Dean Baker - Will an Incompetent European Central Bank Be Allowed to Wreck the World Economy?

Published on Tuesday, December 6, 2011 by The Guardian/UK

http://www.guardian.co.uk/commentisfree/cifamerica/2011/dec/05/ecb-save-eurozone-fed-must-step-in

by Dean Baker

The world is eagerly waiting to see if the European Central Bank (ECB) will take the steps needed to save the euro. Specifically, is the ECB prepared to act as a central bank and guarantee the sovereign debt of the countries in the eurozone as the lender of last resort ordinarily does in a crisis?

If not, there is little doubt what the outcome will be. The austerity being imposed on country after country will slow GDP growth and throw workers out of jobs. Higher unemployment will worsen deficits, since it means less tax revenue coming in and more unemployment benefits and other transfers being paid out. Higher deficits will cause investors to worry about the solvency of the government, leading interest rates to rise.

This gives us the famous downward spiral that already sank Greece's economy and government. It will soon sink Italy and Spain – unless the ECB starts acting like a central bank. The fallout from disorderly defaults from these two countries will cause banks throughout the eurozone to become insolvent, leading to another post Lehman-type freeze-up of the financial system.

The end result will be a second recession and another sharp spike in unemployment, not just in the eurozone, but almost certainly across the globe. The finances and the economies of the eurozone are too intertwined with the rest of the world to envision a meltdown that doesn't also push the rest of the world into recession. At the end of this story, the euro itself is likely to be placed in the dustbin of history, another failed monetary experiment.

This story is especially painful since this crisis is the outcome of one set of failed policies layered on top of another set of failed policies. The original downturn came about because the ECB, like the Fed and the Bank of England, chose to ignore the buildup of enormous housing bubbles and the resulting economic imbalances. It was 100% predictable that the collapse of these bubbles would lead to a serious recession. The financial crises that accompanied this collapse was also a predictable outcome of the rapid disappearance of trillions of dollars of wealth. Yet, the central bankers at ECB and elsewhere were completely caught by surprise.

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Thomas Harrington - Technocrats

Published on Monday, December 5, 2011 by CommonDreams.org

http://www.commondreams.org/view/2011/12/05-6

by Thomas S. Harrington

During the last few days and weeks we have been hearing a lot about technocrats, as in “the technocrat Mario Monti has just been named Prime Minister of Italy” or  “the newly-appointed President of the European Central Bank is the technocrat Mario Draghi”.  

Though none of the reporters and pundits I have seen employing it recently have ever stopped to define the term, its implied meaning is quite clear:  a person of demonstrated financial skill who is unburdened by the ideological and political baggage blinding or crippling the incumbent policy makers.

Because the technocrat is effectively “above the fray” and interested in looking at reality solely in terms of “practical solutions”, the story goes, he (they are generally always men) is much better positioned than “mere politicians” to resolve the society’s most pressing social and economic problems.

Insofar as it used in the American context, the term  “fascist” functions largely as a political epithet, an insult we hurl at someone whose high-handed behavior offends us. 

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Michelle Chen - Wal-Mart Circles Indian Markets, and Indians Push Back

 December 3, 2011 by In These Times

http://www.inthesetimes.com/working/entry/12362/wal-mart_circles_indian_markets_indian_society_pushes_back/

by Michelle Chen

The marketplace has always been at the heart of India--exuberant bazaars brimming with local hawkers and traditional wares and foods. But the country’s old-fashioned markets may soon be eclipsed by the towering “free market” of globalization, as multinational superstores push the government to open the gates.

The India Cabinet wants to enable businesses with 51-percent foreign direct investment to enter India's retail sector--basically inviting in big box behemoths like Wal-Mart under the banner of efficiency and consumer choice. But many Indians aren’t buying it. This week, UNI Global Union reports that shops went on strike:

Over 50 million small traders across India have put down their shutters as part of strike action aimed at getting the India government to review its decision.

