Wednesday, February 29, 2012

Just Say No To Corporate Greed: The Case Of Iceland By Ellen Russell / ICH

February 28, 2012 "
Rabble" - - Capitalism is looking pretty mean these days. No amount of profit is enough, and no level of collateral damage to get that profit is unreasonable. And when capitalism on steroids runs amok, any extremes of public pain are justified to save the butts of those who made the mess in the first place.
Corporations understand that they have a green light to punish people ruthlessly for even a modest improvement to their bottom line (ask Caterpillar workers if you want details). Whole nations may be bled dry to shield financial institutions from the consequences of their own bad behaviour. The Greek government is deliberately creating a national great depression to appease international financial interests.
Happily there are some instances of people saying no to this madness. Iceland is a great example of people who stood up and fought for civility.
Iceland used to have a sound but not too adventurous government-owned-and-operated banking system. It more or less did what it was supposed to do to serve local needs. An orgy of neo-liberalism in the 1990s culminated in the privatization of the banks in the late 1990s and early 2000s. The mavericks who took control of the newly privatized banks took corporate greed to extreme levels. They caught the worldwide disease of speculative euphoria, and made immense profits as the country's banks started doing some pretty crazy stuff.
Financial journalist and former investment banker Michael Lewis offered one financier's apt depiction of the hocus pocus that was going on in Icelandic banks: "'you have a dog, and I have a cat. We agree that they are each worth a billion dollars. You sell me the dog for a billion, and I sell you the cat for a billion. Now we are no longer pet owners, but Icelandic banks, with a billion dollars in new assets.'"
This lunacy was largely fuelled by borrowed money. Iceland's top three banks went on such a pathological borrowing spree that their assets were 10 times Iceland's GDP. It doesn't take a genius to realize that this loony behaviour will end badly. When the speculative bubble burst, all three of the country's major banks suddenly collapsed.
Since Icelandic banks had borrowed so heavily, there were a lot of angry creditors looking to get money back from the government of Iceland. Intense pressure was exerted to force Iceland to compensate anyone that lost money when Iceland's banks hit the wall -- regardless of whether those out-of-pocket were local depositors or international financial high-flyers who should have done their due diligence before getting involved with dodgy hijinks. Governments around the world were issuing blank cheques to pay for the sins of their bankers, and Iceland should be made to pay too.
But the people said no. Weekly assemblies outside parliament made it clear to politicians that the people were not going to be forced to pay for the craziness of the bankers. Politicians responsible for the crisis were given the boot. Out went the prestigious David Oddson, who as Prime Minister (and later as chair of the central bank) had championed the neo-liberal agenda. Geir Haarde, Prime Minster at the time of the crash, has been brought up on charges concerning his handling of the crisis. A left-green alliance elected Prime Minister Johanna Sigurdardottir, who is herself a trailblazer as an openly lesbian head of state.
Iceland's government faced intense pressure to compensate those financial interests hurt by the wreckage of Iceland's bank failures. The shoot-out at the OK Corral came over the misadventures of one defunct Icelandic bank that had expanded willy-nilly in Europe. When it collapsed, Britain and the Netherlands rushed to bail out its creditors in an attempt to buttress confidence in their own financial sector firms.
Now the British and Dutch governments demanded that Iceland reimburse them. Naturally Britain and the Netherlands figured they bore no responsibility for their lax oversight in allowing dodgy upstart Icelandic bankers to jeopardize British and Dutch financial stability.
The total bill was US$5.8 billion, but the sale of the failed bank's assets covers a big chunk of that bill. The estimated final cost to the people of Iceland to compensate these foreign governments would have been over $2 billion. That is a lot of money for a country with a population comparable to that of Windsor, Ontario. A deal was proposed that Iceland pay back this debt -- with interest -- until 2046.
OK, dear reader, are you sitting down? Because this just might knock your socks off: Iceland figured that this matter should be democratically decided. Those radical Icelanders actually demanded that they vote on the decision to compensate foreign governments.
The people decided not to pay up. In fact, they held two referendums and it was voted down both times. In the words of a spokesperson for the anti-bailout coalition, "It is totally insane that taxpayers foot the bill for failed private companies. It was odious. We had to say no."
Very ominous threats were made that Iceland would become an international pariah. The U.K. even used anti-terrorism legislation to freeze the Icelandic bank's assets in Britain. Litigation is still ongoing as Britain and the Netherlands seek ways to force Iceland to pay.
Of course, Iceland went through some tough times in the aftermath of the financial meltdown. Ordinary Icelanders suffered plenty because of the economic fallout from the recklessness of their banks. But Iceland is emerging from this mess in much better shape than it would have been forced into the equivalent of a country-wide debtor's prison. Even the IMF is holding up Iceland as an example of how to overcome deep economic dislocation without undoing the social fabric.
All of us owe a debt of gratitude to the people of Iceland. They took a stand and held their ground when all of the forces of international capital were allied against them. Whether it is at Caterpillar or in the streets of Athens, we all benefit when people say no to paying the price for corporate greed. Every time we just say no, we have a better shot at demanding sanity in the face of barbarism.
Economist Ellen Russell is a professor at Wilfrid Laurier University. Her column comes out every two months in
Viva Economic Justice!!!!
Michael “Waterman” Hubman
Aggregating and posting for Economic Justice               

