion of assets. I'm skeptical. I think most people here are highly skeptical. Because it would be something that would be extremely difficult to manage and to control; it's probably best if that possibility is left off the table for the time being.
The second possibility is to restructure debts inside the Euro area. Again, I have sort of personal experience with this. I was the author, at the age of 23, of the legislation that provided financial rescue for the city of New York; which at that time was the third largest government in the United States after the state of California and the Federal Government. And as the United States Congress in that bill insisted on a restructuring of the New York City's municipal bonds as part of a package in order to lighten the burden of cuts that would otherwise fall on public services and on the unions. The United States in fact has provisions -- Chapter 9 of its Bankruptcy Code applies to municipal governments -- and the point of those provisions is to permit an orderly restructuring of public debts while preserving the most essential parts of public services. And I know that Professor Raffer, Kunibert Raffer of the University of Vienna, has been writing about the desire for the application of those provisions to sovereign debt in Europe.
The difficulty of course is that such action would expose the losses in the banking system and, except to the extent that those losses have already been shouldered by an entity, the central bank, that would be willing to write them down. And it is not difficult -- it's not easy to manage losses on a massive in a highly leveraged banking system. I learned, at the peak of the U.S. crisis of 2008, that the Reagan administration in 1982 had a plan for the complete nationalization of the large New York banks and would have put that plan into effect had a single large Latin American country -- Brazil, Argentina, or Mexico -- declared a default on sovereign debts at that time.
So I've lain out three possibilities. One is the black-hole scenario of continued economic decline. The second is the chaos of monetary dissolution. And the third is the awkward, and also inadequate, process of debt renegotiation. Which may well be inevitable but, as you know because of the size of the primary deficit, is hardly a formula for economic growth and recovery. This would still imply very severe fiscal intervention.
I wanted to ask if there was a fourth possibility. Going out beyond the realm of what is probable or likely, is there something that could be done in an understanding of the extreme character of the situation? I mentioned before that the second U.S. confederacy failed in 1865 and that the economic failure continued for seven decades, 68 years actually, until Franklin Roosevelt took office in 1933. A failure that was interrupted only by the very short-term boom of the first World War and the speculative explosion in real estate and in the stock market in the mid-late 1920s. It was a failure that left the United States, over this entire period, a deeply divided nation with no unified national economy. Essentially, we were a currency union and a customs union with a large region, the South, which remained chronically depressed: backward, share-cropping, mired in poverty, malnutrition, illiteracy. Immigration for most people to the North, to the extent that it was possible at all, was the only way out.
Franklin Roosevelt was perhaps the first president of the post civil war period who understood just what the South was. And the New Deal, which many of us think of as the reaction to the Great Depression, was in fact far more than that. It was in some ways more fundamentally a project of structural transformation on a grand scale. It began with financial reform, with decisive action to remove the insolvent banks from the system, and move very quickly to agricultural adjustment, a process of setting prices and controlling production in agricultural, vast conservation programs which in the end planted over a billion trees, the Tennessee Valley Authority which industrialized that region of the deep South, the Rural Electrification Administration, employment programs, the Works Progress Administration, public works programs, the Public Works Administration, and continuing into the mid-1930s the establishment of the common Social Security system, the enactment of the minimum wage, and collective bargaining rights on the national level . In the course of all that the New Deal built a million kilometers of roads, a thousand airfields, it built 2500 hospitals and 45,000 schools and I just scratched the surface of an extraordinary list of accomplishments great and small. In the course of four years if you count and we must those people who were working for the New Deal as employed, unemployment in America fell from 25% in early 1933 to under 10% by 1936. Only then did the United States as it presently exists really emerge, and the New Deal, moreover set off a process extended by the Great Society in the 1960s which brought the South from its position of deep penury and backwardness right into the mainstream of American economic life. So that average incomes in the South are now roughly average with the rest of the country as a whole; it is neither poor nor rich by comparison with the rest.
Over seven decades, in other words, the failure of the seven decades following the civil war, was gradually, progressively, and successfully reversed. But it required the creation, in a very short period of time, and implementation of a whole set of institutions that could operate at the level of a continent.
If I had a cheap alternative to the present situation I would surely offer it. But I don't. Europe can of course choose a path that could lead to, let's say, seven decades of economic stagnation interrupted by a credit bubble somewhere once in a while. And I don't want to dramatize, but it does seem to me that is the course that Europe is presently on. Or the alternative is serious work, despite all the ideological difficulties, at the one thing which historical experience tells us might actually work. This is a very long-term project. I would not begin to suggest that there's anything short-term that can be done to completely fix the situation that one is in, but it does seem to me that perhaps there is a responsibility for economists to begin to articulate a path that could begin here and now. And it might be useful to have that begin with the people who have the most to lose otherwise: you my professional colleagues here in Greece.
Thanks very much.
(Transcript by Amy Masarwe)
Pan-European Trade Network Envisioned
Paul Suplizio reports on progress in carrying out decisions of the Paris Conference of IRTA/Europe and the Eurasian Assembly.
Pan-European Trade Network Envisioned
First, we are making good progress to incorporate IRTA/Europe as a legal non-governmental organization within the European Union. Following the recommendation of the Paris Conference, the Global Board of Directors of IRTA approved this action, and as soon as incorporation is complete we will proceed immediately to the next step, which is to apply for an EU grant to provide financial and technical support for integration and expansion of Europe’s barter networks as a business innovation initiative.
