Ian Welsh

The horizon is not so far as we can see, but as far as we can imagine

Category: Financial Crisis Page 5 of 13

What is an economy?

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On November 7, 2013

24 Comments

Perhaps the greatest difficulty I have talking about the economy is that most people don’t understand what an economy is.

An economy is what people produce and the relations that make that production possible.

An economy is not money.  Printing more money does not automatically increase the size of the economy as various episodes of hyperinflation clearly indicate, but also as the giant printing of money in the last five years should have shown to people.

Money is created by printing in a fiat economy, whether it is physically printed or not.  When a bank creates a loan it simply adds numbers to various accounts, and it does not have to “have money to loan”.  The same is true of brokerages offering loans for stock purchases and so on.  There is no direct organic relation between the amount of money in the economy and the amount of economic activity.

Moreover it is quite possible to increase the amount of money in the economy while decreasing activity.  When a huge loan is taken out to buy a company, and then the company has employees slashed and plants closed, real economic activity decreases, even as the amount of money increases.  When you insist on 15% profits and obtain them by refusing to do needed maintainance, firing employees, doing stock buy-backs and so on, real economy activity decreases.

If you measure the output of an economy in money you get a very distorted picture of what is actually going on.  There is less employment in the US in percentage terms than there was at peak, and absolute numbers are only now about getting even, yet people have been blathering on about a “recovery”.

It is quite possible for people to be doing things that are, on net, negative.  Every dollar earned by the financial industry in the 2000s was lost and then more in the financial collapse: real damage to real productive capacity was done.  We were earning more money, GDP was increasing, and (at least) houses were getting built, but the cost was offshoring and outsourcing of jobs and decreased actual wellbeing (it is in the 2000s that American height, for example, began to decrease.)

Money is not the economy, and increases in money do not necessarily mean the economy is getting better or even bigger, let alone actually increasing the welfare of the population.

Now increases in money SHOULD reflect increases in the welfare of the people, or at least in the size of the economy.  Money should have an organic relationship to the economy.  But for it to do so we must want it to.

Take the classic post-war economy (pre 70s.)  You can borrow money if you have a house or a business.  The house is valuable not so much because you can live in it, but because living in it means you are close to a job.  It is the job that allows you to afford the house, and if you lose the job, the house still has value because there are other jobs nearby for someone else.  If you do not believe this, I invite you to look at what happened to housing prices in Detroit when the auto industry left that city.

The house is secondary, though, the jobs come first.  A farm has value because you can grow food and sell it, a business has value because it makes money.  All of these things, presumably, produce goods or services that people want or need, and if you no longer want to run your farm or business, someone else can.  A loan just allows you to take some of the future value of what you own, and use it today.

Economic financialization seems like an extension of this system.  If you have a money flow of any type, why not borrow against it?  Why not borrow against its appreciation? Why not then sell those money flows for money today?  There are three problems: the first is pyramiding. You borrow against a money flow, then you use leverage and buy other money flows and then you leverage on them, and soon the underlying asset is a tiny fraction of the money you have. (No leverage on loaned money is thus the first principle of avoiding problems, loaned money is already leverage.)

The second problem is printing money with no underlying asset at all.  When the Fed is creating 82 billion out of midair every month, half of which is spent on treasuries, there is no organic relation to the underlying economy.

The third is that some people get to borrow money for much less than other people.  Banks get prime (or less).  Large investors get close to prime, ordinary people get Prime ++, if they can get less than 20% on a credit card.  This is justified by “risk”, but the risk is mostly that the person doesn’t have access to essentially free (prime rate) money.  It also distorts the economy, because it favors financial companies since the interest rate is the cost of money, and the cost of money is a cost of business, which means financial operations are cheap even before you get to the fact that financial operations also have access to the highest amounts of leverage.