Tuesday, February 28, 2012

Our Very Own Oscar Night in Rimini / banks create credit electronically / Michael Hudson / Counterpunch / ICH

February 27, 2011 "Counterpunch" -- I have just returned from Rimini, Italy, where I experienced one of the most amazing spectacles of my academic life. Four of us associated with the University of Missouri at Kansas City (UMKC) were invited to lecture for three days on Modern Monetary Theory (MMT) and explain why Europe is in such monetary trouble today – and to show that there is an alternative, that the enforced austerity for the 99% and vast wealth grab by the 1% is not a force of nature.
Stephanie Kelton (incoming UMKC Economics Dept. chair and editor of its economic blog, New Economic Perspectives), criminologist and law professor Bill Black, investment banker Marshall Auerback and me (along with a French economist, Alain Parquez) stepped into the basketball auditorium on Friday night. We walked down, and down, and further down the central aisle, past a packed audience reported as over 2,100. It was like entering the Oscars as People called out our first names. Some told us they had read all of our economics blogs. Stephanie said that now she understood how the Beatles felt. There was prolonged applause – all for an intellectual rather than a physical sporting event.
With one difference, of course: Our adversaries were not there. There was much press, but the prevailing Euro-technocrats (the bank lobbyists who determine European economic policy) hoped that the less discussion of possible alternatives to austerity, the easier it would be to force their brutal financial grab through.
All the audience members had contributed to raise the funds to fly us over from the United States (and from France for Alain), and treat us to Federico Fellini’s Grand Hotel on the Rimini beach. The conference was organized by reporter Paolo Barnard, who had studied MMT with Randall Wray and realized that there was plenty of demand in Italian mass culture for a discussion of what actually was determining the living conditions of Europe – and the emerging financial elite that hopes to use this crisis as an opportunity to become the new financial lords carving out fiefdoms,  privatizing the public domain being sold off by governments that have no central bank to finance their deficits, beholden to bondholders and to Eurocrats drawn from the neoliberal camp.
Paolo and his enormous support staff of translators and interns provided an opportunity to hear an approach to monetary and tax theory and policy that until recently was almost unheard of in the United States. Just one week earlier the Washington Post published a review of MMT, followed by a long discussion in the Financial Times. But the theory remains grounded primarily at the UMKC’s economics department and the Levy Institute at Bard College, with which most of us are associated.
The basic thrust of our argument is that just as commercial banks create credit electronically on their computer keyboards (creating a bank account credit for borrowers in exchange for their signing an IOU at interest), governments can create money. There is no need to borrow from banks, as computer keyboards provide nearly free credit creation to finance spending.
The difference, of course, is that governments spend money (at least in principle) to promote long-term growth and employment, to invest in public infrastructure, research and development, provide health care and other basic economic functions. Banks have a more short-term time frame. They lend credit against collateral in place. Some 80% of bank loans are mortgages against real estate. Other loans are made to finance leveraged buyouts and corporate takeovers. But most new fixed capital investment by corporations is financed out of retained earnings.
Unfortunately, the flow of earnings is now being diverted increasingly to the financial sector – not only to pay interest and penalties to banks, but for stock buybacks intended to support stock prices and hence the value of stock options that managers of today’s financialized companies give themselves. As for the stock market – which textbook diagrams still depict as raising money for new capital investment – it has been turned into a vehicle to buy out companies on credit (e.g., with high interest junk bonds) and replace equity with debt. Inasmuch as interest payments are tax-deductible, as if they were a necessary cost of doing business, corporate income-tax payments are lowered. And what the tax collector relinquishes is available to be paid out to the bankers and bondholders who get rich by loading the economy down with debt.
Welcome to the post-industrial economy, financialized style. Industrial capitalism has passed into a series of stages of finance capitalism, from the Bubble Economy to the Negative Equity stage, foreclosure time, debt deflation, austerity – and what looks like debt peonage in Europe, above all for the PIIGS: Portugal, Ireland, Italy, Greece and Spain. (The Baltic countries of Latvia, Estonia and Lithuania already have been plunged so deeply into debt that their populations are emigrating to find work and flee debt-burdened real estate. The same has plagued Iceland since its bank rip-offs collapsed in 2008.)
