Spain & The Madness of Europe

There's a saying that defines madness as doing the same thing over and over while expecting different results. By that criteria, it's clear that the European Union's response to the long and painful crisis unfolding on that continent is utterly and completely mad.

With the appearance a few years ago of a Greek sovereign crisis - it must be said for debt levels that weren't much higher than those of the USA - the alpha and omega of the EU's response has been to demand austerity. There's two things to be said for Greek austerity. The first is that Greece's difficulties - condemned by German politicians and capitalists as being the result of greedy workers living the high life - is actually the result of the fact that the Euro is too high given the level of development of the Greek economy. On the other hand, the downward pressure that Greek underdevelopment exerted on the EU had the effect of boosting German exports. Not only did German capitalism sell abroad, it also colonized the European economy, competing on an equal footing with unequally developed economies, like those of Portugal and Greece. So, German finger-wagging is utter hypocrisy. The greasy Euro notes that line the pockets of German capitalists were squeezed out of the pockets of Greek and Portuguese workers.

But the second thing that must be said about austerity is this: it doesn't work. As Larry Elliott notes in today's Guardian:

"The lesson from Greece is absolutely clear: slashing spending and increasing taxes when an economy is in free fall leads to higher, not lower, levels of debt. Spain is following Greece down the vicious spiral that starts with weak growth and rising unemployment and ends with expensive bail outs that do more harm than good."

And therein also lies the madness. Having haughtily and with much chest-thumping bravado, utterly destroyed the Greek economy, these idiots are now proceeding to perform the same savage surgery on the Spanish economy. But if the Greek economy represents merely cutting off an EU earlobe, the Spanish economy - the fourth largest in the EU - is like losing an arm or a leg. Such a large wound won't cauterize itself and Europe could easily bleed out with Italy following Spain down the path to ruin. European capitalists, again, led by the Germans, remind me nothing so much as a medieval leech, who cures the patient by killing them. The only hope for both Greece & Spain is that the revolt of the masses, still on a simmer in Greece and heading for a boil in Spain with demonstrations last week involving millions, forces the ruling class of Europe to give up on austerity as a strategy. The long term hope is that the masses kick out the ruling class of Europe and run the continent in the interests of the people who do the work, not the parasitic bankers and bond traders who brought the continent to this pass in the first place.

Greece: You Say You Want A Revolution?

It's hard to make sense of the hubris and cruelty of European Union leaders towards Greece, unless their goal is to goad the Greek population into overthrowing their government. Why else would they demand from the Greeks ever greater levels of austerity, poverty and unemployment and then, when the government turtles and capitulates to their demands, tell them it isn't enough?

Just look at the most recent round of austerity - a 22% cut in the minimum wage, 150,000 public sector jobs to be cut out of 750,000, further attacks on Greek pensions, weakening labour rights and so on and so forth. They also demanded that the Greek government sign an agreement that no matter who is elected they will implement the austerity. So much for democracy and self-determination.

Of course, from the point of view of the Greek ruling class this is pain that they can accept - since it won't be them who suffers it but, rather, the working class. And, from the opposite end of the spectrum, if there is a "disorderly default" it will be the ruling class who suffers - the banks that won't have access to capital markets, the losses incurred by Greek bond holders, etc.

Of course, there's a certain irony in the militant prickishness of the German ruling class and their toadying, bigoted newspapers with their talk of lazy, overpaid Greeks. The existence of weaker economies inside of the EU keeps the Euro from rising. A lower Euro benefits the German export machine and has allowed the German economy to boom. If Germany were to return to the mark some estimate that it would immediately appreciate by 40%.  Germany thrives on Greece's misery. On the other hand, for the weaker economies, being in the same currency with an advanced economic powerhouse like Germany means that they are stuck with a higher valued Euro, which hobbles their ability to compete. So it is rich for the Germans to gripe about the Greeks. If it weren't for the poverty of the Greeks the German economy wouldn't be chugging along as it is.

Frankly, the Greeks would be better off defaulting and getting the hell out of the Euro, then devaluing their currency so that their goods can sell cheaply abroad(or more deliciously, to Germany herself). The alternative is clear - an endless cycle of austerity generated recession that leads to a contraction in tax income for the state, which leads to a deteriorating debt situation followed by demands for more austerity to receive another bailout. Lather. Rinse. Repeat. You don't have to be a Marxist to make this point, it has been argued cogently by Nouriel Roubini for months.

But the only way that any default will occur that can be worked to the advantage of Greek workers will be if it is one forced upon the Greek state by the Greek working class itself. And this isn't a pipe dream. In the last week there have been back-to-back general strikes - a 24 hour at the beginning of the week, followed by another 48 hour strike on Friday and Saturday. By all accounts both were solid. There is a deepening radicalization amongst Greek workers that has seen support for parties to the left of the Greek Labour Party PASOK growing rapidly so that their combined vote is now the highest for all parties. And the movement is deepening its roots amongst ordinary people, with workers beginning to create alternative sources of power and control where the state and employers have withdrawn.

“We have now been on strike since 22 December because our wages have been left unpaid for seven months,” says Moises [who works for Eleftherotypia, the second largest newspaper in Greece].
“But now we’re launching our own newspaper, The Workers in Eleftherotypia, on Wednesday. This is part of a new wave of radicalism in the workers movement in Greece.”
 And Costas Katarachias, a doctor and union general secretary at Agios Savvas cancer hospital in Athens, tells us about the move towards health workers seizing control of their workplaces.
 “At Kilkis hospital they have already started taking the hospital under workers’ control,” he says. “The procedure is under way, but there are steps to taking full control.”

Of course, the truth is not that the European ruling class wants a revolution in Greece. What they want is to punish and humiliate one of the most militant working classes in Europe as a lesson to every other working class movement. And they want to scare every government on the continent that tries to cut some kind of moderate path. They want absolute subordination to the dictates of the banks - who caused the crisis, after all - and to the market. And they are so contemptuous of ordinary people that they don't believe a revolution will be the result. Let's hope that they have a rude awakening because the alternative is a decade or more of misery for Greek workers. And that painful and destructive experiment won't end in Greece.

BBC News - Greece bailout: PM Lucas Papademos gives final warning:

'via Blog this'

Occupy Toronto: The Beginning Of A Much Needed Revolt

When the New York City cops went in hammer and tongs - or rather, truncheons and pepper spray - to try and drive out the Occupy Wall Street protesters a few weeks back, they probably weren't thinking that they were about to help spark a global movement against capitalism.

Oops.

Of course, the main reason why something like 1,000 cities around the world had demonstrations in solidarity with Occupy Wall Street today was because capitalism is an international system and its present crisis is also international - as is its response: austerity and immiseration for the majority of the population plus bailouts for the banks, investment houses and corporations that are the cause of the mess we find ourselves in. It is that sentiment that ultimately has driven this extraordinary year of  revolt around the world - from the revolution in Cairo, the jewel in the crown of the ongoing Arab Spring, to the general strikes and upheaval in Greece, Los Indignados in Spain, the near-general strike in Wisconsin and the upcoming public sector general strike in Britain at the end of November. Even the type of event that has provided the spark - occupying public squares in major cities, has been a common thread around the world, from Cairo to Madrid and now to the Occupy movement.

Here in Toronto it looked to me like about 2,000 people came out to march and, later, to occupy St. James  Park at Church & Adelaide in one of Toronto's poorest neighbourhoods. I didn't hear the logic behind the choice but I assume it was meant to be in solidarity with the many homeless people who live in the area, victims of a system that lets the weak and the unlucky drop off the face of the earth. I'm told that as more people came throughout the day to the rally point, with hundreds setting up tents for an extended stay, there were close to 2,000 people in attendance for the general assembly that took place this evening. I haven't yet heard what decisions were made and what the next plans are - I had to leave shortly after the march arrived at the park - but my guess is that this movement is really just getting started.

When the banking crisis really hit the fan in 2008, the speed and severity of it took people by surprise. Ben Bernanke, head of the US central bank, the Federal Reserve, went to Washington and demanded a cheque for $700 billion within 48 hours or the financial system would collapse - and he got it with few protests. It has taken since then for it to become clear that our rulers don't have clue one how to stabilize the economy. And it has also become clear that their main answer - even though everyone knows who is responsible for the mess - has been to make working people around the world pay the price. The truth of that grave injustice and incompetence has had time to simmer and sink into popular consciousness. Occupy Wall Street - and Occupy Toronto, et al - is that consciousness beginning to turn into action.

