´óÏó´«Ã½

To hell with the eurocrats and bankers the Portuguese should go for a default and re-schedule debts. If the Eurozone do not like that they should agree a mini Marshall like plan to help modernise their economy. What is the point of further austerity and hardship for this country.

PS judging by the overpriced offers from property companies the diseased economy does not seem to have affected this sector so far.

Sovereign debt for dummies

So we have a virtually bankrupt Government essentially re-mortgaging it's (dowdy) estate by getting a loan from the IMF, an institution with no real assets of it's own to formally underwrite a loan to Portugal, but instead re-mortgaging it's own finances by turning to other central banks, already bloated by debt and imaginary asset creation, and asking them to re-mortgage their debt (or lend out - thrice over - their already fictional gold reserves) by creating spurious paper claims on future tax revenues from a squeezed middle class ever increasingly finding it difficult to make ends meet, whilst the energy resources of the world neccessary to maintain even a steady state of aggregate global wealth is in jeopardy never mind the fantasy projections of infinite growth peddled by shills and shylocks.

A happy ending anyone?

It will be well worth watching the Germans. They purport to loathe speculators yet their policy only encourages them. All they want is to get all their money back come what may. That, of course, means the poor, benighted populations of the bailed out countries having to pay for the misdeeds of their own governments/elites. The Germans like to put the boot in but are they ready for the consequences? Perhaps they should have gone for that haircut after all.

Its that debt again!

When will our great leaders finally accept that debt is the problem. We need to define it and then find a way of resolving it for the simple reason it will be stuck round the necks of the grandchildren with no hope of repayment.

The argument for the debts to be ring-fenced and made odious so that there is an agreed or rather a controlled default of a sort seems to me to be the only way forward that does not chuck the baby out with the bathwater.

This calls for some imaginative leadership in which both lenders and borrowers are admonished for their stupidity - and there is no other word around to describe what has been going on in all western economies - and a workable outcome achieved that allows us all to move forward.

We badly need a dose of some broad sunlit uplands at the moment.

whats the betting on a Euro collapse say about October? I bet the Portugese long for the escudo, the French the Franc, the Greeks the drachmam the Italians the lira, the la la la la all together now....whose idea was was all this?

Take a piece of paper, divide it into two columns, label them credit and debit and you have now created the perfect doomsday machine - all you have to do is get people to believe in your creation. "Lets call it money" Think of it as " doing God's work"

Of course this works only as long as the belief system works, and it usually ends in one of two ways - forgiveness and equivocation, or divine violence, given time.

Isnt the problem one of lack firewalls against contagion. The europhiles want to control deficit financing with a supranational bond issuer ie limit debt production at source. Then, each state has systems in place to allow banks to collapse with their creditors if they make bad loans. Without the firewalls, you have Lehman Mk 2-plus. Meanwhile you have to use sticking plasters : ECB liquidity lifeboats ; IMF/EU loans. If default happens now where will that leave the ECB's balance sheet, which is stuffed with peripheral financial IOUs - yes, the Eurozone will pay the bills and ECB write-offs. Back to the citizens !

"This, to put it bluntly, is the price populations are now being asked to pay for the EU's refusal to heap any economic pain onto the banks that lent these countries money. The alternative to shutting down schools, emergency wards, slashing pension rights etc would be to impose a penalty on those who lent the money in the form of a so-called "haircut"."

But this isn't a free lunch. Wouldn't this then push back the economy by reducing spending as people loose a big chunk of their savings / pensions? The lenders are real people too not bottomless bankers. I think that would have been better as it would improve investment discipline, but the result is similar.

The money has already been spent over the past 10 to 20 years as the West lives in an unsustainable dream-world. We are now debating about where to backfill this from. It must be backfilled from somewhere or defaulted on. We either don't pay our debtors (many of them citizens) or make our kids pay for boomer largesse.

That takes care of the past. Then for the future we must consume less in order to reach equilibrium. Part of this must include slashing unfunded pensions, like those at the ´óÏó´«Ã½ Paul. If they are sustainable let's calculate it on defined contribution and have done with it.

@Ben, take off the blinkers. Look around: we have the labour and the land/resources to make things which people want. That's economics. The fact that there are a very few who have all the money is irrelevant. They can't eat the money.