We intend to engage the grant-application process as soon as possible to get IRTA/Europe off to a good start by an infusion of capital and technical assistance to help existing trade companies expand, help new start-ups grow, and help link our networks through the new UC euro trading platform that is now operational. We also hope by this means to encourage all barter companies in Europe and Asia to come into IRTA and stand alongside your colleagues to build a great trade network spanning two continents and rivaling that of our forbears of the Hanse.
Barter companies in Europe who have been standing on the sidelines, and thus far have not joined our concerted actions to advance our common industry, now have one more good reason to join IRTA/Europe and help bring the vision of a pan-European trade network to fruition. Standing aside will retard an advance your company can greatly benefit from, for the Pan-European Trade Network will be owned by members of IRTA/Europe and you will have a deciding voice, as a member of the Governing Board, in how its benefits will be shared. Make no mistake about it, this grant money will be for you, and you will decide how it will be allocated.
I am sorry to report that Alina Piddubna, Managing Director of Bartex in Kiev, Ukraine has taken on higher responsibilities and will be unable to continue guiding the EU incorporation project. Alina deserves our thanks for her efforts in pushing this project so far, and I am happy to report that Dariusz Brzozowiec of Barter Systems Poland has volunteered to replace Alina in directing this project. Dariusz will work with Dori Szabo, President of GlobalXchange in Budapest, who has already laid the groundwork to advance the project and the grant application as soon as articles of incorporation are completed.
Second, responding to Europe’s desire for a euro trading platform for inter-company trades, IRTA Executive Director and UC Director Ron Whitney reports that the UC euro platform is now open for business. Trades may now be completed in UC euros and balances held in UC euros. The Universal Currency system, owned by IRTA members,
is the world’s foremost trading platform for trades among barter companies with different currencies and is readily accessible on the internet. Thus, the infrastructure for a pan-European trade network is now in place, and we must thank Ron for giving this project a high priority upon his return from Paris.
Third, the IRTA Global Board of Directors has approved a letter to Commissioner Michel Barnier, Directorate General of Internal Market and Services, European Commission, requesting that trade clearinghouses be exempt from regulations dealing with financial clearinghouses, and cautioning that some parts of regulations dealing with financial clearinghouses may be construed as applying to trade clearinghouses. This letter was previously approved by IRTA/Europe and Assembly members at the Paris Conference on May 2. It will be signed jointly by the President of IRTA and the Chairman of IRTA/Europe.
Fourth, we are seeking proposals for a location for the next meeting of IRTA/Europe and the Assembly of Barter Companies of Europe and Asia, tentatively scheduled for April 16-17 or April 30-May 1, 2011. We have already a proposal from Dori Szabo to hold the meeting in Budapest, Milan and Florence are interested, and if anyone else wishes to make a proposal, we shall be glad to hear from you.
Remember that, as a member of the Governing Board of IRTA/Europe (or of the Assembly for non-IRTA members), you may bring up any matter at any time and ask that it be brought before the whole body for discussion and possible adoption. All of us think about our industry, its place in the worldwide scheme of things, and how we can improve our profession. When you have an idea to share, or a proposal to make, remember you may place it before the group at any time simply by contacting me, your Secretary. Should you wish my advice, I am always happy to respond.
Finally, recall that each of you, as an IRTA/Europe member, has a seat and vote on the Governing Board and that all decisions are made by the Governing Board alone. The only officer positions of IRTA/Europe at present are the Chairman of the Governing Board and the Treasurer — the latter position having been filled in Paris.
After all nominations are received for Chairperson, I shall write you again to inform you of the persons nominated. At that time I will ask you to vote by e-mail for one person from the list of nominees. The person receiving the most votes will be deemed elected, provided no objection is made to this manner of election.
PAUL E. SUPLIZIO
Member, Global Board of Directors (for Europe)
International Reciprocal Trade Association
Secretary to the Assembly
Comments By James K. Galbraith
Comments on "The Slump, the Recovery and the New Normal” by E.S. Phelps, at a conference on "Challenges of the Global Crisis to Macroeconomic Theory and International Finance" in memory of Pentti J. K. Kouri, in Helsinki on June 11, 2010.
By James K. Galbraith
[Listen here]
Thank you very much and it's a distinct honor for me to be here to make some comments on Professor Phelps' paper and in honor of Pentti Kouri.
I want to begin by quoting the very succinct summary of the standard narrative that begins the Phelps paper which he writes:
“In the narrative, Chinese saving caused a world “savings glut”; the U.S. Congress cut the cost of capital for residential investment to expand “homeownership”; the U.S. Federal Reserve then cut its “policy rate” to match the decline in the “natural” interest rate; U.S. regulatory changes allowed banks to borrow more in order to do more mortgage lending for residential and commercial structures; finally, changes in social norms permitted CEOs to ask and receive outsize bonuses, permitted speculators to make one-way bets on housing prices, and permitted homebuyers to file fraudulent loan applications, all of which removed the last line of defense against a scramble for more houses.”
That paragraph seems to me a very succinct summary standard story of the boom. As for the slump, there we run into a question of theoretical interpretation. According to Phelps, Keynesians claim aggregate demand. I'm not entirely sure that's right; or perhaps for present purposes I'm no longer a Keynesian. Chicago MIT‑NYU types have their random disturbances and Professor Phelps writes, "a school that laid the belief in the ground for magic the market cannot prepare us for gross mis‑pricing of risk and pathological asset pricing." It’s a sentiment I heartily endorse. And he mentions an industrial practice school,which he says also “does not explain the near escape of housing prices from the gravitational pull of fundamentals.”
So he proposes for us a fourth approach which he describes as a non‑monetary, non‑rational expectations hypothesis model stressing that housing finance is not needed to fuel the rise of prices; that expectations alone are sufficient. And I believe that is the core of his argument.