The problem here is that finance creates NOTHING of worth itself.  It exists (or should exist rather) only to facilitate creating goods and services with actual value: food, housing, entertainment, medicine, art, philosophy and so on.  Those goods and services, or rather the people, equipment and relationships that produced them, are the economy.  Finance’s purpose is only to help allocate money between those activities, and it is only one mechanism of allocation.  The market will not allocate money properly to many goods because it undervalues the future (so, for example, education, especially in the humanities and basic science), cannot account for externalities not embedded in the valuation system (that you are getting sick from my pollution is not the market’s problem), and cannot value anything that is not denominated in cold hard cash (like love, or friendship or a sunny day free of smog or the health of someone who doesn’t make money.)

Any society which makes all or most of its decisions about how to allocate money through the market mechanism will be hell on earth and will devalue those things most important to human happiness and meaning.  It is not an accident that the depression rate in the US has increased by an order of magnitude in the last hundred years.

If you give outsize money returns to finance then, it drives out actual productive investment in the real economy.  If you make the market your primary method of allocating funds, it doesn’t allocate resources to the future or to intangibles and ignores externalities which are key both to long term growth and avoiding negative outcomes (like your kid having cancer, or your spouse dying of cancer, or your sibling having a debilitating case of depression.)

But the problem is worse than this.  Money, as my friend Stirling Newberry has noted, is permission: it is the right to decide what other people do with their time.  Money lets you buy up people who spend all day lobbying government, it lets you create political movements, it lets you buy up think tanks and universities, it lets you create your own mercenary army.  If you are throwing off more money than other industries, it lets you take over those industries. It lets you buy government, and thus control the rules.

If some group, in an economy, has a consistently higher rate of return than other groups over a long period of time, they WILL become dominant in that society absent a reaction by violent men.  Period.  Because they can use that money to decide what other people do.  This is true not just of finance, it is true of any group of people controlling a bottleneck resource (see: oil, among others).

You can solve this one of two ways: you can make sure no one gets these consistent outsize returns in the first place (remember, basic economics, if an industry is making more than average profits, they are not in a competitive market, there is an inefficiency).  Or you can just take their excess profits away from them.

IF you choose not to do so, because they have bought the system and created an ideology that says it is unfair to take money away from people who are given a systemic advantage by being allowed to create money from thin air and/or borrow it at prime when no one else can; or that the people allowed to control oil production should be allowed to keep all its benefits because they created the oil, or some such, then those people WILL come to control your society and they will create it in their image.

I will discuss at a later day happiness and meaning (and even eudomania), which should be the sane goal of any political economy. I will discuss how to design an economy which works for everyone.  But the first thing to realize is that you must want that, and you must believe it is Just that your society be run that way.

If you do not believe that it is moral and right and just to tax people who have a structural advantage in your economy (and that structural advantage can and will exist if you remove the State entirely), if you do not believe you are allowed to redistribute, if you do not understand what the economy is for (creating the good life), if you do not believe in not allowing concentrations of private power based on position, then you will not keep whatever prosperity and good life you have, because those who win the game (and someone always will) will buy up the game and change the rules to ensure their continued wealth and power.  They will do so in a way that will cost you your liberty, your health and your prosperity.

There will always be winners and we don’t want to change that. Let them win, let them enjoy winning in their time, but do not allow them to buy the system, to destroy the actual productive capacity of the system, or to try and make money the sole determinant of how decisions are made.  Doing so, letting market mechanisms work until they don’t, then continuing to use them anyway: refusing to enforce competitive markets and keep markets doing what they do well and only what they do well, is why we had a financial collapse, why we’re in a depression, and why we have a catastrophic climate change episode coming our way which will kill a billion people or more.  It is why we are seeing a long term decline in happiness in market democracies, why we have soaring rates of depression and chronic disease, rising chronic unemployment, and a host of other social ills.

An economy exists to fill the needs of the people in it, material and non-material. It has no other purpose.

The Bailout Caused the Sucky “Recovery”

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On October 30, 2013

32 Comments

This will be another brief post.  Bailing out banks, brokerages and so on in the way it was done had the following effects:

1) Fewer, larger financial institutions.  Too bigger to fail.