BIBLICAL MONEY AND MAMMON MONEY (#9)

The Bible chose LOVE of money as evil, but our evil is MANIPULATION of 'money' (the notional kind).

While the notionally rich are still with us (like the poor?) they will buy the notionally powerful; bend them to their will.

Does not all the land belong to the Queen? Is not most of it parcelled out to the Barons? Didn't somebody say they get a hand out just for holding it?

I wouldn't start from here.

Paul,

Your frustration is barely concealed beneath journalistic impartiality but the post is all the better for it.

Our leaders are not leaders at all, they are professional politicians, nutured through university, through think tanks and into government.

When faced with the systemic failure of an economic model which has come to the end of its natural life and is increasingly plain for all to see whether you are an economist or not, they do not know what to do. It is beyond their life experience and skill set to deal with something outside of the parameters they have been trained for.

They are lost and their rhetoric sounds increasingly hollow with every passing week.


The real debate that should be happening in the mainstream on a daily basis as a realistic reflection of the potentially deep and worrying crisis it is is totally stiffled, non existent outside of a fringe blogspace.

It should be an exiting time of change and positive re-engagement to embrace, to be discussed on every street corner, pub and water cooler as to how we can now, with the technology we have, all contribute to free ourselves as a species from basic material needs in a protected and sustainable way yet keep the dynamism and excitement of creating and trading new things within the confines of sustainable global resources.

Alternatively we can continue to unquestioningly re-produce because medieval books tell us to, written in a time when life expectancy was about 38 while simultaneously fighting and murdering each other for finite resources so we can continue to eat grapes flown in from Peru until the whole global structure collapses into chaos.

Chaos is unavoidable if the above very simple to understand dynamic is allowed to play out which will be catastrophic for bankers, corporate and government fat cats, hard working families and small business a like, we will all go down together.

This is already happening as is plain for all to see so bankers, fat cats of all kinds, politicians, civil servents, media moguls and academics who hold all the power ..WAKE UP, this will happen in your or your childrens lifetime and you will lose everything if you do not instigate a radical cultural change NOW. Tweeks will not do.

This is your shot at redemption, heck you may even enjoy it, keep some of your wealth and do something good.

What are you all waiting for?

Complain about this comment

#11 addendum

If you want to know what to do pls refer to NEF (new economics foundation) who have done a lot of very good background preparation for what needs to be done.

PSYCHOLOGICAL EPIGENESIS?

Is it not probable that the post-industrial culture (involving many electronic 'impingers') has shifted us so far from a 'natural' state, that no amount of 'New Economics' can bring us to a sustainable, stable configuration? A short, dispassionate look at what matters to individuals, living in the now-space (going forward) tells any reasonable person that we have lost all sense of - well - what matters!

Leading this charge to nowhere, is NewsyNighty, and Paul is a NN happybunny. NewsyNighty does not IGNORE the elephant in the room - it IS the elephant.

Next time you see a 'mother' on her mobile, ignoring her child, consider what the child makes of that. One small factor - nothing to do with economics . . .

Paul Mason writes

"No, Portugal's problem is more profound: it has a stagnant, unmodernised economy."

Sorry Paul you are wrong. portugal is modern, it has an excellent banking system, just done the census online, computers everywhere etc etc...what is wrong are the bureaucrats in every town hall who kill all business with their demands for licences for everything..eg two years to get a licence to put a sign outside a shop

Perhaps if people looked at the little picture they would see what is wrong with the big one

Another great article spelling it out as it is.

The rich make the poor pay.
Whether this is spending cuts by the Con-Dems or northern Europe making the PIGS squeal.

The fightback has begun.
It should be an interesting demo in London tomorrow.

Despite all claims to the contrary, Marx appears to have been right - his concept of "surplus value" - i.e. the gap between the value of what the workforce produces and what they then actually get paid - is at the core of the problem.

For the PIIGS, the creation of the EU and the Euro itself was a way to generate growth - EU money funded roads, schools and infrastrcture, which then attracted inward investment and created growth, but all the time the level of debt rose, but no one saw it as a problem as it created jobs.

But under the guise of "development", what was really going on was the banks simply walked off with the "surplus value" from the PIIG economies, taking a large bite every year out of their GDPs. Within EuroLand, this was all in the same currency, so didn't cause balance of payments problems that it used to do pre-Euro - but it showed up in the level of national and private debt, which simply spiralled upwards until it could no longer be afforded, and as fears about default grew, the cost of borrowing went up, magnifying the problem.