Now the body of the paper made me yearn for an actual copy ‑‑ I was reading it in the hotel room in Athens on the computer ‑‑ and also for just a few mathematical expressions so that I could see at a glance what he was getting at. It all seemed very ingenious: the effort to explain the housing bubble without reference to the conduct of banks. I think what was going on here was something that Keynes might have called a rise on the own-rate of interest on housing as opposed to the real rate of interest on other assets. The phrase 'positive price Wicksell effect' crops into mind to describe it; I'd have to go back to see whether 'Hicks Lucas Rapping' was a more precise description.
In any event, in the Phelps model the low rate of interest which sets off the housing boom alongside other factors is due perhaps to an Asian, specifically Chinese, savings glut: an obsessive refusal of that population to consume and their search for safety in U.S. bonds. I fear that in the real world there is actually no such thing. Chinese consumption standards are in fact rising very rapidly as anyone with a mother‑in‑law there knows. The accounting artifact of high savings is due very largely to falling prices of wage goods, unobserved by the surveyors who take PPP measurements but perfectly obvious to ordinary shoppers, and to the correspondingly high private and public investment rate. There is no excess of private savings looking to go anywhere, and thanks to capital control it would be difficult to get it out of the country if there were. The Chinese bond hoard reflects the cost effectiveness of the Chinese export market model plus the compulsory exchange for dollar inflows to the real estate and capital markets. One can perhaps call this savings in accounting terms but it is confusing to do so in ordinary language.
The transformation of Chinese cash into T-bonds is an accounting operation in which the demand equals the supply, and I would argue that the source of decline in long‑term interest rates must therefore be sought elsewhere. The true contribution of China to low interest rates is not the supply of savings but effect of the low cost of Chinese wages goods in world markets on the world wide rate of inflation. However, if we have an anterior decline in the world inflation rates then the real rate of interest hasn't declined so much then -- has it? --and the MacGuffin that was required to start the Phelps process is no longer immediately in view.
The next puzzle over which Phelps labors is the rise in U.S. housing prices in the face of stable consumer prices generally. I agree this is the essential puzzle. He finds the explanation in a temporary and irrational, unobservable and irrefutable change in the state of expectations. Animal spirits I think is a term one could use to describe this. I think it is a very substantial step in this paper to bring in the role of speculators, relative to models that ignore them. But it would be useful to do so in the right way. And while one cannot of course disprove Professor Phelps' version I think one can point to a fair amount of actual evidence that takes us in yet a different direction.
Specifically that evidence suggests that housing prices rose because mortgage originators found it profitable to inflate them. Their business model was: the bigger the loan the bigger the fee. So they sought out appraisers willing to inflate their appraisals, created loans with teaser rates to trick the ratings models, and solved the problem of nonpayment by passing the garbage to other investors as quickly as possible. Let me just quote for you a comment in the Washington Post on the 3nd of February, 2007:
“A new survey of the national appraisal industry found that 90% of appraisers reported that manager brokers real estate agents lenders and even consumers have put pressure on them to raise property evaluations and to enable deals to go through.
Market Watch on the 24th of April of the same year quotes the manager of the California Association of Real Estate Appraisers, in a very frank and candid remark, quote, "you show me an honest appraiser and I will show you a poor one." Where by “poor,” what is meant here is “impecunious”. This is “Looting: Bankruptcy for Profit,” as described in Akerlof and Romer’s classic 1993 article. And while the mortgage originators, Countrywide Financial, IndyMac, Washington Mutual, Long Beach and so forth and so on have all failed, their failure does not mean that the scam failed. The perpetrators are mostly walking around rich and free.
In fact I would argue that we have in the system all of the major elements required for the description of a criminal industry. That is to say in the originators we have a counterfeiting scheme: people who issued mortgage documents things that looked like mortgage documents but that were not in fact mortgage documents. The issuers knew very well that there was no prospect that the borrowers would be able to service those loans, and they had entire language to describe this. Liars’ loans. NINJA loans; no income nor job or assets. Neutron loans; loans that were set to explode destroying the people but leaving the buildings intact. And the so‑called mezzanine tranches of collateralized debt obligations: toxic waste.
We had a way of taking that dirty paper and rendering it clean. A laundering operation. The ratings agencies; that is what they did. They took the paper which was piles of BBB‑ mortgage obligations and labeled it AAA so that it could be sold to investors on both sides of the Atlantic who were required or who preferred only to take AAA paper and who either chose not to examine what the ratings agencies were doing or to simply trust them entirely unjustifiably.
And we had the third essential element: A fencing operation, taking the stolen goods in effect, the counterfeit paper, and passing it on to the legitimate market. That was carried out by investment and commercial banks.
Professor Phelps says it is not necessary to implicate the financial source in rising housing prices. But I would argue that it is surely sufficient to do so under the circumstances actually observed. I would not dismiss the role of expectation which he emphasizes. But the role of expectation was in coaxing borrowers to take out loans that they could not possibly afford to service, on the assurance and assumption that the rise in price of their house would in two or three years allow them to refinance those loans and not incidentally generating yet another fat fee for the originators.