2) Rewarding people for outright fraud and insane risk taking. Remember, they kept their bonuses and salaries, they are rich, even if they belong to one of the few companies that went under.

3) A huge overhang of bad debts which has to be worked off.

4) An understanding that financial profits are still the way, you, personally get rich.

5) Making the rich, richer (yes, they are richer now)

The reason the economy has not recovered and will not recover for at least a generation is because of the overhang of bad debt, the glorification of financial “profits” (they aren’t), the failure to de-financialize the economy and the confirmed control of government by the rich.

In other words the bailout caused the sucky “recovery”, or, if we are to be honest, the current long Depression.

The standard argument is “we had to do something”.  Yes and no.

1) We could have done something else, like nationalizing the banks, making bondholders and shareholders eat their losses, taking what remains and putting it in bad banks, then breaking the banks up and re-privatizing them.

2) Actually, if we’d just let them go under per the law, with the FDIC taking them over, things would have been worse initially, but there would have been an actual, robust recovery when it occurred.  By now you’d be better off.  And the shock could have been cushioned with generous EI, letting people stay in houses and so on.

TARP, though it actually wasn’t the key bailout (those were done mostly through the Fed) is when Obama said “I am going to keep the same people who caused this mess in power in the financial system, make sure they don’t lose their money, and that’s just too bad for everyone else.”  When he confirmed that Bernanke was to stay on, he confirmed that he was, essentially, ok with what had happened.

The bailout decision did not “save the world” instead it doomed a good chunk of the world to twenty years of a shitty economy, minimum.  Forget the unemployment rate, the percentage of Americans employed hasn’t recovered, and won’t, and that’s before we talk about Europe.

This is the first of Obama’s legacies.

Shorter Federal Reserve: The Economy Breathes Sort of OK if We Keep it On Life Support

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On September 19, 2013

9 Comments

That’s what the decision to continue Quantitative Easing 3 (QE3), the purchase of 85 billion dollars of treasuries and mortgage backed securities a month, is an admission of.

It is also a way of not causing Brazil and India’s currencies to crash out, which just the suggestion of a reduction of QE3 was causing.

It is worth reiterating that the purpose of Quantitative Easing is to make the rich richer, and that it has done.  US stock markets increased 150% from their lows, one of those bull markets traders dream of.  However the employment situation has not significantly improved (ignore the unemployment rate, even in absolute terms there are still fewer people employed than there were before the financial crisis.)  Median household net worth is down, median income is down, but the rich are richer.

This is not to say that QE does no good for the regular economy, it does, but it does far less good than could be done with eighty five billion dollars a month.  A program to, say, retrofit every single federal building for active and passive solar would employ more people and have more of a ripple effect.  Eighty five billion dollars a month (970 billion a year) is a LOT of money.

Nonetheless, given its refusal to break up the large banks; the President and Congress’s refusal to actually tax rich people (thus necessitating the Fed buying treasury bonds); and a refusal to allow the housing market to settle to its actual value while supporting underwater homeowners, the Fed is in a bind.  If you refuse to do anything that is primarily intended to help ordinary people, refuse to engage in sufficient measures to break the oil supply bottleneck (and no, Fracking isn’t cutting it); refuse to tax rich people (who have the money); and refuse to engage in any sort of industrial policy while funneling money to industries like banking, insurance, pharma and the military-industrial complex which are ultimately parasitical, why then, it can certainly seem like you have no choice but to continue throwing money at banks and rich people, and hoping some of it gets to the real economy.

Yellen won’t be any better, by the way.  Bernanke’s job was to make sure  that the financial collapse did not cause an FDR or New Deal: to make sure that the rich weren’t wiped out by the financial bubble they caused. His academic work is about this exact problem: how to make sure that a New Deal doesn’t happen: how to make sure ordinary people don’t get their share of the pie.  Yellen won’t change that, no one will be picked for the Federal Reserve who would change that.