Stock Markets Have A Mood Disorder

There are so many ways that capitalism is absolutely irrational (not to mention inefficient at allocating resources) - the fact that the USA spends $1 trillion on "defence" while children die from lack of clean drinking around the world (or while growing numbers of American children live in poverty) is one that comes to mind. Or, how about the fact that $4 trillion was spent bailing out US banks that caused the near-meltdown of the global economy because of their barely legal and certainly unethical lending and debt packaging practices. This latter point is worth noting since it is the primary immediate cause of the present round of sovereign debt crises in Europe and the USA.

But those weren't the examples that came immediately to my head when I read this article in the Globe & Mail this morning. It seems that global stock markets are jumping for joy over a European plan to solve the Greek debt crisis. Except that there is no plan. All that European leaders have said is that there will be a plan. I also have a plan to make a million dollars this year and invite you to invest in me, in return you can stay at my mansion any time you like. You think I'm kidding?

Investor sentiment improved after European ministers told a meeting of global finance leaders in Washington over the weekend that they would take bolder and more decisive steps to pull Greece back from the brink of bankruptcy.

This, of course, has been typical behaviour over the last several months as we have gone from the flavour of the week, economy-saving plan to depression over the fact that the plan turns out to be voodoo or politically impossible or politically impossible voodoo (with no offense to voodoo, which has considerably more grounding in science than most economics). The real source of this gyrating sentiment is not the mental health of investors or their automatic betting, I mean investing, programs. The real source is that nobody knows what to do or what will work. Obama preaches stimulus spending. The Republicans preach restraint and austerity. Britain preaches austerity. Leading economists and bankers preach stimulus. Harper, never one to miss and opportunity to show leadership, preaches both austerity and stimulus, depending on whether you lead a government north of Italy or south.

I don't think anyone will accuse me of being a prophet when I say that within a week the stock markets will again be racing for the drain. After all, they have nothing to do with reason, planning or the real economy per se. They are nothing more than a high stakes casino where the odds are rigged against the little guy so that corporations and the rich can have one more way to fleece to mooks and line their profits. Not so different from the lottery, actually. The trouble for the big players is that they are looking increasingly like they might be hoisted on their own greedy petard. And that makes them sad. They won't be happy again until we are forced to pay for their gambling addiction and manic binges of irrational investment priorities.

Harper-nomics Is Recipe For Global Depression & Trade Wars

I feel like I'm repeating myself, having just written that the global crisis is not a crisis of debt but, rather, that the debt is a symptom of the long term decline in the rate of profit. Now, I read Stephen Harper and British Tory Prime Minister David Cameron blathering on about how "This is not a traditional, cyclical recession, it’s a debt crisis," as Cameron put it. The only logical conclusion, if that is the case, is to attack the deficit. And, sure enough, the prescription that they're offering is precisely that.

[Cameron[ urged action on three fronts: • Tackle debt and restore credibility and confidence; • Make it easier to do business and create jobs by freeing up economies; • Work together to boost world trade, starting with the Doha Round.

The translation of those innocuous words is rather more disastrous than they seem at first glance - austerity, de-regulation and more de-regulation. But, as the saying goes, doing the same thing over and over and expecting different results is a sign of mental health problems. The present expression of the crisis was precisely the result of relying on debt to solve underlying structural problems - many of them the result of declining living standards that arose as either a direct result or side effect of past austerity that saw the chipping away at public services. When public services are cut, working people have to pick up the slack with stagnating or declining wages. They can only do so by going deeper into debt or, following the lead of the banks, by trying to boost income by taking advantage of speculative bubbles, either through various types of investment plans disguised as pensions or by cashing in an illusory increase in equity on their homes. In both cases, the chickens ultimately come home to roost - home prices stop rising as they reach the limits of what people can afford and, ultimately leading to a bursting of the price bubble, which causes more foreclosures, leading to a further price collapse and so on. And their pension plans - both private, corporate and, increasingly even public plans - go into crisis, having bet the farm on speculative bubbles and phoney investment "opportunities" sold by investment banks as collateralized debt obligations and other exotic and impenetrable "financial products" that were really just bags of shit painted with a smiley face on them. As far as deregulation is concerned, this is precisely what led to the financial crisis in the first place - as banks were able to package and sell garbage as well as themselves investing heavily in this toxic junk. Deregulation of the financial sector led (combined in many districts with previous cuts to taxes on the wealthy) directly to the present high levels of government (aka sovereign) debt. In other areas, deregulation means more Enrons - which combined with other electricity companies to jack up utility prices in California by illegally choking supply - or more Walkertons, where people died as a result of a water treatment system that was privatized to unqualified companies whose only interest was making money. With that kind of record, do you think that we'll be better off if we remove regulations from pharmaceuticals - which already buy positive research results - or nuclear energy (cough, cough, Japan), or the auto industry, or the food processing industry or... No, at best we'll end up with an economic recovery that is built on more danger and misery for ordinary people as companies produce what they want how they want with no reference to the quality, or safety of their goods. But, more likely the result will be that the Herbert Hoover Re-enactment Society will drive the global economy into a Great Depression Redux. You don't have to be a Marxist to know that smashing consumption at a time when business investment is contracting is about the most stupid thing that you can do. The great lesson of the Great Depression was exactly this: Hoover responded to the onset of the Depression with austerity, making it worse than it had to be. Roosevelt prematurely tried to rein in the deficit in 1937, leading to a steep decline in the economy until the approach of war led the US - and almost everyone other country - to pour resources into re-tooling entire economies towards war production, thus re-inflating consumption. Ultimately, the lesson from the Great Depression is that the real goal of idiots like Harper was to massively devalue the cost of commodities as a way to restore profits. Unfortunately for the mass of the population the main target of depreciation was wages and working conditions. The elephant in the room is China, with its decades long growth rates approaching (or surpassing) ten percent. Manufacturing is drawn to China like a moth to a backyard bug zapper because of the cheap price of labour, making it the envy of every corporation on the planet. And, for governments in developed countries, unwilling to invest in new infrastructure by raising taxes as an alternative way to compete, the idea of out-sweat-shopping China is appealing. Certainly China's living standards are rising at rates that would make western workers, with their stagnant living standards, drool. But they are rising from such a low rate that even after more than two decades of constant growth - at rates lower than the overall rate of growth, it's worth saying - they are still a fraction of living standards in the west. And that presents a problem not only for western workers who can't compete with such low wage rates. It also presents a problem for western capitalists. If the rise in China's living standards aren't enough to meet those of western societies in time to save their economies, then the living standards of western economies must be depreciated rapidly in order to compete with Chinese labour. This is the real meaning of calls to "boost world trade." They will boost world trade by making goods from the west cheaper and they will be made cheaper by reducing labour costs. While that seems horrific if you happen to be a member of the working class - i.e. of the majority - it would seem to a blinkered pro-capitalist politician to make a lot of sense. The trouble is, it won't work. It's an unbendable rule in physics that every action creates an equal and opposite reaction. China has a ruling class perhaps more cognizant than most about its long term interests. It is their intention to allow a slow and controlled rise in living standards as their economy approaches "development", rather than being a "developing economy". Their recent acceptance of a rise in their currency is an expression of this goal. But not only will the immediate effect of Harper's & Cameron's austerity recipe increase the possibility of a series of profound financial and economic collapses, they will be met be a reaction from China that will attempt to neuter the effect of a rapid decline of living standards in the west. History never repeats itself exactly but, in this case, austerity must be understood as a trade war by other means. AFTERWORD: As a side note, another option to which ruling classes have traditionally turned has been protectionism. At present the dominant thrust - with memories of World War Two, which emanated from protectionist responses to the Great Depression - has been towards austerity and deregulation as an alternative to protectionism; a sort of race to the bottom model. But the protectionist model is also a dangerous game to play and so it is deeply disheartening that the Ontario NDP in the present provincial election has made "Ontario first" a central plank of its job creation platform. First of all, on its own this will have negligible effect. But secondly, it's not the case that a government gets to impose protectionist measures and there is no reaction. Of course the WTO would step in but Ontario gets significant inputs and products from countries around the world and a trade war with a minor economy like Ontario's would be economically and politically devastating. It also suggests that the problem is a regional and not a class one, as though Quebec train manufacturing workers are less deserving of work than Ontario train manufacturing workers. It is fundamentally a politic built upon a passive acceptance of the status quo. It is not left wing at all and has no role for working people - across provincial, let alone national boundaries - struggling together to defend their living standards from the corporate predators and their representatives like Stephen Harper. That is, of course, the perspective of union bureaucrats who would rather the NDP pass meaningless legislation than mobilize their members but it is a disaster for working people.