Why aren’t economists describing this phenomenon? The answer is a combination of political ideology and analytic blinders. As soon as the Rimini conference ended on Sunday evening, for instance, Paul Krugman’s Monday, February 27 New York Times column, “What Ails Europe?” blamed the euro’s problems simply on the inability of countries to devalue their currencies. He rightly criticized the Republican party line that blames European welfare spending for the Eurozone’s problems, and also  putting the blame on budget deficits.
But he left out of his account is the straitjacket of the European Central Bank (ECB) unable to monetize the deficits, as a result of junk economics written into the EU constitution.
“If the peripheral nations still had their own currencies, they could and would use devaluation to quickly restore competitiveness. But they don’t, which means that they are in for a long period of mass unemployment and slow, grinding deflation. Their debt crises are mainly a byproduct of this sad prospect, because depressed economies lead to budget deficits and deflation magnifies the burden of debt.”
Depreciation would lower the price of labor while raising the price of imports. The burden of debts denominated in foreign currencies would increase in keeping with the devaluation, thereby creating problems unless the government passed a law re-denominating all debts in domestic currency. This would satisfy the Prime Directive of international financing: always denominated debts in your own currency, as the United States does.
In 1933, Franklin Roosevelt nullified the Gold Clause in U.S. loan contracts, enabling banks and other creditors to be paid in the equivalent gold value. But in his usual neoclassical fashion,  Krugman ignores the debt issue:
 “The afflicted nations, in particular, have nothing but bad choices: either they suffer the pains of deflation or they take the drastic step of leaving the euro, which won’t be politically feasible until or unless all else fails (a point Greece seems to be approaching). Germany could help by reversing its own austerity policies and accepting higher inflation, but it won’t.”
But leaving the euro is not sufficient to avert austerity, foreclosure and debt deflation if the nation that withdraws retains the neoliberal policy that plagues the euro. Suppose the post-euro economy has a central bank that still refuses to finance public budget deficits, forcing the government to borrow from commercial banks and bondholders? Suppose the government believes that it should balance the budget rather than provide the economy with spending power to increase its growth?’
Suppose the government slashes public welfare spending, or bails out banks for their losses, or takes losing bank gambles onto the public balance sheet, as Ireland has done? Or for that matter, what if the governments do not write down real estate mortgages and other debts to the debtors’ ability to pay, as Iceland has failed to do? The result will still be debt deflation, forfeiture of property, unemployment – and a rising tide of emigration as the domestic economy and employment opportunities shrink.
So what then is the key? It is to have a central bank that does what central banks were founded to do: monetize government budget deficits so as to spend money into the economy, in a way best intended to promote economic growth and full employment.
This was the MMT message that the five of us were invited to explain to the audience in Rimini. Some attendees came up and explained that they had come all the way from Spain, others from France and cities across Italy. And although we did many press, radio and TV interviews, we were told that the major media were directed to ignore us as not politically correct.
Such is the censorial spirit of neoliberal monetary austerity. Its motto is TINA: There Is No Alternative, and it wants to keep matters this way. As long as it can suppress discussion of how many better alternatives there are, the hope is that the public will remain acquiescent as their living standards shrink and wealth is sucked up to the top of the economic pyramid to the 1%.
The audience requested above all more theory from Stephanie Kelton, who gave the clearest lecture on economics I had ever heard – a Euclidean presentation of MMT logic.  See a visual of the magnitude of the event. At the end, we felt like concert performers.
The size of the audience filling the sports stadium to hear our economic explanation of how a real central bank should operate to avoid austerity and promote rather than discourage employment showed that the government’s attempt to brainwash the population was not working. It was not working any better than Harvard’s Economics 101 class, from which students walked out in protest against the unrealistic parallel universe  drawing pictures of the economy that exclude analysis of the debt overhead, rentier free lunches and financial parasitism.
MICHAEL HUDSON is a former Wall Street economist. A Distinguished Research Professor at University of Missouri, Kansas City (UMKC), he is the author of many books, including Super Imperialism: The Economic Strategy of American Empire (new ed., Pluto Press, 2002). He is a contributor to Hopeless: Barack Obama and the Politics of Illusion, forthcoming from AK Press. He can be reached via his website,

