More Austerity as a “Solution” to Austerity?

By KEVIN ZEESE and MARGARET FLOWERS | IT’S OUR ECONOMY | FEBRUARY 21, 2013

As the economy shows signs of recession, the leeches return. Alan Simpson and Erskine Bowles have issued a new report calling for even deeper austerity. It is not what the economy needs as it stagnates and sputters toward a possible new collapse. Their report combined with President Obama’s State of the Union, the sequestration and Republican dogma are all combining to bring on another round of budget cuts, which will only make recession more likely.

It is important to put the current economic debate in context. Dr. Jack Rasmus, an economist who gets it right more than any other we are aware of, provides the framework with his in-depth analysis of the US GDP over the last 15 months.  He summarizes the present dismal situation:

“Nearly the entire European Union, including its core economies of Germany, France, and the United Kingdom are all now clearly mired in recession. The Euro southern periphery is in a bona fide depression. Japan has entered its third recession since 2008. China, India, and Brazilian growth rates have fallen by half. And the US in the fourth quarter 2012 has come to a virtual economic standstill, the second time in two years in which a quarterly GDP recorded virtually no growth.”

Rasmus predicts “The dual strategy of capitalist politicians across the globe—of QE and money injections into the banks and financial system combined with austerity for the rest—has clearly failed and will continue to fail even more visibly.” Rasmus foresees a double dip recession, with the shrinking US GDP of the last quarter as a harbinger of things to come.

Simpson and Bowles come into this situation recommending the wrong prescription – more cuts to Medicare, Medicaid, Social Security and other social programs, as well as closing corporate tax loopholes.  They want to cut $2.4 trillion from the federal deficit over the next decade, $1.5 trillion more than President Obama has called for and this is on top of the $2.7 trillion in reductions that have already been implemented causing the most rapid fall in deficit to GDP ratio since World War II. All of this means an ‘Obama recession’ becomes more likely.

No doubt Republican dogma of shrinking federal government and low taxes deserve a lot of the blame, but President Obama does as well.  His State of the Union address kept the Grand Bargain of cuts to essential programs along with closing corporate tax loopholes on the table.

Dr. Richard Wolff cuts through the rhetoric of “fiscal cliff,” “austerity” and “market” to pinpoint who benefits from austerity, writing that those who own the “US public debt are easy to list: large banks, insurance companies, large corporations, wealthy individuals and central banks around the world. Austerity justified as satisfying ‘the market’ in fact serves those US creditors first and foremost.”

Multiple  commentators have noted President Obama’s sly language on Medicare cuts and his silence on protecting Social Security. Symptoms of a sick health care system continue to show.  Executive salaries at non-profit hospitals continued to rise despite a frail health care system. And though the US ranks dead last in male life expectancy and near the very bottom in prevention of premature deaths, infant mortality, total health care coverage, number of practicing doctors, and prevention of deaths due to heart disease among developed nations; we may begin to look better in the international rankings soon – not because health care is improving here but because bankers are now demanding privatization of European heath care systems which will bring their outcomes down too.

The more we learn about Obama’s Treasury Secretary appointment, Jacob Lew, the less hopeful we are of decent policies coming from his leadership.  Confirmation hearings have brought out his Romney-like economics: personal investment in the Cayman Islands,  creating foreign tax havens for customers when he was at Citi, and that prior to Citi, when he was an executive at NYU, he steered students to expensive Citigroup loans. Of course, we remember his $950,000 bonus when Citigroup was bailed out. It seems impossible for Americans to trust Lew’s economic ethics and plutocratic economic behavior.

All this talk about austerity comes as we learn that the Federal Reserve continues to bailout the big banks, not only by pumping $85 billion each month into banks through Quantitative Easing, but court documents revealed that the Fed also forgave $7 billion in mortgage security losses by Bank of America. Bailouts continue but outside of the public eye and should lead to more calls for Fed transparency, which is unlikely to come from the two Wall Street parties.

And, austerity comes at a time when new census analysis shows that during the Obama ‘recovery’ only the rich got richer; the poorer got poorer.  According to a new analysis by Emanuel Saez. perhaps the leading economist on incomes in the world, from 2007-2009 the “average  real income for the bottom 99% . . . fell sharply by 11.6%, . . . by far the largest two year decline since the Great Depression.” And new data covering 2009-2011 indicate that “Top 1% incomes grew by 11.2% while bottom 99% incomes shrunk by 0.4%. Hence, the top 1% captured 121% of the income gains in the first two years of the recovery.” [Emphasis added.] We got a glimpse into the rigged system this week when it was reported that Facebook, which made $1 billion in profits, will be paying no income taxes, indeed will receive a $429 million refund. Why? Tax deductions allowed for executive pay in stock options.