Debt Is Not The Cause Of The Crisis

Finance Minister Jim Flaherty and Stephen Harper are all over the media attacking European Union politicians for failing to take decisive action to deal with the "debt overhang", particularly in places like Greece, Spain, Portugal and Italy. This failure of political leadership they contend is at the core of the problems facing the world economy.

Mr. Flaherty said a failure to adequately address Greece’s debt problems puts the global economy at risk, sharpening his criticism again as he and other top Canadian officials have in recent days.

This is what you call missing the point. The problem is not the debt it is the undemocratic priority-setting imposed by global financial traders, ratings agencies and businesses. The same people who almost destroyed the economy in 2008 by creating an unregulated shadow banking sector that was little more than a giant ponzi scheme are now demanding the economic priorities of sovereign nations be determined by them. The lunatics are truly running the asylum. Not only has this crew demonstrated that it doesn't have the interests of the economy at heart, rather they are interested in wringing profits out of every pore of a country then moving on to the next. They don't care about investments in productive or socially necessary infrastructure. The determinants of good or bad, efficient and inefficient bear no resemblance to common sense understanding of those terms. It is entirely determined by their accumulation of wealth.

But even that is really just a symptom of deeper problems. In Europe, it is true that Greece and some other countries have high levels of public sector debt. But it is to miss the point entirely - as I've argued more than once - to look only at public sector debt. It is total debt within an economy that shapes the likelihood of whether there will be investment to stave off a recession or protracted stagnation. In the USA the federal government has a debt of $14 trillion. That's a lot, representing about 100% of GDP. But it is dwarfed by the $36 trillion in private sector debt that has ensured that monetary policy - basically pushing down both long and short term interest rates to close to zero - has next to know impact on economic growth. There is literally no room left on the credit cards, lines of credit or mortgages of the nation. The parrot is dead.

And total debt loads themselves are a reflection of the fact that profit rates have been falling almost steadily for the past thirty-five or forty years. In the first instance, the decline in profit rates led governments to embark on an assault on working class living standards that has led to stagnant or declining wages and the de-unionization of the workforce - most spectacularly in the United States where the private sector is basically union free.

And for the first time on record, family incomes are actually falling. New figures this week from the U.S. Census Bureau show that the median income for working-age households fell 10 per cent between 2000 and 2010, even as women worked more hours...
Experts say the seeds of this lost decade were planted long before the recession. Wages fell out of step with rapidly rising productivity and soaring corporate profits in the 1980s, and the gap has been growing wider ever since. The average real wage for working men is now lower than it was in 1973.

But in an economy which is 70% consumer spending, this decline creates a roadblock to further growth. To overcome this workers were encouraged to take on ever more debt. Alan Greenspan kept interest rates low, fuelling speculative bubbles, first in tech then in housing, that gave the illusion of growing incomes. Inevitably, that bubble would burst and leave a wasteland of debt, foreclosed homes and unemployment.

Since the decline in living standards was itself an expression of the problems in the core economy, it is not surprising that debt levels rose across the economy as a whole as profit rates stagnated. In particular, with pressure to move in the direction of a "financialized" economy, debt levels in the financial sector went through the roof. Looking at the graph of US data above you can see that while all levels represented - non-financial business debt, federal government debt, household commercial credit debt - have risen since 1953, they have risen astronomically in the financial services sector, particularly beginning in the early 1970s when profit rates really took a hit. If we look at debt in terms of billions of dollars, as opposed to comparing the change in levels over time, we see in a more pronounced form the very real reason for government debt.

This graph includes financial sector debt, non-financial business sector debt, corporate debt, state & local government debt and federal government debt. As you can see, at the start of Bush Jr's term in office, federal government debt had stopped growing. Bush, of course, slashed taxes for the wealthy and ploughed money into foreign wars, which led to the return to deficit and debt growth. But, even with costly tax breaks to the corporate sector, business debt continued to rise - particularly financial sector debt. Now, look at the grey line around 2010, which indicates the 2008 financial crisis and recession. Notice how financial sector debt declines dramatically while federal government debt skyrockets? What this indicates is that the federal government saved the banking sector from itself by taking on toxic debt. This pattern was repeated in country after country. Those same bankers - who resisted all efforts to regulate them post-2008 (largely successfully) are now howling about the high levels of "sovereign debt."

The upshot is that we are expected to pay for the disaster that they caused with further reductions in our living standards - that's what Flaherty and Harper are going on about: screwing us. The irony, of course, is that smashing Greece's economy into tiny little bits - and doing the same to every other economy upon which they've set their sights - will not solve the problems. They will make them worse. People will need more, not less debt, or they will simply stop spending, causing an economic contraction. They aren't stupid - they know this. The point of the austerity exercise isn't about economic efficiency per se. The hope of people like Flaherty and Harper is that a decisive defeat for workers in Greece and beyond will drive down living standards sufficiently to restore the rate of profit - which, in the graph above, can be seen on a long decline from the mid-1960s. The question is not whether their goal is about making us pay for their crisis. It is whether or not they will be successful.

European Revolt Against Austerity Picks Up Steam

Strikers in Italy resist austerity.

It seems apparent that European politicians somehow missed out the economics class where they explain how massive cuts to public spending in the middle of an economic contraction makes things worse. They also missed the one about how simultaneous across-the-board austerity can cause resistance to spread from sector to sector and country to country, leading to a generalized revolt that could further destabilize profit-making.

Well, if they missed those classes while they were working on their MBAs, they're certainly learning those lessons now.

From Greece to Italy to Spain to Britain, the resistance to austerity is heating up. With meetings and protests and flash mobs happening this month in Toronto to try and halt our own austerity-loving mayor, it's worth seeing that this struggle isn't one that's isolated to us but is global in scope. If they can win in one country, it can inspire people in another country, which can lead to a domino-effect of anti-austerity struggles.

Perhaps the highest point of anti-austerity struggle is in Greece, which has now been feeling the hammer blows of massive cuts and attacks on jobs and pensions for well over a year. After a recent series of general strikes and battles with the police the government managed to pass a second round of austerity cuts through parliament. It seemed like they had won but students clearly thought otherwise. There are now something like 200 universities under occupation against government plans to not only bring the private sector into public education but to also attack and limit democracy on campus. This is a very important symbol in Greece, where the campuses led the fight against the Greek dictatorship in the 1970s. Since that time police have not been allowed to enter campuses without special permission from elected councils on campus. There is a big demonstration on September 8 that will include teachers from primary and secondary schools who will join the occupations in solidarity.

In Italy, Berlusconi has just voted through a massive austerity package worth $70 billion. Some of the unions in Italy have accepted that "there is no alternative" but the largest union in the country, the CGIL, called a general strike on the day that the austerity package was voted on. Up to 3 million people took part with 70,000 demonstrating in Rome and tens of thousands more taking to the streets around the country.

On Tuesday in Spain there was a protest strike and a demonstration by up to 25,000 in Madrid against a constitutional amendment that forbids budget deficits except in "emergencies". Spain has seen a protest movement, called Los Indignados (the Indignant) that exploded onto the scene in early summer, taking over public squares across the country in imitation of the Arab Spring across the Mediterranean. That movement seems to have subsided somewhat but hopefully this protest action by unions signals that it has spread into the previously acquiescent union movement.

In Britain, things are moving slowly towards a boil. Last fall there was a huge explosion of student protests and strikes against the tripling of university fees. The energy and anger of that movement spurred the union leadership - which had organized nothing to resist the Tories - into action. First there was a protest by hundreds of thousands of trade unionists and supporters in March. Then a number of unions held a coordinated one day strike in the summer, involving up to 750,000 workers. Now this fall is set to see some big protests - in Scotland, and at the Tory and Lib Dem conventions (they govern together in a coalition) - followed by an even bigger coordinated strike in November. The issue that has galvanized industrial action has been pension and this round of strike action could involve up to three million workers. This will be the biggest industrial action in Britain in decades.

A breakthrough in any of these countries could easily spur the growth of struggles in other countries. And, as Greece shows, a temporary victory by the politicians and bankers doesn't necessarily spell the end of the struggle, merely shifting it to another terrain. Here at home, we have our own opportunity to take on "austerity flu" on September 26 at Nathan Phillips Square at 5pm. Make the effort to be there - be part of an international movement for a better world.