Sunday, February 26, 2012

'We Are All Greeks Now' Rallies in Europe, US / Common Dreams

- Common Dreams staff
Rallies are being held today, Saturday, February 18th, in capitals around the world to show support for the people of Greece as they face drastic austerity measures.
A "Solidarity with Greece" sign hangs from a statue during a demonstration at Trocadero in Paris, February 18, 2012. Various groups, calling for an international day of solidarity with the Greek people, gathered in capitals around the World on Saturday. REUTERS/Mal Langsdon The show of solidarity is in response to the "dictatorship of the financial markets and the troika: EU, ECB and IMF, who have imposed austerity measures and a non-elected government on the Greek people."
Demonstrations are planned throughout Germany, Austria, Belgium, Denmark, Spain, Finland, France, Iceland, Ireland, Italy, the Netherlands, Portugal, the United Kingdom, the United States, Sweden, and more.
* * *
Real Democracy in Greece issued a Call to Action:
We are all Greeks
When one people is attacked, all peoples are attacked. On the 10th of February, the non-elected Greece Government adopted a hideous and destructive new austerity plan, passed by the parliament (199 MPs voted in favor, 101 against) on the 12th of February. The new austerity measures impose a 22% reduction in the minimum wage, which will remain frozen for the next three years; collective bargaining is simply abolished; 15000 public sector workers are laid off and 150000 jobs will be destroyed through non-renewal of contract…
The people of Greece are bravely rising up against social terror policies. Demonstrations, as well as general strikes, become more and more frequent, despite the violent repression and the media’s deafening silence.
The people of Greece need international solidarity and they are calling for our support
Let’s reply to their call. We are all Greek!
Their mobilization is clashing against the wall of a European and international dictatorship; the dictatorship of the financial markets and the troika: EU, ECB and IMF, who have imposed austerity measures and a non-elected government on the Greek people.
The EU governments are involved in this dictatorship, implementing measures which are in the same line in those in other countries. Greece is being used as a laboratory before applying these measures more generally. The situation is going to get even worse due to the new European Treaty project, which will impose the «golden rule» on our taxes.
We refuse to sacrifice people for money, as done to the Greeks.
Let’s regain the reins of our lives.
Switch off your computer, join the mobilization!
There will be demonstrations everywhere, in solidarity with the mobilization of the Greek people, on Saturday the 18th of February.
* * *
The Athens, Greece newspaper Kathimerini reports:
A wave of solidarity to crisis victims Greeks is sweeping the world, with a special event planned for Saturday afternoon in a number of cities.
More than 10 cities in Europe will see demonstrations under the banner “We Are All Greeks Now”, including Paris and Dublin.
“The people of Greece need the international solidarity and they call for our support. Let’s reply to their call. We are all Greeks,” reads the circular distributed across social media for the rallies that are scheduled to take place at 2 p.m.
A rally is also planned in New York, at the same park that the Occupy Wall Street rallies had started this winter.
Social media groups in solidarity to the Greek people suffering from the austerity measures and the fiscal crisis have also called for action as they express the fear that what the Greeks are going through is going to apply to other people soon, too.
At the blog, Internet users are invited to sign a form asking for Greek citizenship in solidarity to the Greeks.
* * *
We are All Greeks! Saturday, February 18, International Day of Action Facebook page
Paste the above link to see the VIDEO.
Viva Economic Justice!!!!
Michael “Waterman” Hubman
Aggregating and posting for Economic Justice               

Greece’s post-bailout woes / Paul Ames / Salon

The 130 billion euro rescue brings austerity measures that could extend the nation's recession for another decade