Given the impact of glabalisation on profit margins and the level of imports needed by the PIIG economies (oil, manufactured goods & food), the rising living standards of the populations as well as the margins demanded by the banks, extracting the level of "surplus value" required to pay for this living standard has proved to be unsustainable, when the hope was that the PIIGs' economic growth would eventually be suffiicently robust to be able to afford the borrowing costs.

Paul's dogged digging in the EuroLand dark corners is revealing some fascinating intelligence on the surreal world of international finance, politics and power - more power to your elbow!

What happens now? Well, it depends on whether you think the PIIGs can ever cut and/or grow their way out of the debt - and that EuroLand/IMF can keep fudging long enough to buy them the time to do so. IMHO Eire has shown cutting hard and deep only makes things worse, whilst the prospects for growing out of the hole they are in seems remote in these economies, given the world banging on the resource ceiling in terms of energy and food.

If you share these observations, the only games in town are bailout or default, and it's no surprise that bailouts are the preferred option by those trying to keep the lid on the system because defaults would transfer the liability of the mountain of "surplus value" from the PIIGs to the core of the financial system, the banks, which would in turn leave them bust and inturn take down the economies of their host nations.

As we have seen in the UK, the political class see their populations as the ultimate underwriters of the private financial sector - they are prepared to turn speculator's loses into poll taxes on their populations - you only have to look at Iceland to see the absolutely outrageous nature of this, where a couple of dozen individuals managed to set up a web of online banking businesses, get too greedy, over-expose their positions and collapse under a mountain of debt, then the Icelandic people were expected to foot the bill - wisely, they declined, but they've lost their currency and have been driven into the Euro.

"I'm Mad As Hell and I'm Not Going To Take It Anymore" - is now on the lips of two important groups of people - the PIIG populations' response to the savaging of their living standards embodied in the wave of austerity sweeping their societies, which as the Irisih have shown is probably only going to make the problem worse - and the populations of the Northern EU economies who are being asked to bail out their banks directly, or to foot the bills to prevent the PIIGs from defaulting via the EuroLand bailout fund.

The direct victims in the PIIG economies can riot and throw out their governments and make a lot of noise - but its going to be the Northern economies where the battlelines are being drawn up now that will determine the outcome. If the Finns have led the pack and rebellion against EuroLand is the likely outcome, then bailout looks unsustainable so default will be the outcome, along with a retrenchment of EuroLand to expell the PIIGs and the full weight of their defaults will fall on the banks, which will then have to be bailed out by their own populations.

This may well precipitate a meltdown in the financial systems of the UK, France, Germany and other major lenders - Iceland Take II - the prospect of the insolvency of virtually every major bank in these countries is what keeps the ardent Europhobes sitting at the EU table holding their noses and hoping there is a way to avoid their world coming crashing down around their ears.

Up in Highate Cemetery Uncle Karl Marx must be chuckling into his beard: the contradiction at the heart of capitalism is coming home to roost - the dream that everlasting growth and profits could keep recycling money taken out of the economy back in, in the form of investment has finally reached the end of the line - it is not possible to keep on adding to the mountain of lending and deepening the mine of debt.

The paradox that Marx identified is at the heart of the problem and it is being ignored by the political class, yet clearly the tipping point wil be reached in the end.

What does this look like? Well, think Weimar Republic or more recently Zimbabwe - the medium of exchange - money - itself becomes worthless because that it embodies - the banking system - becauses effectively worthless: that's why there has been a flight to gold, etc, but in the end, you can't eat gold.

The core EuroLand countries will have to cut loose the PIIGs or this will begin to happen to their currency too. The first move to do this will start with rising EuroLand interest rates - and because the PIIGs can't afford their current level of borrowing, this will precipitate their departure from the Euro.

National currencies will then re-emerge and the speculators will immediately devalue them hard. There will then be the inevitable cycle of devaluation and "re-scheduling" of debt - which at some point will move into formal defaults.

We've got a window into this in Eire - their banks effectively went bust and were bailed out - indeed much of the cost of this has fallen on the UK via the government's "loans" to UK banks who had lent to Irish banks, so neatly concealing the underlying situation - Eire now has an effectively nationalised banking system as a result. In the UK the credit crisis has already seen large chunks of the banks effectively nationalised - the PIIG crisis IMHO will see Take II of this, as the UK banks realise their loses here too.