Greece: Bigger Than Lehman Brothers

What a frigging disaster. Back in 2008, the US Federal Reserve let the Lehman Brothers investment bank - which held more than a bellyful of toxic debt, go to the wall. It was meant to bring "calm" to increasingly panicked financial markets. That will probably go down in the books as one of the more stupid decisions of the first decade of the new millenium. Rather than calming anyone, it caused the global financial system to lock up as banks lost trust in each other and in the solvency of large borrowers more generally. Everyone was potentially tainted and unstable. Business literally couldn't run because there was a money strike. It was a concrete example of how much the global system had come to depend upon credit for its basic functioning.

Global capitalism seemed to hang in the balance for days and weeks. Ben Bernanke went to the US Congress and told them they had two days to sign off on a $700 billion bailout package or it was game over. Then AIG went to wall - it provided insurance for the toxic debt that turned out to have no value - and the government had to bail them out, to the tune of close to $100 billion. By the time the panic was over, the US debt had doubled.

The extent of the Lehman Brothers bad debt is unclear - in fact, part of the problem that led to the lockdown of the credit system was that the whole derivative structure of the shadow banking system was completely opaque, mixing good and bad debts together in "collateralized debt obligation" packages. However, prior to the bankruptcy declaration, Lehman's had about $65 billion in commercial and residential real estate debt, much of it toxic. They'd also recently borrowed $138 billion from JP Morgan - a debt that the US government dutifully covered for them.

The Greek government has significantly more debt than that, about $470 billion. And if Greece goes, it raises questions about Italy, Spain, Ireland, and Portugal, which involves trillions of dollars. This is mammoth and unprecedented. In Italy, the newest country to be put under severe borrowing pressure, the immediate response of the right wing government of Silvio Berlusconi is to propose an austerity package to slash the budget deficit.

But the rush to austerity is to throw gas on a fire - as Greece has discovered. Massive cuts to government expenditure have an impact upon the real economy, depressing consumption as workers are laid off and business contracts. And when the economy contracts, fewer tax dollars make their way into government coffers, which increases the debt, leading to further pressures for austerity.

It is also to blame the wrong people for the crisis. Workers haven't created this debt load, it has been the greed of the wealthy who have benefited from deregulation and tax cuts over the past three decades, leading to greater debt and greater instability. It has also been a product of the imbalances built into the European Union, which tries to mimic a unified state but is still riven by rival nation-states that compete with each other. It also suffers from imbalances in levels of development. Germany is a manufacturing powerhouse with significant trade surpluses to its European neighbours. Greece, Spain, Ireland buy German goods but could only pay for them as a result of the asset bubbles that saw property prices go through the roof for the better part of a decade. But when those bubbles burst back in 2008, governments were saddled with debt.

...budget deficits were the result of the policies implemented by states with the aim of preventing the economic crisis from morphing into a depression as well as the result of the reduced fiscal revenues and increased social spending provoked by the 2008-9 recession. The overall result has been to transfer the bulk of the bad debts that were threatening the banks onto the states that bailed them out, thus simply displacing the problem. The euro crisis of spring 2010 was the practical demonstration of this. Speculation over whether the banks were insolvent was transformed into speculation about the solvency of sovereign entities. And while every state is subject to pressures coming from the financial markets rapidly to reduce its exposure to debt, this pressure is much stronger on small and weak states, like Greece for example. What is more, the fact that the huge deficits brought to the centre of attention the capacity of each state to pay back its debts exposed the flawed nature of EMU.

What will happen now? It is likely that panic will continue to spread as European leaders remain deadlocked about what to do about the spreading default hysteria. Germany may well use its clout to attempt to force through a solution more aggressively than it has up till now. Certainly, any solution from the political and business leadership of Europe will involve pain for the working class. What is also certain is that combined with some serious inflation problems in China and a moribund US economy, we are headed back into recession.

The real question is whether workers, so soon after accepting a kick in the teeth to "do their part" in the "last" recession in 2008 (did it really end?), will accept for austerity and rollbacks. We've some magnificent fightbacks in the past year - from Greece to Madison, Wisconsin and even to Hamilton, Ontario, where Steelworkers have been fighting against attacks on pensions. But none have broken through. Sooner or later, workers struggle will have to break through or political leaders in Europe and North America will austerity us into the ground and the economy will continue to fail. The real problem is not that workers earn too much or work too little or have pensions that are too fat. The real problem is a system based upon insane and uncontrolled greed, where the priorities are increasingly based upon financial gambling of the most craven sort. 

Greece set to default on massive debt burden, European leaders concede | Business | The Guardian

Greek Austerity Vote Is Just The Beginning

There was a certain amount of hand-wringing by the business press and politicians internationally that the PASOK government of Greece might not be able to pass the second austerity package in a year. However, it seemed unlikely that more than a handful would revolt against the party when it came down to it. The party that once resisted the Greek military junta had already sold their souls to austerity and neo-liberalism some time ago. As it turned out, just one PASOK MP voted against his party and, in reward, was immediately expelled.

Government agreement to drive down living standards and sell the store for a pack of magic beans - and magic beans would be more effective at reviving the Greek economy than growth destroying austerity and privatizations - is barely the beginning. With around 80 percent of the Greek population opposed to the second austerity package and there having been a year of significant mobilizations, strikes, general strikes and riots, the working class is more radicalized and angry than ever. Indeed, as the votes took place inside the austere parliament, outside tens of thousands of people were battling with cops who attacked them indiscriminately. This is what it looks like to save Europe - tear gas, burning vehicles and hand-to-hand (or baton-to-stave) combat.

Greece is now divided into two clearly defined camps: the minority who favour and want to impose austerity - and who thus represent only the wealthiest Greeks, the banks, the international lending agencies, speculators, corporations, etc. And the people. It is the people vs the machine. The battle would be a quick and decisive one based upon democratic choice or sheer numbers, except that the Greek parliament is not in the service of democracy. And now that the facade of democracy has been lifted, the real source of legitimacy for the Greek state - and by extension the European Union - is made clear - it is armed bodies of men with their sticks and guns and tear gas and shields.

That lesson will not have been missed by the Greek people. The only thing in question is whether there is sufficient confidence and organization to move beyond the symbolic actions of 24 and 48-hour general strikes to action that is powerful enough to counter the threats of international capital and the ratings agencies. The rulers of Greece and Europe must be made afraid - afraid that if they try to impose austerity on Greeks their reward will be the same that Mubarak in Egypt and Ben Ali in Tunisia received: revolution. Things are moving fast in Greece and, in the coming days, the balance of forces in this battle will become clearer. An interview earlier this week with a Greek socialist gives a flavour of where the struggle may go.

Panos [Garganas] said, “There is now a movement in the unions to extend the strikes beyond Wednesday.
“The power workers are determined to continue until the government backs down. That message is spreading.
“Hellenic post bank workers, who face privatisation, are set to hold a general assembly on Thursday to prolong the strike, as do water workers in Salonica, Greece’s second city."

The irony is that PASOK has more power to negotiate terms than it seems to realize. The global banking sector is on the edge of their seats that a Greek default will lead to a "Lehman moment" - a knock-on effect that will tear through first the European banking system and then world credit markets like a tsunami. When push came to shove, neither the IMF nor the European Central Bank was likely to permit such a massive potential meltdown. Even the Greek Tories, New Democracy, seemed to realize this and have called for a re-negotiation of the terms of this tranche of aid. Why PASOK has completely rolled over and thus likely ensured their defeat for a generation, while creating a dangerous level of social conflict, is unclear. What is clear is that, to paraphrase Orwell, the future lies with the proles.

Greece passes key austerity plan - The Globe and Mail

Live Stream: 48-Hour Greek General Strike Against Austerity

The fight is on. Greek workers are under a massive assault as international bankers, speculators, governments and capitalists try to force a brutal austerity package down their throats. Last year's austerity has already doubled the unemployment rate to 16% and led to a collapse of government revenues as incomes decline and the economy collapses - leading to more debt, more austerity, etc. ad infinitum. The next two days is key as the government votes on the next round of austerity and the fire sale of Greece's publicly owned assets. And the outcome is anything but assured with numbers of the governing PASOK's MPs threatening to vote against the package.

If the Greek government, backed by international pressure from global capital, can defeat the most militant working class in Europe, it will make it that much easier to impose austerity across Europe and North America. Conversely, if the Greeks can soundly defeat their government's austerity plans, it will give confidence to workers in other countries who are facing their own assault on living standards and the welfare state. I'd hazard to say that it would give confidence to workers in Canada who face the Tory axe. Let's hope that the Greeks win big.
Meantime, you can watch the live stream of the 48 hour general strike below.