Employees of the Byzantine and Christianity museum hold a cardboard replica of ancient ruins which reads: ''Monument for sale'' during a peaceful protest outside the Greek Parliament in Athens, Sunday, Feb. 19, 2012
Employees of the Byzantine and Christianity museum hold a cardboard replica of ancient ruins which reads: ''Monument for sale'' during a peaceful protest outside the Greek Parliament in Athens, Sunday, Feb. 19, 2012  (Credit: AP Photo/Thanassis Stavrakis)
This article originally appeared on GlobalPost.
ROME — The European Union has finally agreed on its latest 130 billion euro bailout plan that should save Greece from going bust next month.
Global PostNow all it has to do is help the country pull out of a five-year recession, get the one-in-five unemployed Greeks back to work and make sure that Portugal, Ireland, Spain and Italy don’t end up sharing a similar fate.
Tuesday’s agreement among euro zone finance ministers came after another tense bout of all-night negotiations at the end of months of bickering between Brussels, Berlin and Athens on whether the Greek government could be trusted to make good on austerity pledges given in return for the rescue funding.
“In the past two years and again tonight, I’ve learnt that marathon is indeed a Greek word,” said the EU’s Economic Affairs Commissioner Olli Rehn. “But in the end we came to an agreement.”
The deal is certainly a major achievement in the battle to get both Greece and the whole of the euro zone out of their economic mess. But nobody has any illusions that the euro zone is anywhere near the finishing line of its long-distance race to get out of the economic hole.
The nuts and bolts of the deal mean that the EU and International Monetary Fund will hand over 130 billion euro in loans so Greece can meet debt repayments due in March.
Greece’s private creditors have been squeezed into agreeing to take a loss of 53.5 percent on their Greek bonds — which is expected to translate to debt relief of a further 100 billion euros. Any profits that the European Central Bank or other EU nations make from Greek bonds will be channelled back to Athens.
“We have reached a far-reaching agreement … to secure Greece’s future in the euro area,” said Jean-Claude Juncker, Luxembourg’s prime minister who chaired the 14-hour overnight talks in Brussels.
In return, Greece has agreed to another round of wage, pension and job cuts which are designed to see the country’s debt drop from the current level of 160 percent of economic output to 120.5 percent by 2020.
Athens will also agree to an unprecedented level of oversight of its economy, including permanent EU monitors in Athens and the creation of a special account that will make sure the international funds are used for debt repayments — until the country changes its constitution to make repayment a priority.
By heading off the immediate threat of a Greek default, the EU has provided a short-term solution to the most pressing threat to the euro zone.
However, Tuesday’s agreement does little to address the underlying problem of Greece’s shrinking economy and lack of competitiveness.
Some estimates see another 10 years of recession on top of the five Greece has already suffered as it struggles to rein in its debt. An internal EU report leaked to journalists in Brussels on Monday painted a gloomy picture that warned more bailouts may be needed unless government reforms start to produce growth.
It’s by no means clear whether the Greek people will be ready to accept the prospect of seemingly endless austerity. The anger expressed in the regular riots on the streets of Athens will be tested in elections in April, where parties on the far left and right who oppose the austerity-for-bailout deals are expected to do well.
Meanwhile, Spain, Italy and, in particular, Portugal will be hoping the respite agreed for Greece will boost confidence in the wider euro zone. They will also be fearing that with Greece off the hook for a while, sceptical markets will be looking for a new outlet for their default fears.
Viva Economic Justice!!!!
Michael “Waterman” Hubman
Aggregating and posting for Economic Justice               

Is a Greek debt default still inevitable? / Ken Maguire / Salon

The bailout will avert a euro zone breakup for now, but many worry it won't be enough to fix the nation's economy