In conlucsion, Marxists have been predicting the collapse of capitalism for a long time, yet a new way to prop it up for another decade or two has always come along, but this time it seems that his thesis about the ordinary people making common cause at the international level seems to be gaining traction, be it in N. Africa, the PIIGs or even in the USA and this analysis that the supreme achievement of the capitalist era would be the development of the means of production also seems to ring true.

The world's industrial powerhouse - China - is only sustainable with the levels of growth and exports it delivers - if this is abruptly stopped in its tracks by a collapse in demand from the West, unrest will explode there too.

Two important points are made in Paul's blog:

First it's not the debtor who loses money on a default, it is the creditor. The efforts to prevent a default are clearly designed to protect creditors (German, French and UK banks). The downside for the debtors is that their 'credit rating' bombs and they will find it harder to borrow. No bad thing, you might think: and anyway, its hard to see how this could get any worse under a default scenario than it is under the rescue plan. (A plan which appears designed to keep the insolvent debtors borrowing)

Second, the crisis in the Eurozone is a crisis of leadership. There is no voice articulating the case that soldarity within Europe is the best way to counter nationalism and protectionism at home; to compete in an increasingly global economy; and to maintain our standard of living and the "social model". The field is left clear for separatists to blame Europe for our current ills and offer national solutions.

..poor countries must pay through austerity so that rich countries do not go through a banking crisis...

socialists who keep using the bogus rich poor narrative are lost in a matrix of their own making.

one wonders why cutting the spending of unrealistic expectation beyond ones means is labelled 'austerity'?

what philosophy leads to wealth? should people not look at their own mindsets and see if that is the cause of their relative 'poverty' which requires them to borrow more than they can afford?

china is 'rich' because it pays no heed to international laws, employment laws, environmental standards etc and so can undercut those who do. Then it manipulates its currency to give it a 40% advantage. This is piracy if not warfare. Until people drop the mythologising about globalisation and start to call things by their real names, that a an open war is being waged against them, the populations will not understand why no matter what they do their wealth will decrease.

why do people say uk is rich? if one removed from the uk everything bought with debt what kind of uk would be left?

is it clear there is no free market ie moral hazard, for most big business.ie banking, energy, agriculture

the socialist model pension schemes are nothing but ponzis dependent upon tax income not wealth creation through investment which is why they must and will blow up.

Portugal and the rest cannot deal with their problems because they do not have the correct narrative and are still trying to use the outdated ones like someone still talking measurements in rods, chains and perches when everyone else has gone to metric.

When you all gravitate to the Taverna this summer for your Moussaka and chips please be careful not to use the prices on the menu with the German flag as you may find they are somewhat higher than the local menu.
For all the talk of imbalances, statistics and economics, on the ground for real people in the PIIGS, austerity is starting to bite and it is starkly being imposed by the Germans. For all the Euro glad handing in Brussels, on the ground surely the Euro tensions must show through.

IMF to the International Rescue

The non-asset backed paper issuer of last resort is now upping the ante. A non-elected, non-sovereign quasi-mysterious entity is soon to be wielding its baseball bat all around the global 'hood, keeping everyone in check:

"The IMF board recently approved a boost to the so-called New Arrangements To Borrow, bringing the special pool of funding to around $580 billion, adding several hundred billion dollars to the total amount the fund has to tap. According to the IMF, the pool of supplementary resources are only to be activated when "needed to forestall or cope with a threat to the international monetary system"

#13 Barrie

Says you! Blogging on here when you should be painting yourself illuminous orange and prostrating yourself accross the doors of Parliament or something.

We are all guilty as charged on that one, condemned by biology and our base line programming to not do anything until a threat impacts on or physical as oppose to our 'wellbeing' world.


#17 .. good summary that, I agree with everything you say.


#others .. I am not convinced all this 'Marx spinnning in his grave shouting 'I TOLD YOU SO' will get us anywhere. His work carries a lot of unjustified baggage now and I think we need to take what he did and move on. For most people invoking Marx invokes images of grey corrupt blandness where everybody eats but nobody lives.

We can (and should) respect his work but need to move on from it to something which will excite people.