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Marshall Auerback - Eurozone Catastrophe -- How Saving the Euro Could Mean Blood on the Streets

By Marshall Auerback, AlterNet

Posted on December 2, 2011, Printed on December 3, 2011
http://www.alternet.org/story/153297/eurozone_catastrophe%3A_how_saving_the_euro_could_mean_blood_on_the_streets

The eurozone story is changing by the hour. Here's what you need to know to understand developments that will impact the entire global economy and potentially cause major social upheaval.

The eurozone is facing two distinct, but related, problems: Problem #1 is a national solvency issue, which only the European Central Bank (ECB) can solve. Problem #2 is deficient "aggregate demand" (a fancy term for the spending power of consumers), which calls for a stronger fiscal policy response to offset declining investment and purchases in the private sector.

As it stands, the ECB is the only show in town to save the eurozone from a very drawn out and damaging recession. Why is that? Well, because the individual member states in the European Economic and Monetary Union (EMU) cannot spend without taxation revenue or debt-issuance, because they are users of their currency, rather than issuers. This is a key distinction, and one often missed in media coverage. Their position is in sharp contrast to, say, the US, the UK, Canada, and Australia, all of which are issuers of their own currency and therefore not subject to the same kind of solvency risk because they are in control of their own money supply. The only institution in the EMU that can spend without recourse to prior funding is the ECB. That is the consequence of the flawed design of the monetary system that the neo-liberal conservatives in Europe forced upon the member states at the inception of the common currency.

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Nomi Prins - The Fed’s European “Rescue” -- Another Back-Door US Bank / Goldman Bailout?

http://www.nationofchange.org/fed-s-european-rescue-another-back-door-us-bank-goldman-bailout-1322759036

By Nomi Prins

In the wake of chopping its Central Bank swap rates today, the Fed has been called a bunch of names: a hero for slugging the big bailout bat in the ninth inning, and a villain for printing money to help Europe at the expense of the US. Neither depiction is right.

The Fed is merely continuing its unfettered brand of bailout-economics, promoted with heightened intensity recently by President Obama and Treasury Secretary, Tim Geithner in the wake of Germany not playing bailout-ball.  Recall, a couple years ago, it was a uniquely American brand of BIG bailouts that the Fed adopted in creating $7.7 trillion of bank subsidies that ran the gamut from back-door AIG bailouts (some of which went to US / some to European banks that deal with those same US banks), to the purchasing of mortgage-backed–securities, to near zero-rate loans (for banks).

Similarly, today’s move was also about protecting US banks from losses – self inflicted by dangerous derivatives-chain trades, again with each other, and with European banks.

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Michelle Chen - Is China’s Economic Miracle Hitting the Fan?

Published on Thursday, December 1, 2011 by In These Times

http://www.inthesetimes.com/working/entry/12345/is_chinas_economic_miracle_hitting_the_fan/

by Michelle Chen

If you believe the hype about living in the “Pacific Century,” then the new millennium is bound to be a pretty rowdy one.

A few days ago about 1,000 workers in the heart of China’s manufacturing belt walked off the job at the Taiwan-owned Jingmo Electronics Corporation, saying they were tired of being cheated by overtime pay. Around the same time in the Guangdong boomtown known as Dongguan, thousands of shoe factory workers protested over overtime pay and marched with their grievances to a local government office.

This may seem like a reprise of the powerful 2010 strike wave that rippled through big-name manufacturing plants, including Toyota and Honda. Last year, workers' newfound militancy yielded some significant gains—mainly in the form of pay hikes and other concessions. But whether they’ll be able to wrest a fairer paycheck from the management this time around hinges not so much on workers’ will, as on the global economic house of cards that’s getting rocked by countless factors that the labor force can’t control. Though concessions could be coming down the pipeline for some workers, in the backdrop is an alarming slowdown in China’s exports, which drive the country’s development and stuff consumers in rich countries with an endless stream of cheap goods.