Greek election consequences and the shape of the developed world’s future

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On June 17, 2012

107 Comments

will be more years of austerity, people winding up on the street, suicides and outright starvation.  In this fertile ground, the neo-nazi right will rise.  The left will most likely not compete, because they will refuse to create an enforcer class to protect their own people.  The police in Greece voted about 50% for the Golden Dawn, they will not protect the left, either, but will enable the rise of the Golden Dawn.

Under these circumstances a coup of some variety, whether military or otherwise (remember, Hitler never won a majority) is very likely to occur.  By blocking the rise of the left so that Greece can be looted, the oligarchs have created their own doom.

In general terms, we are in a pre-revolutionary period.  The supreme court coup in Egypt, the outright refusal to obey even the letter of the law let alone the spirit in the case of Wikileaks and Assange, the reign of Obama, are teaching an entire generation that you cannot fix the system from within, through the mechanisms of the old system or through even semi-peaceful protest.  The Pacific free trade deal will enshrine even more draconian IP laws and will extend NAFTA style takings regulations which give multinational companies sovereignty over governments.

This will not stand.  There will be global war, and there will be global revolution.  We are on track for it.  The question is when and how.  I would guess in less than 20 years the world will fully convulse.  Many of the current generation of oligarchs will be dead by then and will win the death bet, but their heirs will reap the whirlwind.  As for the population, I expect a billion deaths or so over the next 25 years from famine, disease, war and environmental issues.

Both populations and the oligarchs have refused, over and over again, to do what is necessary to peacefully restructure the world economy, but instead have opted to kick the can down the road.  Each kicking of the can has led to more corrupt and sclerotic economics and politics.

In the period between now and the revolution, some nations will take control of their own destinies.  Offered a choice between austerity in the international system and nationalism, they will choose nationalism.  It will not be as comfortable as being a member of the old international order from before the financial collapse, but that is not being offered.  A few nations will be able to work wedges to stay in the system and not suffer too much (Germany, France).  But most developed world nations will continue to suffer real declines in their standard of living, driven by inequality and the resource trap which we refuse to restructure out of.  The electrical economy wants to happen, but it will not happen on a wide scale until after war and revolution.  Such is the choice both our elites and the regular population continue to make.

Next Steps for Greeks after the Austerity Bill (AKA: Hope for Greece, at last)

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On February 12, 2012

88 Comments

Ok, another austerity package just passed.  That’s the bad news, but amidst the bad news there is some good news.  More than 40 MPs were expelled from the PASOK and ND parties, two from LAOS—those MPs need to form a new, explicitly anti-austerity, pro-default government.  Odds are good they will win the next election, and can form the new government.

No deals made by a sovereign are unrevocable.  Whatever this government is doing, has done and will do, can be undone by a new government.

Oh, and Greek rioters – if you’re going to riot and burn, burn down the houses of the MPs and bankers, the banks and their offices (I see some of the right places did get firebombed.)

Greece can be fixed, if the Greeks are willing to do what it takes, both in terms of electing a new government and that government doing the right things.  Those things will be unorthodox and painful, but no more painful than austerity, and unlike austerity, they will lead to a better economy, and based on experience elsewhere, probably within two or three years of doing the right thing, with some relief being felt within 6 months.

The blindingly obvious about the proposed fiscal union in Europe

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On December 4, 2011

18 Comments

What it means is German control over other countries budgets.  What that means is semi-permanent austerity.  What that means is semi-permanent depression.

I somehow doubt that this will be accomplished, if it is accomplished, through referenda.  I doubt any major party will stand against it.  So, to add to the blindingly obvious, it is blindingly obviously undemocratic.

It is true that the Euro requires fiscal union.  It always did, shared currencies don’t work without union.  However, if fiscal union is to occur, then it should occur with each member state’s population voting for it, especially as this fiscal union’s purpose is to impose corporate friendly austerity measure’s on the populations of countries that would almost certainly vote against them.