LIVE STREAMING: Γενική Απεργία ενάντια στο... by News247

Greece begins 48-hour general strike | World news | guardian.co.uk

A View From The Volcano: Report From Greece

This is a fascinating interview from the British Socialist Worker Newspaper on what's going on in Greece. All we're really getting is the maneuverings and panic of the politicians and the bankers. This interview with a socialist gives a flavour of what's happening on the ground and in the movements.


Panos Garganas of the Greek Socialist Workers Party told Patrick Ward how resistance to austerity became a rebellion

Almost all of Greece’s public sector workforce took part in an enormous general strike which rocked the country’s government last Wednesday.

A huge number of private sector workers joined them.

The strikes happened as the government tried to force yet more austerity measures through parliament. Tens of thousands of protesters filled Athens’ central Syntagma Square and fought the police in an attempt to reach the parliament building.

The strike was accompanied by a wave of occupations.

The protests have plunged the Labour-style Pasok government further into crisis.

It’s not clear if the government will be able to pass its cuts, worth £25 billion, or even manage to hold together.

Panos explained the scale of the resistance, the fragility of the government—and where the struggle should go next.

How was this strike different to the previous general strikes?

Two things stand out. The first is the sense of political crisis. This general strike coincided with the most crucial stage of negotiations between the government and the International Monetary Fund (IMF) and European Union (EU)—and between the government and the opposition.

They were negotiating over how to reinforce the Greek government in terms of standing up to demonstrators and dealing with creditors.

The general strike intervened to show that resistance is not going away.

The second most important thing was the size of it.

People have gone through so much in the past 20 months that they are getting more and more angry. That’s why so many people came out and the strike was so solid.

Syntagma Square has been occupied for three weeks. Police tried to disperse the occupiers on the strike day, but they failed because there was even more determination to keep it going.

What kind of forces are involved in the struggle?

The occupation of the square didn’t start with the unions. It was much more spontaneous—largely organised by bloggers. At first the left wasn’t sure how to respond.

The media portrayed the occupiers as apolitical and opposed to traditional forms of organisation.

They presented the occupiers as hostile to the left. Some were, but they weren’t dominant.

The most important people in the occupation have taken part in many strikes and occupations over the past 20 months.

The occupation of the square is important because it has united strikers and demonstrators.

Sections of the left, including the Socialist Workers Party and the Anti-Capitalist Left, played an important role in arguing for this.

We should not let the media play one section of the movement off against another.

Who defended the square against the police? Were most people involved in “rioting”?

The occupation was peaceful. The occupiers were very clear that they didn’t want to provoke the police and allow them to attack.

On Wednesday, lots of people in the square denounced provocations. Police tried to set up an incident to create an excuse for them to attack.

Groups of anarchists were involved in fighting with the police, but the bulk of the demonstrators were not involved in rioting. The priority was to hold the square.

How does the government plan to get its austerity measures through parliament? Will the cabinet reshuffle make a difference?

There is a desperate attempt going on to keep the government alive.

Last Wednesday, prime minister George Papandreou offered to resign if the New Democracy opposition—similar to Britain’s Tory Party—agreed to join a coalition.

It was a clear indication of how far the government has failed economically and politically. It faces such strong opposition that it cannot form government on its own.

But then Germany and France told the Greek government that it couldn’t afford a political crisis and must press ahead.

So Papandreou did a U-turn, saying he’d reshuffle and press on.

It’s hard to tell how far the government will survive. Its majority is getting smaller and smaller.

There’s a vote of confidence on Tuesday night, and the following week Papandreou will try to pass the cuts. These are two crucial votes. They will take place with the government surrounded by demonstrations—and the demonstrations will be stronger.

The unions have called a 48‑hour general strike for when they try and pass the cuts.

Papandreou may twist MPs’ arms and win the vote. But implementing the cuts won’t happen.

I think the government will collapse—if not from votes, then from strikes. When the press and government say that resistance is futile, it is not true.

Power workers are on all-out strike from Monday. This can make the situation impossible for the government.

You don’t want the austerity measures passed. But wouldn’t it be worse for ordinary people if Greece defaults on its debt?

The first thing to say is that all the measures that are supposed to save working people from default aren’t working. So we are closer to default every day.

The cuts aren’t stopping the crisis and more cuts won’t either. Workers are suffering with no end in sight.

It’s important to ask how a default would come about. If it happens on the terms of the creditors, people will suffer.

But if the movement says we refuse to pay the debt, that’s very different.

Last year the Greek government paid 51 billion euros servicing the debt—that’s one billion euros every week.

If we stopped paying that billion a week, we wouldn’t need cuts in pensions, wages or services.

The wages bill for public sector is 16 billion euros.

A default organised by our side would lead to improvements for the working class in Greece.

Does Pasok’s relationship with the unions affect the resistance?

Traditionally, Pasok controls the main body of the Greek TUC. Pasok has held a majority in it for 30 years.

Every TUC leader has been a member of Pasok for 30 years.

Pasok doesn’t have a long history, unlike Labour in Britain. It has only existed since 1974.

But every Pasok government has been able to compromise with the unions to push through what capitalism needed.

This is changing.

A local government union has resigned from Pasok. It was against the agreement with the EU and IMF.

This is happening elsewhere too. And if this is happening at leadership level, imagine how it is among the rank and file!

Thousands are showing their opposition to Pasok.

It started in May last year—people booed the TUC leader at strike rally organised by the TUC.

For the first time the left is electing people in the unions. In smaller unions the Anti-Capitalist Left is getting people elected to steering committees and other leading trade union bodies.

Where can the movement go from here?

We want two things. First, we want rank and file control of the strikes. The strength of the mood now means we can get general assemblies in workplaces, with elected committees, for people to decide how to handle the strikes.

This has already happened in some strikes in the past 20 months.

The mood is now so strong that we should generalise this sort of thing. It strengthens the movement.

There is an alternative to austerity. We should push for nationalisation of the banks, cancellation of the debt and workers’ control of the banking system.

These demands are becoming more and more popular. Workers committees in strikes should adopt these demands. That’s the way forward.

We can stop this crisis on workers’ terms.

China or Greece: Which Is The Next Lehman Brothers?

Back in 2007, when the US Fed let the 100-year old Lehman Brothers investment bank go belly up, it was like a blasting cap that blew apart the global economy. While there was some recover last year and early into 2011, the global economy - and the economies of the developed world in particular - haven't made it back to pre-2008 levels. What's more, that recovery has receded in the second quarter of 2011 as the effects of big stimulus packages has ended and debt-straddled governments hit the panic button and turn to austerity to please international investors, speculators and ratings agencies.

That self-inflicted decline - like the self-inflicted greed bubble of 2008 - is on the precipice of leading to a much bigger economic explosion than the Lehman Brothers debacle. The two key sources of danger right now are Greece and China. Greece has been in the news in a big way lately because the riders of the banking apocalypse - the European Central Bank, the IMF and private banks and investors - are demanding a new round of austerity. Not surprisingly, the Greek population have had it with austerity and are set to explode, with Egypt-like sit-ins taking place in Greek town squares and union strikes and protests rolling through the country. The Greek PM had to, effectively, dissolve his cabinet and return to parliament for a vote of confidence tomorrow before moving forward with the next round.

With an unstable Greek government facing mass opposition in the streets and a divided parliament, and with the European Union unable to agree on a plan to bail out the country, there is a very real chance that Greece will default on its debt. A default on Greek debt will have a much more massive impact on the global economy than the Lehman Brothers collapse. And it will spread quickly to deeply indebted Italy and Belgium and beyond. Greedy bankers, gotten fat off cheap money and deregulated markets, which led to the present crisis in the first place, will howl at the thought that they have to pay for the bonuses and bad decisions of the past decade. They will use their control of money to wreak destruction to the global economy as they did in 2008 when they took their money and went home, leaving the economy to starve from a lack of credit.