And, don’t believe that the rich getting richer will create jobs. The claim that the wealthiest are job creators has been proven to be a myth. Another myth exploded in this week’s news was that it was important to pay CEO’s exorbitant pay to prevent their unique talents from being lured away. Both myths are not consistent with the facts.

What will another economic collapse cost us?  The GAO issued a report this week that indicated the last collapse cost the US economy $22 trillion; that is about 1.5 years of total GDP.  And, most of that came on the back of homeowners suffering from the housing collapse.

What is the alternative? Countries that are breaking from the Washington Consensus are showing the way. This week an analysis by the Center for Economic and Policy Research of Ecuador found “government’s taking control of the Central Bank, implementation of capital controls, increased taxation of the financial sector, and other regulatory reforms. It concludes that these played a major role in bringing about Ecuador’s strong economic growth, increased government revenue, a substantial decline in poverty and unemployment, and other improvements in economic and social indicators.”  Unemployment has fallen to 4.1 percent, the lowest level in 25 years and poverty has been cut 27 percent below its 2006 level.

The report gives us hope finding: “Ecuador’s success shows that a government committed to reform of the financial system, can – with popular support – confront an alliance of powerful, entrenched financial, political, and media interests and win.” By the way, Raphael Correa won re-election on Sunday by a landslide with more than 60% of the vote in a race with 8 candidates.  Is there any US politician that wants to get on the side of the people?

Spanish public debt reaches 77.4% of GDP

By LUIS MIRANDA | THE REAL AGENDA | DECEMBER 14, 2012

Government debt in Spain grew another 1.55% in the third quarter with respect to the second quarter to reach 817.164 million euros, or the equivalent to 77.4% of GDP. This is the highest level ever since the cork popped out of the crisis bottle in 2008.

According to data released by the Bank of Spain, the rise is a result of the increased debt of the central government, which has added 2.24% more to the total reached before this quarter, 695.519 million euros, and that represented 65.9% of the gross domestic product (GDP).

Meanwhile, state government debt declined by 0.48% to 167,460 million euros, or the equivalent to 15.9% of GDP, while the debt of municipalities fell 2.65%, to 43.802 million euros, which is equal to 4.1% of GDP.

Along with the release of data for the third quarter, the Bank of Spain has also updated the second to include the impact of the debt payment plan to Spanish lenders, although the changes do not affect the total amount.

Thus, at the end of the second quarter sovereign debt had grown by 14.9%, placing the burden of debt on GDP at 15.9%, the highest in history and two points over the previous quarter.

Additionally, local businesses increased their debt by 22% in the second quarter, raising the ceiling to 4.3% of its debt to GDP margin, a level that had not been seen before. When it comes to autonomous communities, Catalonia is the most indebted in absolute terms, with 45.754 million euros of debt at the end of the third quarter, followed by Valencia with 25,574,000 million and Andalusia with 18,495,000 million.

In relative terms, Castilla-La Mancha ranks first as an indebted community, with a debt equivalent to 5.7% of GDP, and is followed by Valencia (25%), Catalonia (23%) and Baleares (20.3 %). At the end of the third quarter, public companies owed 55.973 million euros or 5.3% of GDP, which means 0.81% more than in the previous quarter.

The Real Agenda encourages the sharing of its original content ONLY through the tools provided at the bottom of every article. Please DON’T copy articles from The Real Agenda and redistribute by email or post to the web.

The crisis has reached Germany, warns ECB president

By LUIS MIRANDA | THE REAL AGENDA | NOVEMBER 8, 2012

Mario Draghi, the president of the European Central Bank (ECB), said Wednesday that the effects of the crisis are beginning to be felt in the German economy, which until now had remained largely untouched by the difficulties experienced by other European nations.

In a statement, Draghi said that Germany had remained somehow unaffected by the crisis and that many of the problems seen in other countries had not extended their tentacles to the country. The difficulties in the rest of the euro zone, especially in countries such as Spain, Greece, Italy and Portugal have been more visible, while Germany was seen as the ‘untouched one’.

“But recent data suggest that these events are beginning to affect the German economy,” Draghi said in a speech in Frankfurt on the eve of the meeting on interest rates from the ECB.

In this respect, the Italian banker said that given Germany’s openness, it is not a surprise that the country is affected by the slowdown in the rest of the euro zone, especially when 40% of GDP comes from direct trade between Germany and the rest of the region. Additionally, about 65% of foreign direct investment in the country comes from other euro countries.