I will note that this is not going to redound to Germany’s favor in the not-very long run.  Permanent European depression is not to Germany’s advantage.  Who, exactly, they think is going to buy their high-end goods is beyond me.  They shouldn’t expect India and China to play along, those countries are creating their own auto industries and do not intend to be dumping grounds for Western goods.

Franklin Delano Roosevelt’s words are applicable:

The first truth is that the liberty of a democracy is not safe if the people tolerate the growth of private power to a point where it becomes stronger than their democratic state itself. That, in its essence, is fascism — ownership of government by an individual, by a group, or by any other controlling private power.

The states in Europe are controlled by private interests.  We have seen this, clearly, in Greece and Italy in the past weeks.  If this fiscal union passes, the Rubicon will have been crossed for all states remaining in the Euro.  Ironically, Europeans will have given up real democracy in exchange for depression.  Lose/lose.

For them.

What’s happening in Europe is what matters: rules of the financial rich

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On November 18, 2011

43 Comments

The oligarchs have taken down two governments in the past two weeks – Italy and Greece.  The idea that the Mario Monti, the new PM of Italy, is something wonderful, is deranged.  Note that once again, neither an election nor a referendum was allowed.

If you want to save the Euro and some form of European prosperity, there is only one solution, the European Central Bank (ECB) must do what it keeps insisting it won’t do, it must buy Eurobonds from members.  And it must buy them at fixed prices.  Italian, Greek, French, German bonds will be issued at X price, and if insufficient investors want to buy at that price, tough, the ECB will buy.  If this causes inflation, great, Europe needs inflation right now.

Even France and to a lesser extent, Germany, are coming under attack.  However France is under significant attack, and Merkel and the ECB seem unwilling to really do anything about it.  France has the option to go off the Euro in a way that most other countries don’t.  The issue with going off the Euro is simple: oil prices.  You now have to buy oil with your lousy currency, which is even more worthless than the Euro.  But if you happen to control countries that have oil, like France does (for example, France is mostly in control of Libya right now, not the US), then hey, sign some long term contracts and voila.  It is not written in stone that prices must be set on open bid markets.

Which leads us to the sudden surge in the price of oil to $107 a barrel.  On the face of it, this is crazy.  Yes, the US has had a bit of a recovery, but Europe is going hard core austerity.  But this is the game the hot money is playing: they move out of bonds and into oil, out of oil and into bonds.  $107/barrel oil means the US recovery (such as it is, which isn’t much) isn’t going to last much longer.

Being rich is about being liquid when everyone else isn’t, so you can buy up assets on the cheap.  When the rich are properly under control (ie. when you keep them poor and terrified of government and the people, as they should be) they can’t create such buying opportunities, they have to wait for them, and the government makes it so that the rich can’t take too much advantage of them, because taking advantage of them means taking advantage of other people when they’re most vulnerable.

Right now the rich can and are crashing asset prices by forcing countries into austerity through attacks on their currencies and control of their elites.  They then buy up assets for fire-sale prices.  (The history of fire-sale is worth commenting on.  Crassus, the Roman Senator of the first triumvirate, had a fire fighting team.  When a fire broke out they’d go to the fire, fight off the other fire teams, then Crassus would buy the burning buildings from their owners, negotiating as they burned.  If they refused to sell, well, they lost everything.)

These attacks on currencies are deranged.  The countries are not in that much difficulty, certainly the idea that France is in enough difficulty to be under attack is crazy.  These attacks are about power: the global rich were bailed out after the crash, now they are using their hot money in attack after attack, demanding austerity, which will cause semi-permanent depression in those countries which accept it.  That allows them to buy up what they want, keeps their labor costs down, and lets them divert what money they spend on investment which creates actual real economic growth into developing countries which are cheaper for them.

But watching European leaders respond has also made clear that they are either compromised, ideologically neo-liberals or completely ineffective.  Watching the ECB insist that it won’t just buy bonds has been particularly amusing, because if the ECB won’t defend even France, the Euro is in great danger of not existing in a few years, and if the Euro doesn’t exist, neither does the ECB, which means all those central bankers will be out of jobs.  They won’t even act to save their own jobs.