I want to quote here momentarily a comment on the entities which carried out this operation from the white‑collar criminologist William K. Black who, among other things, was the premier analyst of the savings and loans crisis of the United States and a man who was both the architect of the reregulation of that industry in the 1990s and the prosecutions which brought about one thousand people ‑‑ insiders in the industry ‑‑ to the bar of justice and ultimately to federal prison. He writes:
"the internal controls of large lenders are supposed to include the loan officers, the loan officers’ supervisors, loan underwriters, internal appraisers, the credit committee, the senior risk manager, the internal auditor, the audit committee, the chief operations officer, CFO and CEO, the asset/liability committee, and the board of directors. The external controls include the outside auditor, rating agencies and appraisers. A large lender has roughly a dozen overlapping controls that are supposed to stop any practice that leads to a significant number of preventible bad loans. Each of these controls must fail contemporaneously to permit an overall strategy of making tens of thousands of bad loans. The odds against each of those controls failing contemporaneously and independently due to random events are minuscule. The odds that the controls will all fail independently and the failures will continue for five years without being restored are essentially zero. It is impossible [for this to happen] without the active support of senior officers controlling the firm.”
Professor Phelps alludes to acts of Congress and to fraud by home buyers. But he misses I believe the salient public and private deeds: de‑supervision by regulators and aggressive fraud by lenders, ratings agencies and underwriters, coupled with the extraordinary stupidity of a firm like AIG-FP in writing credit default swaps on all of this bad paper. And later, one might add, the fantastic willingness of the high officials of the United States government -- the Secretary of the Treasury and the Chairman of the Federal Reserve Board, to rescue the banks by guaranteeing their bonds without demanding a change of management or other meaningful reform.
In some ways Professor Phelps' paper, interesting and important though it is, it seems to me to be averting its eyes from this debacle. I have the opposite reaction, watching this cabal effectively engineer a train wreck for the entire capitalist system. It is so fascinating that I simply cannot tear my eyes away.
Let me end, however, on a note of agreement as to where we stand. The problem going forward it s not that we can't stabilize activity. The effect of the automatic stabilizers, the effect of the stimulus package, the effect of the measures that were taken in the heat of the crisis to quell the financial panic; all were clearly felt and we can and we have to a degree stabilized economic activity at a fairly low level and with intolerably high rates of unemployment--certainly in the US and also in Europe.
And to overcome this the economy desperately does need new sources of dynamism and institutions capable of financing this. And I also agree with Professor Phelps -- although I would put the public sector in a stronger role than he would -- that the public sector alone does not have the capacity to handle this problem with the institutional mechanisms that are at hand. So we need something else. And this is why I have advocated ‑‑ and frankly I have advocated for decades but now seems to me more urgent than ever ‑‑ an infrastructure bank; something for which I helped draft legislation in the U.S. Congress as far back as 1983.
And I now see the need for a return to policy lending institutions of the kind that used to be found in developmental states generally, including the U.S. in the 1940s and 1950s and into the 1960s in France and Japan and elsewhere, precisely to provide the institutional framework and profit incentives to deal with energy, climate change, and other issues, and to create the private sector demand that would generate the jobs that would replace those that we have lost, and effectively to replace the functions which the large private banks are no longer competent to perform.
Thank you.
Transcript by Amy Masarwe.
By James K. Galbraith
[Listen here]
Thank you very much and it's a distinct honor for me to be here to make some comments on Professor Phelps' paper and in honor of Pentti Kouri.
I want to begin by quoting the very succinct summary of the standard narrative that begins the Phelps paper which he writes:
“In the narrative, Chinese saving caused a world “savings glut”; the U.S. Congress cut the cost of capital for residential investment to expand “homeownership”; the U.S. Federal Reserve then cut its “policy rate” to match the decline in the “natural” interest rate; U.S. regulatory changes allowed banks to borrow more in order to do more mortgage lending for residential and commercial structures; finally, changes in social norms permitted CEOs to ask and receive outsize bonuses, permitted speculators to make one-way bets on housing prices, and permitted homebuyers to file fraudulent loan applications, all of which removed the last line of defense against a scramble for more houses.”
That paragraph seems to me a very succinct summary standard story of the boom. As for the slump, there we run into a question of theoretical interpretation. According to Phelps, Keynesians claim aggregate demand. I'm not entirely sure that's right; or perhaps for present purposes I'm no longer a Keynesian. Chicago MIT‑NYU types have their random disturbances and Professor Phelps writes, "a school that laid the belief in the ground for magic the market cannot prepare us for gross mis‑pricing of risk and pathological asset pricing." It’s a sentiment I heartily endorse. And he mentions an industrial practice school,which he says also “does not explain the near escape of housing prices from the gravitational pull of fundamentals.”
So he proposes for us a fourth approach which he describes as a non‑monetary, non‑rational expectations hypothesis model stressing that housing finance is not needed to fuel the rise of prices; that expectations alone are sufficient. And I believe that is the core of his argument.
Now the body of the paper made me yearn for an actual copy ‑‑ I was reading it in the hotel room in Athens on the computer ‑‑ and also for just a few mathematical expressions so that I could see at a glance what he was getting at. It all seemed very ingenious: the effort to explain the housing bubble without reference to the conduct of banks. I think what was going on here was something that Keynes might have called a rise on the own-rate of interest on housing as opposed to the real rate of interest on other assets. The phrase 'positive price Wicksell effect' crops into mind to describe it; I'd have to go back to see whether 'Hicks Lucas Rapping' was a more precise description.
In any event, in the Phelps model the low rate of interest which sets off the housing boom alongside other factors is due perhaps to an Asian, specifically Chinese, savings glut: an obsessive refusal of that population to consume and their search for safety in U.S. bonds. I fear that in the real world there is actually no such thing. Chinese consumption standards are in fact rising very rapidly as anyone with a mother‑in‑law there knows. The accounting artifact of high savings is due very largely to falling prices of wage goods, unobserved by the surveyors who take PPP measurements but perfectly obvious to ordinary shoppers, and to the correspondingly high private and public investment rate. There is no excess of private savings looking to go anywhere, and thanks to capital control it would be difficult to get it out of the country if there were. The Chinese bond hoard reflects the cost effectiveness of the Chinese export market model plus the compulsory exchange for dollar inflows to the real estate and capital markets. One can perhaps call this savings in accounting terms but it is confusing to do so in ordinary language.