“The financial events in Germany are the mirror image of the financial situation in the rest of the euro zone and this means that measures to ensure the stability of the euro zone as a whole will also benefit Germany,” he added. Draghi sought to justify recent austerity measures imposed by the Euro bankers on nations that requested bailouts for their banking system or the governments themselves.

The ECB president reiterated his defense of the decisions taken by the institution, particularly in the case of the direct purchase of debt from countries that formally request it. He said that this move “sent a clear signal to the markets that fears about the euro zone are baseless”. Draghi miss the point — most likely intentionally — regarding the actions taken by the government in Brussels. That is, none of the measures adopted so far have visibly accomplished anything.

Under the current policies neither Europe nor any other region or country in the world will be able to come out of the debt hole. This is even more true when countries and their governments are guaranteed that financial rescues are waiting for them as long as they follow economic and financial policies crafted by the unelected European technocrats. As mentioned here before, the bankers actions are comparable to combating a raging fire by pouring fuel over it.

Draghi then tried to emphasized that the purchases of debt, although unlimited, are not random. “It is important to emphasize that unlimited does not mean uncontrolled,” he said. Later Draghi stressed the indispensable condition that countries request the intervention of the ECB and that they fully accept the conditions offered through the European Stability Mechanism plan which conditions the so-called financial rescue to the intervention of the International Monetary Fund.

The Real Agenda encourages the sharing of its original content ONLY through the tools provided at the bottom of every article. Please DON’T copy articles from The Real Agenda and redistribute by email or post to the web.

Brussels sees darker times for Spain and Europe

By LUIS MIRANDA | THE REAL AGENDA | NOVEMBER 6, 2012

Brussels sees no green grass across the fence when it comes to an economic recovery. The economic forecasts for 2013, which will be made public on Friday, will describe a dark and rainy future for Spain and most likely the rest of Europe.

Forecasts are just that, good or bad omens based on leading indicators. But it remains to be seen whether or not they are right. But if the predictions issued by Brussels become reality, that reality will mean serious trouble for Spain and the rest of Europe. The European Commission anticipates that the GDP falls 1.6% this year and 1.5% in 2013.

Spanish government forecasts were more hopeful before the statement from the EU with phrases such as “We emerge from the crisis” and “there are hopeful signs”. These phrases were issued by the Minister for Employment, Fatima Banez, who had said that Spain would see a contraction of 1.5% for this year and a decrease of 0, 5% for 2013.

Next to the real exit from the crisis, the troubling data made public by Brussels is the government’s deficit. The massive austerity measures adopted by Spain only helped reduce the deficit by a meager 0.2 %. The painful measures that combined tax increases with deep cuts in expenses related to social programs did not work; just as it was intended to. The deficit will end the year at 8%, according to the Commission, but this number does not take into account the effect of recapitalization of banks. Expect the Spanish deficit to be much larger.

For 2013, the fiscal gap is 6%, and 5.8% by 2014. These numbers again do not include the bailouts of the banking system and the possible bailout of Spain as a whole. As predicted months ago, Spain will not be able to lower its deficit to 3 % of the GDP, which is the target requested by Brussels. That leaves three possibilities. The first is to extend the deadlines to meet targets, which has been demanded by the International Monetary Fund (IMF) in Brussels. This alternative is now getting stronger and is supported by several countries that are hanging from the debt cliff.

The second is to ask Spain for additional efforts. That is, more austerity and spending cuts, which as it has been seen in Greece, would result in no solution whatsoever. Most economists expect that agreements reached during future meetings will include a combination of both austerity and an extension for Spain and the other countries to reach their deficit goals.

Spain’s Economy Minister Luis de Guindos, expected a deficit of 7.3% this year, 4.5% next year and 2.8% in 2014, far below the projections made by analysts and official data from both Brussels as the International Monetary Fund (IMF) for next year and the next.

The Commission did not comment yesterday on the data. Clearly on all forecasts, Brussels and the Spanish government, weigh several unknowns, especially those relating to the effect of the increase in VAT (a real social experiment, with the country in recession) and the tax amnesty.

However, the Vice President and Competition Commissioner Joaquin Almunia, gave some clues in Madrid yesterday about the situation: government budgets for 2013 and associated economic forecasts show the efforts being made by both sides — income and expenses — but the accompanying macroeconomic picture is “far from the consensus.”