A pedestrian passes outside a pawnshop in Athens, Tuesday, Feb. 21, 2012
A pedestrian passes outside a pawnshop in Athens, Tuesday, Feb. 21, 2012 (Credit: AP Photo/Thanassis Stavrakis)
ATHENS, Greece — They contemplated a divorce but ended up having another baby.
Global Post
Greece and its euro zone partners saved their marriage by agreeing on a $170 billion bailout, but it hasn’t squashed talk of a messy breakup.
Some analysts see a Greek debt default as inevitable. Even Greece’s lenders fear the program is “accident prone,” as they said in a report for euro zone finance ministers before they approved Tuesday’s bailout.
It’s far from a universal opinion. Greek leaders lauded the agreement, naturally, saying it saved the country from a chaotic default. Others add that Greeks — despite the occasional violent protest against austerity measures — grudgingly accept that reforms are necessary.
Still, more of the same won’t cut it, said Costas Michalos, president of the Athens Chamber of Commerce and Industry.
“It’s a bad rescue package,” he said. “It’s not the right mixture of economic policies. If we follow the same economic policies of the past two years, there will be no other option than default, which I’m sure no one wants.”
The new loan package — Greece’s second massive bailout in as many years — aims to finally fix the country’s debt problems and restore its battered economy. It requires wage cuts and public sector layoffs, and strives to make the economy more competitive, which would attract investment.
A Eurogroup statement issued after the vote Tuesday in Brussels said the program is a “comprehensive blueprint” for debt sustainability by 2020 and economic growth. The success, it noted, “hinges critically on its thorough implementation by Greece,” no doubt a reminder of the country’s track record of missing reform targets.
“One can’t help but get the feeling that everyone involved is going through the motions, doing what they feel they have to do, rather than what they want to or what they believe in,” Sony Kapoor, managing director of Re-Define, a London-based think tank, said in a statement. “Confidence in the success of what has been agreed is rather low.”
Greece “will almost certainly” need yet another bailout, Kapoor added. “The troika have had to do some arithmetic gymnastics in order to make the numbers add up but their optimistic assumptions are unlikely to hold.”
Yet, for all their tough talk about cutting off the free-spending Greeks, the euro zone countries ultimately chose the safe route. The “comprehensive blueprint” helps Greece but also safeguards financial stability “in the euro area as a whole,” the Eurogroup statement said.
The new package hinges in part on private bondholders taking a nominal 53.5 percent loss, which will wipe out more than $140 billion from Greece’s overall debt. The IMF warned back in December that unless there’s near-universal voluntary participation by the bondholders, it would be hard to achieve debt sustainability by 2020.
Greece is expected to take extraordinary efforts to repay its creditors. It plans to amend its constitution to prioritize repayments. Also, the lower-valued bonds to be issued to private investors will be governed under English law. That provides stronger protections for investors.
Prime Minister Lucas Papademos has been criticized in some circles for conceding those guarantees, but University of Piraeus finance professor Dimitris Malliaropulos sees the other side.
“That, for me, is a guarantee that Greece will stay in the euro,” he said, adding that the commitment to the euro should improve investor sentiment.
Countries that default usually can devalue their currency, which makes exports cheaper, boosting growth. But with Greece ensuring euro repayments to lenders, there’s no incentive to default, Malliaropulos said.
“If you leave the euro, you should do it now — before the debt exchange,” he said.
The swap is scheduled to be complete in early March. If that and other conditions are met, Greece expects to receive bailout cash — avoiding default — before nearly $19 billion in bond repayments are due later in the month.
Petros Doukas, a former deputy finance minister, said he’s confident Greece will stay on course. He advocates for a larger debt write-off and a Marshall Plan-style spending package by the European Union and the United States — an idea he acknowledges is unlikely to occur.
The optimism, he said, stems from acceptance by politicians and average Greeks that there’s no turning back.
“Whoever thought that pensions and salaries could be reduced? It was unprecedented thinking,” Doukas said. “People complain about it, but they accept it.”
A potential curveball is an election planned in late April. Papademos is an unelected technocrat whose job is to shepherd Greece through the bond swap and bailout negotiations. He’s currently leading a coalition government that includes Greece’s two large parties, the conservative New Democracy and the Socialist PASOK.
Leaders of both parties have signaled their post-election commitment to carry out the reforms demanded by international lenders. Polls show New Democracy leading, but likely in another coalition government.
“The politics are a major risk for the Greek economy,” Malliaropulos said. He noted that Greece has had only a few coalition governments and “they didn’t go very well.”
Viva Economic Justice!!!!
Michael “Waterman” Hubman
Aggregating and posting for Economic Justice               

Friday, February 24, 2012

Tsunami of debt: Japan faces costs of credit / Information Clearing House

While the world’s attention has been focused on the eurozone debt crisis, Japan’s borrowing has hit a record high of 235% of the country’s GDP. The prospect of going down credit rating ladders as its debt costs increase is hanging over the country.
­According to the OECD, 2012 will see the highest level of debt repayments among the developed nations. Japan will have to extinguish $3 trillion of debt, with over 40% of the sum to be paid in Q1 2012.
The 2012 budget stands at $1.16 trillion , while 49% of the planned revenues are comprised of new loans and 25% of expenditures will be spent on debt servicing.
The cost of borrowing is not high for Japan (the yield of 0.95% for 10-year bonds), as the nation’s debt is mainly domestically held. Insurers, pension funds and banks are holding 95% of the country’s debt. However, high concentration of debt among domestic lenders makes it difficult for the government to make further borrowings. The Public Pension Fund of Japan and Post Bank are holding 35% of the country’s debt.
Experts believe that in 2012, Japan will have to increase borrowing from abroad, which will inevitably lead to an increase in debt costs.
Interest rates could also go up if credit rating agencies lower the Japanese risk profile. In January 2011, S&P downgraded Japan to AA- from AA, for the first time since 2002. In August 2011, Moody’s also downgraded the country by one notch to Aa3. In September 2011, Fitch’s Andrew Colquhoun said the agency would reduce the credit rating of Japan in the next two years.
In February 2012, S&P's reaffirmed Japan’s credit rating with a negative outlook. According to the agency, large budget deficit, high debt burden, deflation, and aging population make the rating look low. In 2011, Japan’s GDP decreased 0.9%. The country had a trade deficit of $32 billion for the first time since 1980.
However, some take the situation optimistically, saying that an ageing population has a positive impact on the Japanese finance due to their tolerance towards risk taking: low taxes provide an opportunity to fill the gap in the budget at the expense of a possible rise in tax rates; and $1 trillion in foreign currency reserves would let the Central bank act as lender of last resort.
Viva Economic Justice!!!!
Michael “Waterman” Hubman
Aggregating and posting for Economic Justice               

Scandal: Greece To Receive "Negative" Cash From "Second Bailout" As It Funds Insolvent European Banks: / Tyler Durden / 0Hedgr / Information Clearing House