The transformation of Chinese cash into T-bonds is an accounting operation in which the demand equals the supply, and I would argue that the source of decline in long‑term interest rates must therefore be sought elsewhere. The true contribution of China to low interest rates is not the supply of savings but effect of the low cost of Chinese wages goods in world markets on the world wide rate of inflation. However, if we have an anterior decline in the world inflation rates then the real rate of interest hasn't declined so much then -- has it? --and the MacGuffin that was required to start the Phelps process is no longer immediately in view.
The next puzzle over which Phelps labors is the rise in U.S. housing prices in the face of stable consumer prices generally. I agree this is the essential puzzle. He finds the explanation in a temporary and irrational, unobservable and irrefutable change in the state of expectations. Animal spirits I think is a term one could use to describe this. I think it is a very substantial step in this paper to bring in the role of speculators, relative to models that ignore them. But it would be useful to do so in the right way. And while one cannot of course disprove Professor Phelps' version I think one can point to a fair amount of actual evidence that takes us in yet a different direction.
Specifically that evidence suggests that housing prices rose because mortgage originators found it profitable to inflate them. Their business model was: the bigger the loan the bigger the fee. So they sought out appraisers willing to inflate their appraisals, created loans with teaser rates to trick the ratings models, and solved the problem of nonpayment by passing the garbage to other investors as quickly as possible. Let me just quote for you a comment in the Washington Post on the 3nd of February, 2007:
“A new survey of the national appraisal industry found that 90% of appraisers reported that manager brokers real estate agents lenders and even consumers have put pressure on them to raise property evaluations and to enable deals to go through.
Market Watch on the 24th of April of the same year quotes the manager of the California Association of Real Estate Appraisers, in a very frank and candid remark, quote, "you show me an honest appraiser and I will show you a poor one." Where by “poor,” what is meant here is “impecunious”. This is “Looting: Bankruptcy for Profit,” as described in Akerlof and Romer’s classic 1993 article. And while the mortgage originators, Countrywide Financial, IndyMac, Washington Mutual, Long Beach and so forth and so on have all failed, their failure does not mean that the scam failed. The perpetrators are mostly walking around rich and free.
In fact I would argue that we have in the system all of the major elements required for the description of a criminal industry. That is to say in the originators we have a counterfeiting scheme: people who issued mortgage documents things that looked like mortgage documents but that were not in fact mortgage documents. The issuers knew very well that there was no prospect that the borrowers would be able to service those loans, and they had entire language to describe this. Liars’ loans. NINJA loans; no income nor job or assets. Neutron loans; loans that were set to explode destroying the people but leaving the buildings intact. And the so‑called mezzanine tranches of collateralized debt obligations: toxic waste.
We had a way of taking that dirty paper and rendering it clean. A laundering operation. The ratings agencies; that is what they did. They took the paper which was piles of BBB‑ mortgage obligations and labeled it AAA so that it could be sold to investors on both sides of the Atlantic who were required or who preferred only to take AAA paper and who either chose not to examine what the ratings agencies were doing or to simply trust them entirely unjustifiably.
And we had the third essential element: A fencing operation, taking the stolen goods in effect, the counterfeit paper, and passing it on to the legitimate market. That was carried out by investment and commercial banks.
Professor Phelps says it is not necessary to implicate the financial source in rising housing prices. But I would argue that it is surely sufficient to do so under the circumstances actually observed. I would not dismiss the role of expectation which he emphasizes. But the role of expectation was in coaxing borrowers to take out loans that they could not possibly afford to service, on the assurance and assumption that the rise in price of their house would in two or three years allow them to refinance those loans and not incidentally generating yet another fat fee for the originators.
I want to quote here momentarily a comment on the entities which carried out this operation from the white‑collar criminologist William K. Black who, among other things, was the premier analyst of the savings and loans crisis of the United States and a man who was both the architect of the reregulation of that industry in the 1990s and the prosecutions which brought about one thousand people ‑‑ insiders in the industry ‑‑ to the bar of justice and ultimately to federal prison. He writes:
"the internal controls of large lenders are supposed to include the loan officers, the loan officers’ supervisors, loan underwriters, internal appraisers, the credit committee, the senior risk manager, the internal auditor, the audit committee, the chief operations officer, CFO and CEO, the asset/liability committee, and the board of directors. The external controls include the outside auditor, rating agencies and appraisers. A large lender has roughly a dozen overlapping controls that are supposed to stop any practice that leads to a significant number of preventible bad loans. Each of these controls must fail contemporaneously to permit an overall strategy of making tens of thousands of bad loans. The odds against each of those controls failing contemporaneously and independently due to random events are minuscule. The odds that the controls will all fail independently and the failures will continue for five years without being restored are essentially zero. It is impossible [for this to happen] without the active support of senior officers controlling the firm.”
Professor Phelps alludes to acts of Congress and to fraud by home buyers. But he misses I believe the salient public and private deeds: de‑supervision by regulators and aggressive fraud by lenders, ratings agencies and underwriters, coupled with the extraordinary stupidity of a firm like AIG-FP in writing credit default swaps on all of this bad paper. And later, one might add, the fantastic willingness of the high officials of the United States government -- the Secretary of the Treasury and the Chairman of the Federal Reserve Board, to rescue the banks by guaranteeing their bonds without demanding a change of management or other meaningful reform.