All of this is crazy.  The financial elites are on a plundering spree, gleefully using their power to force entire nations into poverty, blackmailing governments into huge payouts.  Pay extra on bonds, or pay extra on oil, or hey, why not both!

The political elites are clearly either bought or completely ineffective at resisting.  If the ECB won’t buy bonds, then countries just need to leave the Euro so they can print money.  Yes, that might cause inflation and various other problems, but that is better than semi-permanent depression through austerity.

Now, what can the people do when the elites won’t allow direct referendums, and when there are elections you can only vote for parties which are all in favor of austerity?

Make them fear you.  Start as follows, which is what was done in Argentina: find their cars, those nice expensive cars, and trash them.  Every time you see someone in a suit coming from the airport, surround the car and slash the tires.

And if you’re going to riot, don’t do it in your own neighbourhoods.  Go to the parliament buildings, the bank HEADQUARTERS or to the neighbourhoods in which the rich live, and riot there.

If you insist on some form of pure nonviolence (which the European left and right don’t) then you must chain and twist tie yourselves around important areas.  Go to the headquarters and shut them down by tying yourself up to all the entrances.  Twist ties aren’t just the cop’s friends, they are yours.  Love them and learn how to use them.

The elites will only respond when they feel your pain.  And they will only feel it if you make them feel it.

What passes for smart on the Greek Debt Crisis

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On November 4, 2011

50 Comments

is profoundly stupid and misleading.  Over at Americablog I stumbled across a post written by Kevin Drum on the Greek debt crisis, a post which was also linked to approvingly by Digby.  It is what passes for smart on the left, these days: superficially correct, but riddled with massive assumptions.  Back when blogging was my job, I took out garbage like this regularly, these days I do it rarely, but I’m going to tackle this one because the embedded assumption aren’t just sewage, they are toxic to dealing with the current depression we’re in. Let’s start with the New York Times (I incorrectly attributed this first quote to Kevin Drum, for which I sincerely apologize):

A return to the drachma is unlikely to offer a quick cure for Greece’s ills. Default on the nation’s $500 billion in public debt would become a certainty, depositors would take their money out of local banks and, with a sharp devaluation of as much as 50 percent, inflation would loom. A return to the international credit markets would take years.

It didn’t take years for Argentina when they defaulted.  When Iceland told Europeans to go take a long flying leap of a short pier, it didn’t take them years.  In fact, my best guess is it would take a year, maybe less.  There is too much money chasing far too few returns.  Contrary to the idea that there isn’t enough money in the world, the problem is that there is too much, and it is chasing diminishing returns.  Remember a default isn’t a bankruptcy, in a default Greece says “we aren’t paying this back as scheduled, we’ll pay you back… eventually”.  My suggestion would be to transfer it into 100 year bonds with 1% interest.  If creditors don’t like that they don’t have to take it, they can then try and collect on their credit default swaps, but if they make that claim, the Greek government considers that debt cancelled (you don’t get paid twice.)

Moreover, once Greek returns to the Drachma, it can print money.  At that point it can’t default on any new bond issues as long as they are issued in Drachma. On to Kevin Drum:

Here’s the thing, though: Greek debt is largely held by German banks that made the loans. [See update below.] If Greece has been irresponsible, so were the German banks that happily loaned out the money. So if Greece defaults, the banks go kablooey. But they’re too big to fail, which means the German government would be forced to bail them out. And guess where the bailout money comes from? Tax dollars.

This means that German taxpayers have a bleak choice. They can shovel lots of money to Greece to keep them from defaulting, or they can refuse, and then shovel lots of money into German banks to keep them from collapsing. Either way, German taxpayers are going to foot the bill.