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Richard Clark - In Both Europe and America the Banksters Are Now Running the Government -- Here's Why & How

http://www.opednews.com/articles/In-Both-Europe-and-America-by-Richard-Clark-111201-256.html

December 1, 2011 By Richard Clark The top 1%, whose wealth & income continue to multiply, expects those of us who have lost jobs and homes, and watched our retirement nest eggs disappear, to ignore the fact that our gov't has unlimited resources available for them, the top 1% (including the banksters), but nothing for we the American people?! Sorry, but this ignorance is not gonna continue! Americans are waking up to what's been ever so cleverly done to them For years, Republicans and some Democrats have said that a strong government, careful regulation and progressive taxation are markers on the road to serfdom.   The politicians and neoliberal economists who spout this baloney say, "Let's take planning out of the hands of government and put it into the "free market.'"   What they don't understand is that every market is planned -- by someone or other.   And if governments step aside, then planning passes into the hands of the banksters.

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John Feffer - Occupy Foreign Affairs

Published on Wednesday, November 30, 2011 by CommonDreams.org

http://www.commondreams.org/view/2011/11/30-5

by John Feffer

It's not the topic of George Packer’s latest essay that's particularly surprising. Inequality, he writes, is undermining democracy. Progressives have been hammering home this message for years if not decades.

Nor is the choice of publication necessarily a shocker. Foreign Affairs is the flagship publication of the elite that runs American foreign policy. But it is no longer the exclusively center-right publication of the Cold War years. After all, it has published the likes of former Institute for Policy Studies staffers Michael Klare and Julia Sweig as well as my predecessor at Foreign Policy In Focus John Gershman.

No, it’s the prominent placement of the Packer essay that merits attention. It's the lead article of the November/December issue. And it comes with the bold headline, “Is America Over?"

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Ellen Brown - The European Central Bank Fiddles While Rome Burns

Wednesday 30 November 2011

by: Ellen Brown, Truthout | News Analysis

http://www.truth-out.org/european-central-bank-fiddles-while-rome-burns/1322579407

"To some people, the European Central Bank [ECB] seems like a fire department that is letting the house burn down to teach the children not to play with matches." 

So wrote [4] Jack Ewing in The New York Times last week. He went on:

"The E.C.B. has a fire hose - its ability to print money. But the bank is refusing to train it on the euro zone's debt crisis.

"The flames climbed higher Friday after the Italian Treasury had to pay an interest rate of 6.5 percent on a new issue of six-month bills ... the highest interest rate Italy has had to pay to sell such debt since August 1997....

"But there is no sign the E.C.B. plans a major response, like buying large quantities of the country's bonds to bring down its borrowing costs."

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CEPR - Co-Directors Call for Fed to Intervene in European Bond Market

November 28, 2011

Center for Economic and Policy Research (CEPR) 

http://www.commondreams.org/newswire/2011/11/28-3

Risk to U.S. Economy from European Financial Meltdown Is High and Potentially Costly

WASHINGTON - November 28 - Center for Economic and Policy Research Co-Directors Dean Baker and Mark Weisbrot today called on the Federal Reserve to stabilize European bond markets by buying Italian and Spanish bonds – and other sovereign bonds as necessary -- thereby lowering interest rates on these bonds.  They issued the following statement:

“The risk of a financial meltdown in Europe is significant and growing each day. The financial fallout could be bigger than that following the collapse of Lehman Brothers in 2008, and could easily push the U.S. economy into recession. The European authorities are moving much too slowly to contain this risk. The European Central Bank (ECB), especially, is not fulfilling its function as a central bank to act as a lender of last resort in a crisis situation.

"The ECB needs to intervene in order to stop the yields on Italian and Spanish bonds from rising to the point where they are no longer able to borrow from private markets, as happened to Greece, Portugal, and Ireland.  But it has refused to do so, and last week German Chancellor Angela Merkel directly rejected the idea of Eurobonds, on the grounds that it would reduce pressure on the weaker economies to cut their budgets.

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