In some ways Professor Phelps' paper, interesting and important though it is, it seems to me to be averting its eyes from this debacle. I have the opposite reaction, watching this cabal effectively engineer a train wreck for the entire capitalist system. It is so fascinating that I simply cannot tear my eyes away.
Let me end, however, on a note of agreement as to where we stand. The problem going forward it s not that we can't stabilize activity. The effect of the automatic stabilizers, the effect of the stimulus package, the effect of the measures that were taken in the heat of the crisis to quell the financial panic; all were clearly felt and we can and we have to a degree stabilized economic activity at a fairly low level and with intolerably high rates of unemployment--certainly in the US and also in Europe.
And to overcome this the economy desperately does need new sources of dynamism and institutions capable of financing this. And I also agree with Professor Phelps -- although I would put the public sector in a stronger role than he would -- that the public sector alone does not have the capacity to handle this problem with the institutional mechanisms that are at hand. So we need something else. And this is why I have advocated ‑‑ and frankly I have advocated for decades but now seems to me more urgent than ever ‑‑ an infrastructure bank; something for which I helped draft legislation in the U.S. Congress as far back as 1983.
And I now see the need for a return to policy lending institutions of the kind that used to be found in developmental states generally, including the U.S. in the 1940s and 1950s and into the 1960s in France and Japan and elsewhere, precisely to provide the institutional framework and profit incentives to deal with energy, climate change, and other issues, and to create the private sector demand that would generate the jobs that would replace those that we have lost, and effectively to replace the functions which the large private banks are no longer competent to perform.
Thank you.
Transcript by Amy Masarwe.
lunedì 28 giugno 2010
The Video Bernanke Don't Want You to See
The Video Bernanke Don't Want You to See
Please Spread This Video across the Internet! Our Future depends on people knowing this information about Big Oil, Money, Banking, and the need for Alternative Energy Solutions.
"History records that the money changers have used every form of abuse, intrigue, deceit, and violent means possible to maintain their control over governments by controlling money and it's issuance." -- James Madison
The first person to distill gasoline from crude oil was Benjamin Sillman Jr., a chemist from the prestigious Yale University, who is credited with developing much of the Oil industry. Sillman, who later became a professor of chemistry at Yale was also a member of the Skull and Bones Fraternity.
Secret Societies like Skull and Bones are breeding grounds for the concentration of wealth and power. They represent an Ivy League consolidation of bankers, politicians, intelligence agents, CEOs, and scientists who are generally willing to endorse policy favorable for the elite, including the control and mass use of oil as well as the suppression of alternative energies.
The elites would love for people to focus on the bazaar rituals, since the occult provides the perfect distraction while networks of people are tapped and put into positions of power.
A perfect example of this would be the 2004 elections where George Bush and John Kerry, both members of Skull and Bones, were the only choices given to the American people. Even Obama has proven with the bailouts that he works for the interests of Wall Street and the international bankers and NOT the American people.
Drill baby Drill is now Spill baby spill...
Now that you understand a bit better about how things got the way they are, you should also understand that they don't have to be this way. There are solutions they've just been carefully hidden from the public view along with the root problems explained thus far.
And why not, we're talking about a system that makes these people $Billions and keeps them in control.
On the one hand we could audit the Federal Reserve and try to get our system back to using sound money again. But that does nothing to fix the so called "energy crisis". On the other hand we could start the Clean Renewable Energy revolution and undermine the entire system from the inside out while saving the planet in the process. By taking out the foundation their entire house of cards is built upon...
This is why Monopoly man J.P. Morgan told Nikola Tesla that he wouldn't fund anything he couldn't put a meter on." And this is also why alternative energy technologies and even the electric car have been violently suppressed by the establishment.
With your help, we can blow this case wide open... and the revolution can begin.
But it's going to take more than sending this video to everyone you know and simply exposing the fraud and manipulation we are under...
The real solutions can only come through new energy technologies. We're surrounded by a sea of energy. There's no energy crisis... If anything it's a crisis of ingenuity or creativity or imagination...
or the suppression thereof. . .
Additional sources:
Tenet Defends CIA Intelligence for WMDs
http://www.msnbc.msn.com/id/4049012/
Tenet claims "slam dunk" case for WMDs:
http://www.cnn.com/2004/ALLPOLITICS/0...
Who lost the WMD's
http://www.time.com/time/magazine/art...
White House buried intelligence on Iraq's WMD's:
http://www.timesonline.co.uk/tol/news...
Iraq nets handsome profit by dumping Dollar for Euro:
http://www.guardian.co.uk/business/20...
U.N. to let Iraq sell oil for euros:
http://archives.cnn.com/2000/WORLD/me...
http://www.defenseindustrydaily.com/c...
http://www.energybulletin.net/node/7707
Books:
"The Case Against the Fed" - Murray Rothbard
"The best way to rob a bank is to own one" - William Black
"Syndrome of Control" - Lindsay Williams
"The Creature from Jekyll Island" - G. Edward Griffin
"Tragedy and Hope" - Carol Quigley
"Crossing the Rubicon: The Decline of American Empire at the end of the Age of Oil" - Michael C. Ruppert
"The Prize: The Epic Quest for Oil, Money, and Power" - Daniel Yergin
Please Spread This Video across the Internet! Our Future depends on people knowing this information about Big Oil, Money, Banking, and the need for Alternative Energy Solutions.