No, no they don’t have to bail out the banks.  Not for the full value of the default (if Greece just said “we won’t pay”, as opposed to “we’ll pay at some point”.)  The banks have shareholders and bondholders.  Those institutions and people take the losses.  Some of them are public (pension funds, etc…) but many of them aren’t.  Let them eat their losses.  The banks go under, you refloat them, but the cost of doing so is far less than paying off all the bad loans, because the private actors have taken their losses and any excess losses, well, they’re just written off.  Same as when you realize cousin Fred ain’t ever paying you back than $100.  It’s gone.  Done.  Over with.

The only reason “all the debts” must be paid off is because the rich demand it.  They don’t want to take their losses. This is what should have been done in the US.  It is what should be done in Europe.  It is what our lords and masters refuse to do at all costs, because the people who own them, or they themselves, or their friends, or their lovers, are the ones who will take the bath.

(on defaulting and going to the Drachma)

But it puts Greece into a death spiral. They can’t pay their debts, so they cut back, which hurts their economy, which makes them even broker, so they cut back some more, rinse and repeat. There’s virtually no hope that they’ll recover anytime in the near future.

According to the IMF, hardly an organization that wants countries to default, the effect on the economy of defaulting is one year of sharp pain, followed (perhaps) by a few years of lesser growth than otherwise.  In other words, not that bad, and no worse than Greece has already suffered.

More Drum:

If Greece exits the euro, it will become terrifyingly obvious that other weak countries might exit too. Portugal, Spain, and Italy are the obvious candidates. Investors, spooked at the thought of their money being stuck in a country that might exit the euro and devalue all its bank deposits, would start huge runs on banks in those countries. The ECB would have to intervene and provide liquidity without limit. It would be a disaster.

Uh huh.  Or those countries could simply slap on currency controls, which experience shows (most recently and clearly in the Asian currency crisis of the 90s), works.  And permanent austerity, which is what France and Germany want to impose on Italy, Greece and Spain (with the apparent cooperation of their political classes, I might add) will erode the value of the bank holdings in time anyway.  Drum’s not exactly wrong, but it’s the other options, which never get mentioned, which matter.

There are economic tools for dealing with these issues.  Capital and currency controls are one of them, the distinction between default (we’ll pay you eventually, as opposed to we’ll never pay you) is another.  The question of who is being bailed out (private investors, in large part) is another.  And bailing out those investors is a political act, their money is their political power.  The current political class, who is complicit with the current monied class, of course wants to bail them out.

All of this is before we even get to the horribly anti-democratic nature of all of this: the repeated refusal of the political class to allow referendums, the complicity of all major political parties in the process (notice there is no party to vote for if you want to default), and so on.

There is no actual democracy in any part of the world which is attached to the Wall Street centered financial system.   Calls can run up to 1000:1 against TARP and it will pass.  Strong majorities can be for or against particular policies and if the elite disagrees, that’s all that matters.  There are no parties to vote for if you are against the current system.

In a sense, this is fair.  Westerners thought that they could have consumer democracy: they didn’t have to participate in it except at election time, when they would vote for parties and platforms paid for and produced by someone other than them.  Coke(tm)/Pepsi(tm) politics – you have a choice, you can choose either Coke or Pepsi!  Politicians aren’t paid by you (their salaries are the least part of their real income) why would you think they care about your concerns?

You don’t pay for politicians or politics.  This is the Facebook rule: if you don’t pay the freight, you aren’t the customer, you are the product.  Politicians compete for the money and favors of the rich, and what they sell is the ability to wrangle you: to pass the austerity bills, to cut the benefits, to privatize the jewels of the public system, to force through the multi-trillion dollar bailouts.  They control government for the benefit of the rich.

And the rich pay all the way down the line.  They control the media, right down to the bottom, to make sure that what is discussed is what they want discussed, in the terms they want it discussed.  That default isn’t that bad: forbidden.  That currency controls mitigate damage in these circumstances: forbidden.  That lenders will lend to defaulting countries almost immediately: forbidden.

I will discuss the pointlessness of media and “popular sentiment” in a post soon.  In the meantime, realize that even the supposed left feeds you intellectual sewage on a regular basis.

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