#21 Jericoa

"we need to move on from it to something which will excite people"

Agree. I saw Tony Greenham from NEF do a talk on Monday. They probably are one of the few movements in the UK who get the big picture (energy, environment, society, economics and finance / money).

As for other inspirational views of how a post peak future could look like, I'd suggest "The Ecotechnic future" by John Michael Greer:

"Those who are already aware of the long, bumpy decline ahead for our civilization, and who want a clearer picture of what to expect, as well as some real, practical responses, will be well-served by reading both The Ecotechnic Future and The Long Descent."



And for fiction lovers "World made by hand":

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#23

At last! Do I detect a break in the media cloud here with the light of the REAL situation shining through to illuminate the general populus.

God... I hope so.

Long long overdue.

There is an opportunity in all of this if it is grasped before it is too late.

But

To (forgive me) re-quote myself earlier with a little embellishment.

''Our leaders are not leaders at all, they are professional politicians, nutured through university, through think tanks and into government, they are highly trained products of that economic system and are no more capable of showing the leadership required to design oursleves into a new one than a production line machine operator is capable of redesigning the machine he controls. It also seems that they are too arrogant and surrounded by advisors whom are also products of that same system and can only express themselves from within its framework..which is collapsing before our eyes.


They need help!

The sooner the media get their act together and expose the real situation for what it is the better.

What they have to realise is (bankers, media, corporate tycoons and politicians alike) is that trying to protect the existing system which supports their privilidged way of life is no protection at all for them or their childrens inheritance, in fact the more they try to protect the existing system the less likely they will be of coming out with anything at all as the eventual backlash to those seen as being the perpetrators will be massive.

The only way they have to protect what they have is to get actively involved in completely overhauling the existing system in a measured and structured way which will change everybodys lives.

The media has to blow this story of the century wide open now.

Re: Oborne's piece in the Telegraph:

Agree its a good read - Oborne's libertarian credentials and my take on what Marx would make of current events do seem to link up to some extent... scary

The question I have for those who blame the EU & Euro for everything is this:

if there had not been an EU or the Euro, what would have happened to the PIIGs?

Like it or not, the EU has led to the development of their economies, infrastructure and investment, plus delivered a big hike in living standards - I remember going to Barcelona when Franco was still alive - it was a third world country with prostitutes three deep all the way up the Ramblas - today the Spanish are a proud and successful nation that has put fascism behind them and built a society to be proud of.

Was the whole thing fated to end like this - was it always inevitable? Oborne's somewhat "culturalist" take on these economies always going bad offers an explanation which gets too close to a racial explanation for my liking...

The fact is that the industrial economies developed their financial infrastructure, whilst the agrarian/fishing periphery didn't, so we gained control of the instruments of international trade and the flow of investment and built huge amounts of capital.

Banking has come a long way since the founding of the EU and in the critical 1980s/90s those advocating deregulation and globalisation increasingly got their way, so an unholy deal of PIIG politicians wanting investment & jobs and bankers trying to cut big deals with them has led to an unsustainable level of lending and debt, whilst the bills for the borrowing have risen and risen.

What went wrong - and what should we do about it? I'd say deregulation and lack supervision was at the heart of it - and the aspirations - no the delusions of grandeur - of the PIIGs and EU simply sucked in the borrowing.

Clearly financial deregulation was and is totally irresponsible - it's just as much the greed for bonuses by bankers making these deals that fueled the problem as much as it was the aspirations of the PIIGs, whilst the "moral hazard" of governments being blackmailed to bail out bankers is no serious personal hazard at all to those responsible - one wonders if capital punishment might not be a possible answer?

The temptation to say let the banks go bust should be tempered by the realisaton that this would only result in their debts in turn be subsumed by government - who would in turn come round with the tax bill to our doorsteps to pay for it...

OK so we all want to move on from Marx - too much baggage/water under the bridge, etc - and I'm all for a new reforged model for how our economy and society should function, but all I can see is a chasm of debt and a mountain of loans - until one is used to fill in the other, we will never be on a level playing field again and right now I can't see how this can happen, unless the system collapses the heap into the hole.

I'm of the view that this is now probably inevitable and I wonder why politicians don't see this and try and manage the process rather than allowing a trainwreck to happen - but perhaps that's what the bailout process really is, after all - the managed twilight of the Masters of The Universe whose time is passing..?

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