Earlier today, we learned the first stunner of the Greek "bailout package", which courtesy of some convoluted transmission mechanisms would result in some, potentially quite many, Greek workers actually paying to retain their jobs: i.e., negative salaries. Now, having looked at the Eurogroup's statement on the Greek bailout, we find another very creative use of "negative" numbers. And by creative we mean absolutely shocking and scandalous. First, as a reminder, even before the current bailout mechanism was in place, Greece barely saw 20% of any actual funding, with the bulk of the money going to European and Greek banks (of which the former ultimately also ended up funding the ECB and thus European banks). Furthermore, we already know that as part of the latest set of conditions of the second Greek bailout, an 'Escrow Account" would be established: this is simply a means for Greek creditors to have a senior claims over any "bailout" cash that is actually disbursed for things such as, you know, a Greek bailout, where the money actually trickles down where it is most needed - the Greek citizens. Here is where it just got surreal. It turns out that not only will Greece not see a single penny from the Second Greek bailout, whose entire Use of Proceeds will be limited to funding debt interest and maturity payments, but the country will actually have to fund said escrow! You read that right: the Greek bailout #2 is nothing but a Greek-funded bailout of Europe's insolvent banks... and the Greek constitution is about to be changed to reflect this!
The smoking gun quote:
The Eurogroup also welcomes Greece's intention to put in place a mechanism that allows better tracing and monitoring of the official borrowing and internally-generated funds destined to service Greece's debt by, under monitoring of the troika, paying an amount corresponding to the coming quarter's debt service directly to a segregated account of Greece's paying agent.
As for the priority of payments - it is more than clear:
Finally, the Eurogroup in this context welcomes the intention of the Greek authorities to introduce over the next two months in the Greek legal framework a provision ensuring that priority is granted to debt servicing payments. This provision will be introduced in the Greek constitution as soon as possible.
So there you have it: the Second Greek bailout is nothing but the first Greek bailout of Europe's banks! And the Greek constitution is about to be changed to reflect that.
Congratulations Greece - you just got royally raped by your own unelected rulers and you didn't even know it.
Full Eurozone document (source).
Viva Economic Justice!!!!
Michael “Waterman” Hubman
Aggregating and posting for Economic Justice               


Greece: The Epicenter of Global Pillage Predatory bankers make serial killers look good / Stephen Lendman / Common Dreams