Almunia also hinted that Brussels has the feeling that Spain has denied the complete evidence, the depth of the crisis and the need to act thoroughly. “The delayed reaction is too often associated with Spain,” he said. Speaking at the New Economy Forum, he called “giving in to defeatism” and explained that the crisis “has a solution, tha will be overcome and is beginning to be overcome.”

“Trees should not impede us all to see the forest,” said Almunia. But the trees are just too tall. Brussels projections that approximate the most to those of the Spanish government are related to public debt. And even in that section the figures speak for themselves: the debt will end this year at 83.7%, the next at 89.5% and will be at 93.9% of GDP by 2014.

One thing is for sure: there is no sign that shows when the debt will stop growing. Meanwhile, Europe continues to advance an agenda that keeps on using the same old recipe of more austerity, while government expenses continue to grow. As we have explained here in multiple occasions, both Spain and Europe are — intentionally — going through a vicious cycle that will not result in the reduction of the deficit or the rescue of the economies that are heavily burdened by debt.

The Real Agenda encourages the sharing of its original content ONLY through the tools provided at the bottom of every article. Please DON’T copy articles from The Real Agenda and redistribute by email or post to the web

Italian Senate adopts Auterity Package

by Philip Pullella
Reuters
July 14, 2011

Italy’s austerity budget passed its first parliamentary hurdle Thursday but the opposition says Prime Minister Silvio Berlusconi’s government is in a shambles and should resign after it is finally approved.

The four-year package, which has been increased to 48 billion euros ($68 billion) from 40 billion euros in the last 24 hours, is aimed at balancing the budget by 2014.

The upper house approved it by a margin of 161-135. It is due to be approved by the lower house Chamber of Deputies on Friday and signed into law several hours later.

Italy has avoided the worst of the financial crisis thanks to strong controls on public spending, a conservative banking system and a high level of private savings.

But with Greece and Ireland both in trouble, markets have been unnerved by a public debt level that is among the highest in the world at 120 percent of gross domestic product.

Italy’s delicate position was underscored by a bond auction hours before the vote in which the Treasury managed to sell 4.97 billion euros of long-term paper but only by offering high yields, that analysts said were unsustainable.

Addressing the Senate shortly before the vote, Economy Minister Giulio Tremonti said Europe needed a political solution to the unraveling debt crisis because no country would be spared dire consequences.

“No-one should have any illusions of individual salvation. Just like on the Titanic, not even the first class passengers will be saved,” he said, referring to Europe’s stronger economies.

The opposition voted against the measure but did not present amendments or carry out any filibustering tactics — it hopes to show voters it is acting responsibly to overcome the crisis.

To underscore its resolve, the government called a confidence vote on the measure to streamline its passage.

Bond traders have targeted Italy, the euro zone’s third-largest economy, because of doubts about its ability to sustain one of the world’s heaviest debt burdens and fears it is getting sucked into a widening debt crisis.

COSTS UNSUSTAINABLE

Thursday’s auction was seen as a vital test of Italy’s ability to tap into the bond markets and keep refinancing a debt mountain equivalent to 120 percent of gross domestic product, second only to Greece in the euro zone.

But while nearly all of the bonds were sold, analysts said the rise in borrowing costs would be unsustainable in the long term.

The political consensus on debt-cutting measures earlier this week helped calm nervous markets, which picked up after suffering heavy losses last week and early this week.

The Democratic Party (PD), the largest opposition group, has demanded the resignation of Berlusconi’s government, saying it is too weak to face up to the storm on financial markets.

But instead of aiming for potentially traumatic early elections immediately, the PD and other opposition forces have floated the idea of a transitional government to lead the country to the scheduled elections in 2013.

Berlusconi, who has steadfastly refused to resign despite a sex scandal and corruption trials, has emerged bruised from this week’s financial crisis during which he has kept a low profile.

After attacking Tremonti in a newspaper interview last week which highlighted persistent cabinet divisions, he has not appeared in public to speak about the market turmoil. He only issued a written statement Tuesday.

Seen by international investors as a guarantor of Italy’s financial stability, Tremonti’s position appears to have been strengthened since the market turmoil, despite his tense relations with Berlusconi.

The opposition has demanded Berlusconi play no role in any transitional government and Tremonti has been touted by some as a possible key member, perhaps even as prime minister.

Massimo D’Alema, a former prime minister and currently an opposition leader, told the business newspaper Il Sole 24 Ore on Thursday the PD was willing to support a transitional government whose aim would be to weather the financial crisis, spur growth and make changes in the county’s electoral laws.

Many observers say already tense relations between Berlusconi’s People of Freedom party and its coalition partner the Northern League may develop into a full-blown government crisis, perhaps as early as September.