"History records that the money changers have used every form of abuse, intrigue, deceit, and violent means possible to maintain their control over governments by controlling money and it's issuance." -- James Madison
The first person to distill gasoline from crude oil was Benjamin Sillman Jr., a chemist from the prestigious Yale University, who is credited with developing much of the Oil industry. Sillman, who later became a professor of chemistry at Yale was also a member of the Skull and Bones Fraternity.
Secret Societies like Skull and Bones are breeding grounds for the concentration of wealth and power. They represent an Ivy League consolidation of bankers, politicians, intelligence agents, CEOs, and scientists who are generally willing to endorse policy favorable for the elite, including the control and mass use of oil as well as the suppression of alternative energies.
The elites would love for people to focus on the bazaar rituals, since the occult provides the perfect distraction while networks of people are tapped and put into positions of power.
A perfect example of this would be the 2004 elections where George Bush and John Kerry, both members of Skull and Bones, were the only choices given to the American people. Even Obama has proven with the bailouts that he works for the interests of Wall Street and the international bankers and NOT the American people.
Drill baby Drill is now Spill baby spill...
Now that you understand a bit better about how things got the way they are, you should also understand that they don't have to be this way. There are solutions they've just been carefully hidden from the public view along with the root problems explained thus far.
And why not, we're talking about a system that makes these people $Billions and keeps them in control.
On the one hand we could audit the Federal Reserve and try to get our system back to using sound money again. But that does nothing to fix the so called "energy crisis". On the other hand we could start the Clean Renewable Energy revolution and undermine the entire system from the inside out while saving the planet in the process. By taking out the foundation their entire house of cards is built upon...
This is why Monopoly man J.P. Morgan told Nikola Tesla that he wouldn't fund anything he couldn't put a meter on." And this is also why alternative energy technologies and even the electric car have been violently suppressed by the establishment.
With your help, we can blow this case wide open... and the revolution can begin.
But it's going to take more than sending this video to everyone you know and simply exposing the fraud and manipulation we are under...
The real solutions can only come through new energy technologies. We're surrounded by a sea of energy. There's no energy crisis... If anything it's a crisis of ingenuity or creativity or imagination...
or the suppression thereof. . .
Additional sources:
Tenet Defends CIA Intelligence for WMDs
http://www.msnbc.msn.com/id/4049012/
Tenet claims "slam dunk" case for WMDs:
http://www.cnn.com/2004/ALLPOLITICS/0...
Who lost the WMD's
http://www.time.com/time/magazine/art...
White House buried intelligence on Iraq's WMD's:
http://www.timesonline.co.uk/tol/news...
Iraq nets handsome profit by dumping Dollar for Euro:
http://www.guardian.co.uk/business/20...
U.N. to let Iraq sell oil for euros:
http://archives.cnn.com/2000/WORLD/me...
http://www.defenseindustrydaily.com/c...
http://www.energybulletin.net/node/7707
Books:
"The Case Against the Fed" - Murray Rothbard
"The best way to rob a bank is to own one" - William Black
"Syndrome of Control" - Lindsay Williams
"The Creature from Jekyll Island" - G. Edward Griffin
"Tragedy and Hope" - Carol Quigley
"Crossing the Rubicon: The Decline of American Empire at the end of the Age of Oil" - Michael C. Ruppert
"The Prize: The Epic Quest for Oil, Money, and Power" - Daniel Yergin
Naomi Klein: Sticking the Public With the Bill for the Bankers
BIO
Related News On Huffington Post:
Sticking the Public With the Bill for the Bankers' Crisis
My city feels like a crime scene, and the criminals are all melting into the night, fleeing the scene. No, I'm not talking about the kids in black who smashed windows and burned cop cars on Saturday.
I'm talking about the heads of state who, on Sunday night, smashed social safety nets and burned good jobs in the middle of a recession. Faced with the effects of a crisis created by the world's wealthiest and most privileged strata, they decided to stick the poorest and most vulnerable people in their countries with the bill.
How else can we interpret the G20's final communique, which includes not even a measly tax on banks or financial transactions, yet instructs governments to slash their deficits in half by 2013. This is a huge and shocking cut, and we should be very clear who will pay the price: students who will see their public educations further deteriorate as their fees go up; pensioners who will lose hard earned benefits; public sector workers whose jobs will be eliminated. And the list goes on. These types of cuts have already begun in many G20 countries including Canada, and they are about to get a lot worse. For instance, reducing the projected 2010 deficit in the U.S. by half, in the absence of a sizeable tax increase, would mean a whopping $780-billion cut.
They are happening for a simple reason. When the G20 met in London in 2009, at the height of the financial crisis, the leaders failed to band together to regulate the financial sector so that this type of crisis would never happen again. All we got was empty rhetoric, and an agreement to put trillions of dollars in public monies on the table to shore up the banks around the world. Meanwhile, the U.S. government did little to keep people in their homes and jobs, so in addition to hemorrhaging public money to save the banks, the tax base collapsed, creating an entirely predictable debt and deficit crisis.
At this weekend's summit, Prime Minister Stephen Harper convinced his fellow leaders that it simply wouldn't be fair to punish those banks that behaved well and did not create the crisis (despite the fact that Canada's highly protected banks are consistently profitable and could easily absorb a tax). Yet, somehow, these leaders had no such concerns about fairness when they decided to punish blameless individuals for a crisis created by derivative traders and absentee regulators.
Last week, the Globe and Mail ran a fascinating article about the origins of the G20. It turns out the entire concept was conceived in a meeting back in 1999 between then Finance Minister Paul Martin and his U.S. counterpart Lawrence Summers (itself interesting since Summers was, at that time playing a central role in creating the conditions for this financial crisis, allowing a wave of bank consolidation and refusing to regulate derivatives).