In China, the world is discovering that the monolithic Chinese state and ruling class aren't so monolithic after all. While the supreme leadership under the premiership of Wen Jiabao have been trying to steer the Chinese economy away from dependence upon infrastructure investment, as well as to cool the overheated property market, an article in today's New York Times suggests that, if anything, things have been moving in the opposite direction. The Chinese economy has diversified and local and regional political leaders have their own independent power bases that can resist diktats and priorities from the centre. Those regional forces also have other levers so that when the state withdrew from lending, non-banking lenders stepped in. The result is that there could be as much as half a trillion dollars in non-performing loans. Many of those loans are in the infrastructure investments that have kept Chinese growth motoring along even as the market for Chinese exports, still a big portion of the country's GDP, has receded. Jiabao and other Chinese leaders are faced with a wave of crippling defaults or the possibility of a big collapse in demand if they try to rein in out of control credit growth and infrastructure investment.

Most commentators are focused on Greece, whose collapse seems most imminent but China's dangers are being covered up by past enthusiasm for the seemingly unstoppable juggernaut of ten percent annual growth rates. And a bursting bubble in China will be orders of magnitude bigger than a Greek default. Don't forget that America is mortgaged to the hilt, with rating agencies starting to get nervous about government debt levels. And most of the foreign-owned US debt is in Chinese vaults. If the world's second biggest economy needs to liquidate assets quick to cover big losses, what do you think that they'll be selling? If the value of US debt collapses and, thus, the cost of borrowing rises, things could get ugly.

Not to put too fine a point on it, the people who run the global economy - and have done so through the use of speculation for the past three decades - have painted the economy into a corner. They're the problem and they have no solution. The Greek working class are the only voices of sanity we're hearing and their answer is clear: let the bankers pay. It is a condemnation of a system driven by greed and chaos. It's time for democratic planning based upon human need.

China Boom Beginning to Show Cracks, Analysts Say - NYTimes.com

Greek Meltdown: People vs Banks

Forget the riots in Vancouver by angry hockey fans, things are really on the boil in Greece. After a year of austerity measures that have all but killed the economy and which have driven down living standards substantially, the government is coming back for more. Not surprisingly, people are pissed. And when Greek workers get pissed, they have a way of letting you know.

Yesterday there was a 24-hour general strike against the new round of austerity measures. Those measures will certainly pay down some of the debt - or, rather, transfer it to the working class - but at the price of so damaging the economy that it is likely tax revenues will fall in the medium term, making further debt repayment difficult. Greek workers know this and so tens of thousands of them descended upon the Greek Parliament to vent their anger and frustration, calling politicians "traitors", "thieves", and "liars" and making the obvious point (obvious to everyone but the media) that it wasn't workers who caused the debt, so why should they pay for it?

I suspect that the European ruling classes fully understand the limitations of the austerity measures they are proposing but see no other way out. They will know that opening a full frontal assault on the most militant working class in Europe risks destabilizing the EU more generally, as resentment seethes against the various forms of austerity being wheeled out from Spain to the UK. Following on from the Tahrir Square movement in Egypt - and similar movements in other countries just across the Mediterranean Sea - youth and workers in Spain have occupied central squares that are shaking up politics in their country. In Greece, protestors are reported to be setting up tents in squares there as well. In the UK there is a planned strike by half a million public sector workers against attacks on pensions on June 30.

If the Greek working class can bring down the increasingly shaky Greek government in protest against austerity, that could have a serious, European-wide knock-on effect. For a moment yesterday, it looked like the government might collapse, as the Prime Minister offered to resign in order to form a cross-party government of national unity with the Greek Tories - New Democracy. New Democracy refused for opportunistic reasons and PM Papandreou was, instead, forced to turn back to his own restive Socialist Party. He will now hold a confidence vote in his leadership in order to whip them into line for the next round of slash and burn. It is, nonetheless, a sign of weakness on the part of the government, which is why markets slid around the world overnight.

But even if the government can defeat the working class in Greece, there is still the problem that austerity is unlikely to work in the short term. Russia is still recovering from the austerity of the early 90s, and has only done so because of vast natural resources and an authoritarian government that clamped down on the oligarchs who were stripping down the economy and socking away their cash in foreign banks. The Russian government also clamped down on civil rights and restored something like called Stalinism lite, killing independent journalists, crushing movements for autonomy and independence in former Soviet republics and preventing the emergence of any real political or economic opposition. In other words (limited) economic recovery through dictatorship. Hardly an attractive model to most Europeans, used to several decades (at least) of political democracy and civil freedoms.

The only thing that can save the European economy, and the living standards of the vast majority of the population, is for the Greek working class to soundly defeat the austerity package with such militancy that it puts the fear of good into the broader European ruling classes. That will open the possibility of a different response to the crisis for millions who are told there is no alternative. And the ruling classes will be forced to take on the real bandits and scroungers - the parasitic bankers, investors, currency traders, and speculators, not to mention the under-taxed and over subsidized private corporations - in order to avoid a worse fate at the hands of their own restive populations. Don't think that's possible? Neither did Mubarak and Ben Ali. As Karl Marx once wrote: "all that is solid, melts into air..."

Global markets shaken by Greek debt crisis - Europe - Al Jazeera English

Support The Strikes To Defend Pensions

Usually even the mention of Margaret Wente's name can ruin my day but her article in today's Globe & Mail is actually not too bad in terms of laying out the terms of the strike and lock-out at Canada Post and Air Canada respectively. Of course, in the interests of "balance" she reaches the basic conclusion that while pensions were great while they lasted, they're unsustainable. My guess is that she won't be giving up her pension in order to save the Globe & Mail's bottom line but that's another story.

What is most important here is that corporate Canada and the government are opening up a new austerity front that is about reducing our living standards - both in the present and in the future - as a means to restore the economy to profitability. In the public sector the Tories intend to slash spending and reduce payrolls both through layoffs and attrition over the coming months, beginning with the soon-to-be-released budget. In the private sector, pensions are the big target.

Make no doubt about it, pensions are a component of wages, just like healthcare benefits. When Canada Post and Air Canada attack the pension plans of their employees, they are demanding wage reductions. But workers have the right to ask a number of questions when they're told to take the knife. The most obvious one that is printed in big letters on the picket signs of Air Canada employees is why should only CEOs get pensions and not workers? This must seem doubly infuriating to Air Canada employees who took it on the chin a few years back to "save Air Canada", agreeing concessions in a big way. Now, Air Canada is profitable again - and is coming back for more.

But there is a deeper question that has to do with the whole way the economy runs. Workers didn't cause the economic crisis of 2008 - the Great Recession. That was sparked by greedy and corrupt banks with their exotic and incomprehensible debt packaging schemes that came unraveled - and in the US housing market shows no signs of stopping the decline. Nor are workers responsible for the long term decline in western economies that have come more and more to rely upon "financialization" - that is, to have greater weight placed upon the casino of speculative investment - while China has become the world's manufacturer. These imbalances and contradictions are directly the result of the policies of neo-liberal government - from the Harper Tories to the Chretien Liberals and, beyond our borders, to every party across the spectrum from Labour to Republican and Democrat. They are also the result of decisions in innumerable boardrooms where investors, bankers and manufacturers have shifted resources and capital around the world in order to maximize profits.

The result of all this jerry-rigged global profit-taking has been that workers didn't benefit particularly during the boom times - with debt levels rising even in the peak periods of growth in the past three decades - while the global economy has become more dangerously unbalanced. Now, with it likely that the imbalance will lead to years of stagnation, workers are again expected to pay, this time with their future as well as their present wages.

And it's not just in Canada that this battle is taking place. Attacks on pensions are a central feature of the struggles and strike waves in Greece. There is also a massive public sector strike set to take place in the UK on June 30 that will involve teachers, civil servants, and more. This struggle is about whether we will continue to live in a world where the rich get richer in good times and bad and the working class gets driven ever downward towards immiseration.

That's also why what is needed is a united fight, not just piecemeal isolated actions. The Tories will legislate the Air Canada workers back to work by early next week - effectively eliminating the right to strike for a small group of non-essential workers (they're customer service agents and call centre staff, for God's sake!). This will be followed by similar legislation against postal workers in the Canadian Union of Postal Workers. There are two other unions at Air Canada, as well as the Pilots Association. They all oppose Air Canada's pension plans. They should all be out together - if the customer service agents are defeated, they almost certainly will have lost as well. In fact, union leaderships must see the writing on the wall as far as pensions go. The entire working class will either be picked off one by one, sector by sector, or they will come together in a joint campaign, which will probably need to include industrial action, to win. It's all of our future's that's at stake.

The unions at Canada Post and Air Canada are fighting a rearguard action - The Globe and Mail

The Return Of Stagflation?