The two men wanted to expand the G7, but only to countries they considered strategic and safe. They needed to make a list but apparently they didn't have paper handy. So, according to reporters John Ibbitson and Tara Perkins, "the two men grabbed a brown manila envelope, put it on the table between them, and began sketching the framework of a new world order." Thus was born the G20.
The story is a good reminder that history is shaped by human decisions, not natural laws. Summers and Martin changed the world with the decisions they scrawled on the back on that envelope. But there is nothing to say that citizens of G20 countries need to take orders from this handpicked club.
Already, workers, pensioners and students have taken to the streets against austerity measures in Italy, Germany, France, Spain and Greece, often marching under the slogan "We won't pay for your crisis." And they have plenty of suggestions for how to raise revenues to meet their respective budget shortfalls.
Many are calling for a financial transaction tax that would slow down hot money and raise new money for social programs and climate change. Others are calling for steep taxes on polluters that would underwrite the cost of dealing with the effects of climate change and moving away from fossil fuels. And ending losing wars is always a good cost saver.
The G20 is an ad-hoc institution with none of the legitimacy of the United Nations. Since it just tried to stick us with a huge bill for a crisis most of us had no hand in creating, I say we take a cue from Martin and Summers. Flip it over, and write on the back of the envelope: Return to sender.
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La spirale del debito estero
Un nodo della dipendenza: la spirale del debito estero.
Italia in vendita.
Italia in vendita.
Dimezzare i deficit pubblici entro il 2013: così a Toronto il G20 (forum dei ministri delle finanze e dei governatori delle banche centrali, con dentro i 19 paesi più industrializzati, del G8 in primis, con l'Unione europea). La data –2013– è buttata là tanto per indicarne una, comunque irrealistica, certamente per la gran parte degli Stati europei, essendo i meccanismi monetari dell'euro ed i correlati parametri e direttive fatti apposta per generare strutturalmente dipendenza, anche debito quindi, e per vincolare, attraverso la spirale usuraia, a chi questo debito in ultima istanza controlla. Quella data serve solo per illudere che sia di breve durata la mannaia che continuerà ad abbattersi sui popoli e sulle rispettive classi subalterne, in termini di ulteriori "sacrifici", di riduzione delle spese sociali, di più tasse (dirette ed indirette) per destinazioni finali che rispondono ad interessi tutt'altro che nazionali, tutt'altro che collettivi. A Toronto, in altri termini, è stata ribadita la linea euroatlantica dell'asse FMI (Fondo Monetario Internazionale) – BCE (Banca Centrale Europea). Ad aleggiare, anche qui, la prospettiva di "finire come in Grecia", quale monito cui inchiodare rassegnate cittadinanze e classi da mungere.
A fronte di tutto ciò, il governo Berlusconi si allinea agli altri governi in Europa che aumentano gli investimenti per le spese di guerra dell'alleato/padrone USA, ora concentrate soprattutto in Afghanistan, e che, ultimo ma non ultimo, devono sostenere quel colossale prestito "europeo" formalmente "alla Grecia", in realtà destinato al pagamento delle spettanze per quelle banche d'affari USA, all'origine della crisi finanziaria di quel paese. In scia degli interessi USA, cui principalmente interessa la prospettiva di accelerare la centralizzazione delle politiche economiche e di bilancio degli Stati dell'Unione Europea a beneficio delle atlantiche Commissione Europea e Banca Centrale Europea per meglio controllare e direzionare le spinte di Stati ed economie potenzialmente concorrenti, ovviamente ci saranno spoglie appannaggio di grandi gruppi imprenditoriali e finanziari dei paesi satelliti. La City di Londra ha ad esempio accolto favorevolmente l’idea della vendita di alcune isole e dell'affitto di altre per lunghi periodi di tempo che l'amministrazione greca intende mettere in atto per ripianare gli enormi debiti che ha contratto negli ultimi mesi con Unione Europea e Fondo Monetario Internazionale per evitare il collasso economico.
Non è quindi anomalo che gli echi di Toronto si facciano sentire anche in Italia. In base al federalismo demaniale, gli enti locali (innanzitutto i Comuni, ma anche Province e Regioni) potranno richiedere ed ottenere, a titolo gratuito, una serie di beni anche da mettere in vendita. Il Demanio ne ha indicati provvisoriamente circa 19mila, da parti delle Dolomiti all'intera isola di S. Stefano, sino al mercato di Porta Portese e all'intero Idroscalo a Roma, da San Pietro in Vincoli alla facoltà di Ingegneria della Sapienza, al faro di Mattinata sul Gargano, passando per ex aeroporti, palazzi storici, immobili vari, cinema, parchi, acquedotti come quello di Castellammare di Stabia, in provincia di Napoli, eccetera. Il Demanio assicura per fine luglio l'elenco ufficiale e aggiornato dei beni. Tutto, comunque, a condizione che il guadagno sia usato per l'abbattimento del debito pubblico. Un debito pubblico di cui la quasi totalità degli italiani ignora (non è informata) di cause e dinamiche che l'alimentano, e che cresce pressoché constantemente, nonostante le idrovore (tasse e balzelli diretti ed indiretti, aumento dei costi dei servizi, riduzioni di spesa sociale, ecc.) che centrodestra e centrosinistra in drammatica e servile continuità reiterano dissipando risorse, peggiorando le condizioni di vita del popolo italiano, acuendo la sudditanza atlantica di questo paese.
Indipendenza
28 giugno 2010
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