Those of us around in the 1970s will remember the term stagflation - a combination of economic stagnation and inflation that created a conundrum for bourgeois economists: do you move to rein in inflation by tightening credit and imposing wage and price controls - or do you seek to boost economic growth by loosening credit and "priming the pump" by injecting billions into state directed projects. As it happens the first thing they did was attack workers by imposing wage controls (price controls were bullshit), either through direct legislation (Canada and the UK) and/or by encouraging open war on the collective bargaining right of unionized workers (Reagan's firing of 10,000+ striking air traffic controllers). That was combined with interest rates that went through the roof - up to 20% at their peak. Then, once the working class was defeated, there was a return to loose money - Reagan increased military spending (and thus the deficit) massively, there were big tax cuts for the rich and policies that encouraged the growth in speculative investment (and, thus, stock and property bubbles).

Well, if you liked that economic bloodbath the first time around, get ready for the next round.

First off, the damage - both social and economic - from that first battle against stagflation is still with us. The North American economy is much more "financialized" than it was before. Speculative bubbles - that roam from sector to sector; now in stocks, then in tech, later in housing followed by commodities - continue as a matter of policy in an attempt to keep the economic inflated. In fact, price and credit inflation - combined with social and wage austerity - is the economic policy of western governments to this day.

But they face a problem that is the result of the success of these policies in many ways. The Chinese miracle is, in part, a product of the fact that increasingly squeezed western workers, particularly in the USA but also in Europe, need the cheap goods produced in the sweatshops of China to sustain their standard of living along with access to easy credit. China's export led boom can't be separated from the boom in debt in the west - total US debt, private and public, is now close to 400% of US GDP. Nor can it be separated from the decline in unionization and real wages (which includes the "hidden" social wage of services previously provided by governments and now privatized - from public pools and community centres to welfare and unemployment insurance rates, pensions and healthcare).

The debt/sweatshop model could work for a while but it reaches its inevitable limits when debt simply can't grow any further; consumers and businesses can't afford to add any further to their debt servicing costs. Oh, this can be creatively skirted and hidden for a while - the exotic debt products of the first decade of this century proved that. The crisis of 2008, however, was a sign that the debt shell game was coming to an end. Massive state intervention was able to prevent total economic collapse but it can't wish away the debt loads held by everyone and that means that growth will, at best, remain sluggish after the brief episodes of state intervention end. In weaker countries, like Greece, it means the threat of default as international bankers, the lowest form of human, try to push a program of massive debt privatization - so that they can recoup state loans as though depressing consumer demand will somehow save an already depressed economy.

These recessionary pressures are bad enough but the boom in China - itself fuelled by debt, perhaps half of it bad - has had the effect of jacking up global commodity prices. This creates a conundrum for China - on the one hand capital investment (infrastructure, new manufacturing plants, etc) has led the growth in China, as opposed to a growth in consumer demand. That means that China needs a higher valued currency to lower the costs of imported raw materials. But it needs a cheaper currency in order to keep their goods - for which there isn't a sufficient internal market - cheap for export. The Chinese leadership is trying to change the balance between capital and consumer investment but faces lots of hurdles.

While there is much talk about the "efficiency" of the one-party state in terms of being able to rapidly implement policy shifts, things aren't that simple in a country - and an economy - this size. The rapid growth of China over the last thirty years has created a large, wealthy and very powerful capitalist class, primarily concentrated in the coastal cities. They have regional fiefdoms that are dependent upon cheap and plentiful credit and infrastructural and capital investments (and corrupt kickbacks therefrom). And they have a number of tools at their disposal to resist the central government's attempt to change the priorities of investment. One of them is simply to create an underground credit economy to loan money for projects as they see fit - it's estimated that close to one third of all new loans in China are through this sector. The other mechanism is to simply send money offshore to tax havens before cycling is back into China to invest as they see fit - over half of the $1.1 trillion in foreign direct investment into China is, in fact, money of this sort and not really "foreign" money at all. Foreign investment has, in fact, stagnated for over a decade.

The Chinese government also faces pressure from the ordinary people of China - workers and peasants - who see and feel the results of the "Chinese model" of development first hand. Peasants are expropriated by regional governments for their pet projects - from dams and wind farms to chemical plants and other manufacturing facilities. Workers see the investment boom year after year after year and haven't seen a commensurate amount of wealth "trickle" down to them. This has led to mass - though still fragmented - resistance. In March of last year, in the town of Huaxi, 20,000 people took over the town and threw out the 3,000 local cops, then burned police property and, get this, sold tickets to the rebellion. The revolts are having an effect - many companies are giving pay hikes of 20-40% in order to end strikes and rebellions by workers.

The failure of the Chinese government to effect the sort of change that the entire leadership in China - in words - recognizes is necessary, means that pressure is building that is effecting the global economy. Commodity inflation is killing the fragile economy in Europe and America (oil economies like Alberta aside) as more income and profit goes to just covering the basics. Back in China this translates into a slowing of the export-oriented manufacturing sector - still accounting for about half of GDP (I believe). So, China and the world face the combined impact of an over-heated Chinese capital investment sector, leading to global price inflation (and to wage inflation inside China) and the potential return to recession. With even less room this time around to use the instrument of state investment to prevent the return of economic crisis - because of high debt and high inflation - it's unclear what governments will do this time around. Pray, I suppose. Or fiddle - while Athens, Rome, Madrid, et al burn.

Some links:
FT.com / Comment / Analysis - Global economy: A high price to pay

Brake in manufacturing momentum in Europe, US, Asia - The Economic Times

Dissecting the Chinese Miracle | STRATFOR

10 Global Signs That the Market Is at a 'Tipping Point' - Seeking Alpha

MacLeans Magazine Is Right! Lock Up The Thugs!

Democracy makes MacLeans froth like a dog

I never thought I'd say that I agreed with that bile-oozing catalogue of demagogic, Tory-fellating asininery that is meant to be our version of Time Magazine. These toads give new meaning to trollness. That's why I was surprised to find myself in total agreement with this week's front cover title - "Lock them up: Why the G20 thugs don’t deserve any leniency - Canada"

Dammit, they're right. Those G20 thugs should be locked up and the key thrown away. Why just last week the US military killed a bunch of people in Afghanistan. And Harper spent $2 billion to host these miserable cretins, including the oppressors of Tibet (China), the blood-soaked British Empire (retired), and the god-awful French who still find time to keep their claws into parts of Africa, not to mention treating their own North African population like utter shite. Never mind that France, the US and Canada played an important role in deposing Jean Bertrande Aristide, the democratically elected president of Haiti, in order to replace him with death squads backed up by Canadian and UN troops - who committed a massacre in 2005 in Cite Soleil. These thugs came out of this summit with the plan to impose austerity (read: layoffs, tax breaks for the rich and massive service cuts for the rest of us) on the majority of the world's population. I mean, what would you call any group of people who lash out uncontrollably, leaving death and destruction in their wake - sociopath, perhaps but thugs will do for me.

Oh, wait. I misunderstood the article. MacLeans meant that WE are the thugs. Shee-it, what was I thinking?

"Only the professionalism and preparedness of police prevented circumstances from being much worse. Rather than an inquiry, we need further police effort to ensure every one of those lawless thugs is brought to justice."

Ha ha ha. Are these guys serious? They must have been drunk when they wrote this. Or, embarrassingly, it was written by some boob who'd only managed to catch Christie Blatchford's trollish and dubious take on events. Somebody ought to tell this writer, after all, that the government spent $1 billion on security, had 20,000 cops on the scene, and had infiltrated the main anarchist organization for over a year, and was therefore in on all the plans. If that's preparedness, then the bar has been set pretty low. But having ensured us that no matter what fuck-up the cops engaged in we were clearly hallucinating it or missing the point, the editorial dismisses the complaints arising from the largest mass arrest in Canadian history:

"It’s possible many of those arrested for breach of the peace were not directly involved in any violence. But they were released in a matter of hours. Canadians’ constitutional rights have survived the ordeal unscathed."

Let's see, 1000+ arrested, less than 20 charged with any offences. That's a charge rate of 2% - or rather, a failure rate of 98%. And given that the cops failed to do what they received $1 billion to do, the fact that they compounded that failure by suspending the civil liberties of everybody, doesn't reflect well on their, you know, preparedness. But, again, this utter failure to achieve any aims that one could regard as reasonable goals in the present circumstances - to permit business and normal life to continue uninterrupted by the G20 circus, to permit the citizenry to exercise their constitutionally enshrined right to express a dissenting an opinion - doesn't seem to disturb MacLeans Magazine, which fulminates that "whatever steps the police took to prevent [the black bloc from disrupting the Summit] were both necessary and welcome."

That's a pretty big blank cheque when, given the 5 metre high fences and 20,000 cops on parade - along with all the toys that the boys in blue love, from helicopters to sound cannons - there wasn't a snowball's chance in hell that anyone was getting anywhere near the Summit. All the cops had to do was sit side-by-side at the fence, sipping tea, and poking through the holes with a stick every now and again and nobody would have made it over, let alone inside the Convention Centre. The truth is MacLeans has a deeper agenda at play here and it is one that ought to chill our spines if these cockroaches ever got the reins of power.

"The protection of free speech and assembly can only exist when there is proper respect for the rule of law. Legitimate protest acknowledges the existence of state authority while providing a different point of view. "

This idea that the citizenry must exist in a state of servitude to the state, accepting its authority no matter what, is frighteningly reminiscent of fascist ideology. What if the state is corrupt or serving interests other than your own? Should Nelson Mandela have "acknowledged the existence of state authority"? How about protesters during the Vietnam War? Or those who fought against the laws of the Canadian state that prohibited access to abortion - or criminalized homosexuality? Clearly, MacLeans either hasn't thought through the madness that they doth preach or someone should give them a very basic lesson in the precepts of democratic rule, in which the state exists to serve the sovereign people and not the other way around. Or perhaps they know full well what those precepts are and are just honest about their view of the role of those of us who can only access power through mass mobilizations. Our role is to shut up or face the justifiable consequences.

Crypto-fascist kookery aside, the MacLeans article is like a sad, over-told joke, proclaiming as has been done again and again that "the global protest movement appears to be losing steam." What are they talking about? The anti-capitalist movement that had it debutante ball at the Seattle protests in 1999? Somebody ought to update these guys on the history of the last ten years. It's been rather tumultuous what with multiple wars, both those that Canada has participated in and those that we have supported - like Israel's thrashing against anything and anyone who might have a problem with genocide. The cycle of mobilizations has certainly seen its ups and downs, such is always the case. But with the conflicts that mobilized people not ending. With growing anger at Israel's treatment of the Palestinians and their supporters int he wake of last year's invasion of Gaza and the more recent aid flotilla slaughter. And with the bewilderment and bitterness that the economic disaster of global capitalism is causing, it is hardly the case that the "global protest movement" is going away. With general strikes rocking Europe and with 25,000 marching in Toronto - the largest mobilization since 2003 - if anything there is a renewed vigour. In any case, none of us need worry about our civil rights or the issues of the day, the important thing is that the G20 leaders agreed a consensus on what next.

At the end of the day, debate over street violence, protest and police ought to be secondary to the summit’s practical achievements. And the G20 summit did conclude on a note worthy of some optimism: a pledge to cut government deficits in half by 2013. While this only applies to the most advanced economies within the G20, it is still a step in the right direction. Bringing the world’s major economies back to fiscal balance is crucial to closing the book on the Great Recession.

This is a fitting closure to an obtuse and delusional editorial. As Nobel Prize-winning economist Paul Krugman and others have noted, implementing austerity when the economy is still such a mess is merely a recipe for an even deeper recession, perhaps depression. The threat at the moment isn't inflation generated by too much deficit spending. It is deflation, particularly in the face of a dramatic shrinking of money supply by reining in government spending. The Japanese could teach us a few things in this department, having done the same thing back in the 90s, causing what became known as "The Lost Decade". In a recent NY Times article Krugman argued that there have been two major Depressions in the past 150 years and that we are entering into a third. And this Depression will be the result of foolish economic policy, ie. imposed austerity at a time when stimulation is necessary. Claims that the crisis in Greece or Ireland demonstrate the need to slash and burn public services, pensions and wages are not rooted in reality, but in a destructive dogma.

I don’t think this is really about Greece, or indeed about any realistic appreciation of the tradeoffs between deficits and jobs. It is, instead, the victory of an orthodoxy that has little to do with rational analysis, whose main tenet is that imposing suffering on other people is how you show leadership in tough times.
And who will pay the price for this triumph of orthodoxy? The answer is, tens of millions of unemployed workers, many of whom will go jobless for years, and some of whom will never work again.

To my way of thinking, people who deliberately inflict pain on others to demonstrate who is in charge is the very definition of thug. And yes, MacLeans, I agree: these thugs ought to be hunted down and brought to justice. Let's start with you.

Attention Earthlings: Please Proceed To The Emergency Exits In A Disorderly Fashion

I'm not sure if you've noticed but the world is going to hell in a handbasket. We've already had Iceland go tits up, followed by its government after a few weeks of rioting and protests. And it looks like they won't be the last. Next on the list is jolly old Britain - affectionately called "Reykjavik-on-Thames":

"The question in Britain is no longer when the economy will enter a recession, but when it will enter a depression, with many bracing for a slump that could rival the 1930s in severity. GDP fell 1.5 percent in the fourth quarter of 2008, and the European Union estimates it will contract another 2.8 percent in 2009. Unemployment is projected to balloon to more than 8 percent by year's end, and an estimated 23 percent of adult Britons currently consider their debt level 'unmanageable.'"

Also up for nomination as "Country Most Likely To Go Up In Flames" are Latvia and Greece - both scenes of recent rioting - the Ukraine (which is having gas pains, thanks to the Russians), and Nicaragua - have they ever really recovered from the US' illegal war against the Sandanistas. No wonder current president - and former Sandanista leader - Daniel Ortega has said that the financial meltdown is a sign that "God is punishing the United States". Not an unreasonable suggestion but I think it more accurate to say that greedy, asshole capitalists are the real source of America's (and our) problems.
The US Army would like to add to that list Mexico, which has been engaged in an increasingly violent and destabilizing war against "narco-gangsters." The Mexicans ought to hope that they don't get the same medicine as the Pakistanis, who are also on the "nearing collapse" list of the US Army. Their prescription involves repeated military incursions by the US military and CIA, firing missiles at local leaders who the US doesn't like.
Even Israel, which the Christian Fundamentalists would have you believe is watched over by God himself as his plan for the Second Coming unfolds, has just taken a kicking at the World Economic Forum in Davos. In case you don't know, the WEF is a big capitalist jaw wag where they politely discuss how they will carve up the planet. Well, this year the Prime Minister of Turkey, Israel's closest ally, told Israeli president Shimon Peres "When it comes to killing, you know well how to kill” before storming out of a panel discussion of the Gaza crisis.
But the greatest pleasure must be the massive general strike that swept over France today. It was something of a love letter to that country's president, Nikolas Sarkozy. As I understand it the first sentence went as follows: "Dear Sarko: Get your fucking act together and do something about the collapse of capitalism. Asshole." Of course, it sounds much more romantic in French. Anyway, 70% of the population supported the general strike and something like 300,000 demonstrated in Paris so that they could blow Sarkozy a kiss live and in person.
Meanwhile, here in exciting Canada, our government managed the biggest horseshit recession budget ever - look for the neo-liberal measures to have zero impact on the recession. Not to worry about any more crises or opposition coalitions - head Opposition Knob, Michael "I love torture as long as it doesn't hurt too much" Ignatieff, has told Harper he can do what he wants as long as he sends him a memo every so often telling him what he is doing. For a guy who thinks torture's OK as a policy tool, he sure is a wimp. Well, I guess that's what you get when the most defining feature of Canadian culture, besides hockey and constitutional crises, is just how darn polite we are. Seriously people, are we really gonna let France show us up while Harper can't work up a fart to save us from our imminent doom?

Greece Cancels US Arms Shipment To Israel

It was recently revealed that a suspiciously large shipment of weapons was conveniently headed for Israel, perhaps to be used to replenish that country's stocks, depleted from blowing up Palestinian schools. 

Outrage spread throughout Greece. No doubt memories of Greece being a colony of Turkey, along with a strong left tradition and militant unions, makes that country deeply unfriendly to the Israeli occupation of Palestine.

The conservative New Democracy government in Greece is already up a creek over the recent shooting of a Greek youth that led to mass protests, school occupations and rioting. The Prime Minister was forced to fire cabinet members and the government is looking shakier by the day. The last thing they want is to give their people one more reason to throw the unpopular government out on their asses. They duly canceled the right of the US to use the Greek port of Astakos and denied any knowledge.

Way to go Greeks - though I still hope they toss out the government. Protesters still plan to hold a demonstration outside the port, with the support of the dock workers union.