February 23, 2012 "Information Clearing House" --- Predatory bankers make serial killers look good by comparison. Their business model creates crises to facilitate grand theft, financial terrorism, and debt entrapment.
They steal all material wealth and then some. They systematically rob investors and strip mine economies for self-enrichment.
They demand they get paid first. They hold nations hostage to assure it. They turn crises into catastrophes.
They leave mass impoverishment, high unemployment, neo-serfdom, and human wreckage in their wake.
Their Federal Reserve/ECB/IMF/World Bank/political class lackeys do their bidding.
They're more dangerous than standing armies. They wage war by other means. They cause "demographic shrinkage, shortened life spans, emigration and capital flight," explains Michael Hudson.
They're a malignancy ravaging societies and humanity. Greece is the epicenter of what's metastasizing globally. The latest bailout deal highlights out-of-control pillage.
On February 20, New York Times writer Stephen Castle headlined, "Europe Agrees on New Bailout to Help Greece Avoid Default," saying:
On Tuesday morning, Luxembourg president/Euro Group head Jean-Claude Juncker announced:
"We have reached a far-reaching agreement on Greece's new program and private-sector involvement. The new program provides a comprehensive blueprint for putting the public finances and the economy of Greece back on a sustainable footing."
In fact, it assures human misery and economic destruction, not restoration. It's a deal only bankers can love. It demands Greece reduce its debt from 160% to about 120% of GDP by 2020, but how incurring more debt achieves it wasn't explained.
It also demands sacking 150,000 public workers by 2015, slashing private sector wages 20%, lowering monthly minimum wages from 750 to 600 euros, cutting unemployment benefits from 460 to 360 euros, and reducing pensions 15% en route to eliminating them altogether.
Media reports said bondholders agreed to a 53.5% face value haircut - the equivalent of losing 75% overall. In fact, only 30% of toxic assets are involved. Most held aren't touched. Greece must make good on them, no matter the impossible burden.
Private lenders will swap current holdings for new lower face value/lower interest rate bonds. Representing bondholders, Institute of International Finance's Charles Dallara and BNP Pariba's Jean Lemierre called the deal "solid....for investors, a fair deal for all parties involved."
In other words, raping Greece for bankers is "solid" and "fair." Its citizens had no say. Without rights, what's best for them wasn't discussed.
They're left with huge wage and benefit cuts combined with mass layoffs. Greece faces less tax revenue to cover domestic priorities. In late 2011 alone, its economy shrank 7%. January revenues fell 7% year-over-year. Value-added tax receipts decreased 18.7% from last year. Death spiral financial deterioration continues monthly.
Moreover, the nation's $650 billion debt burden is double the reported amount. The more it increases, the harder it is to service and repay, the more future aid's needed, and deeper the country's economic catastrophe heads for total collapse.
The deal escrows $170 billion to assure bankers get paid. Investment advisor Patrick Young got it right telling Russia Today that dealmakers don't trust Greece living up to terms because its track record is so bad.
"So we now have a situation," said Young, "where Greece said we'll do anything you want, but the problem is" too great a burden to bear. "It's a catastrophe pushing people to the brink of starvation."
No matter. Finance ministers will give Greece some money on dreadful terms "where like a nine year old child, every Friday it has to go to daddy, say it's done its homework, say it's been a good boy, can it please have next week's pocket money to pay its civil servants. (It's) a horrible loss of sovereignty."
Troika power runs Greece - the IMF, ECB and EU. They're predators saying pay up or else.
Reports say its government will change its constitution to prioritize repaying debt ahead of vital domestic obligations.
Other terms involve lenders cutting interest rates on bailout loans by 0.5% over the next five years, and 1.5% thereafter. An estimated 1.4 billion euros would be saved by 2020.
The ECB will compensate by distributing profits on its 40 billion Greek debt holdings. In addition, Eurozone countries will contribute their Greek bond income through the end of the decade.
Still to be decided is EU/IMF burden sharing. Both agreed to contribute. Not discussed or considered is leaving 11 million Greeks on their own out of luck. They have three choices - starve, leave, or rebel.
The Rot Beneath the Surface
On February 21, Financial Times contributor Peter Spiegel headlined, "Greek debt nightmare laid bare," saying:
"A 'strictly confidential' report on Greece's debt projections prepared for eurozone finance ministers reveals Athens' rescue programme is way off track and suggests the Greek government may need another bail-out" soon after the latest one.
Even under the most optimistic scenario, imposed austerity's punishing Greece so severely, its burden's impossible to bear.
Agreed on terms are "self-defeating." Forced austerity elevates debt levels, weakens the economy, and prevents Greece "from ever returning to the financial markets by scaring off future private investors."
As a result, continued financial infusions are needed. Double or more the agreed amount's required. Current problems increase exponentially toward total collapse, default and bankruptcy.
The report explained Greece's impossible burden. It also "paints a troubling outlook for the debt restructuring, expected to begin this week." Bond swapping creates "a class of privileged investors who will chase off" others when Greece tries selling fixed income securities at market. Germany, the Netherlands and Finland opposed a deal doomed to fail.
The report warned "Greek authorities may not be able to deliver structural reforms and policy adjustments at the (envisioned) pace." Perhaps never with shrinking revenues unable to cover liabilities.
It's "now uncertain whether market access can be restored in the immediate post-programme years." Left unsaid was restoring it's impossible ever. Greece faces protracted deep depression. Its life force is ebbing. Only its obituary remains to be written.
A Final Comment
Greece's debt deal provides a model for future European sovereign restructurings. It's one of six or more troubled countries. Portugal looks like the next domino to fall, but Spain, Italy, Ireland, and others may follow.

Moreover, implementing Greece's deal entails problems. Reality may prevent fulfilling promises. If April elections are held, new MPs may balk. Declaring a debt moratorium, defaulting and leaving the Eurozone are options.
Moreover, private lenders may object. Legal challenges may follow. A sweetheart banker deal may unravel. Pressuring China and Japan to help isn't working. China Investment Corporation, the nation's sovereign wealth fund, and Chinese central bankers aren't willing to buy troubled European sovereign debt. According to one official, "(w)e aren't stupid."
How it all plays out isn't known. Technocrats run Greece. They may cancel April elections and stay in power. Public sentiment remains the wild card. Impossible to bear pain may become uncontainable rage. More than buildings may burn.
If political Greece doesn't care, people must act on their own. Revolutionary seeds are planted. They can erupt any time. Change only comes bottom up. It's long past time to get started.
Stephen Lendman lives in Chicago and can be reached at
Also visit his blog site at and listen to cutting-edge discussions with distinguished guests on the Progressive Radio News Hour on the Progressive Radio Network Thursdays at 10AM US Central time and Saturdays and Sundays at noon. All programs are archived for easy listening.
Viva Economic Justice!!!!
Michael “Waterman” Hubman
Aggregating and posting for Economic Justice               

Economists Predict 'No Gain, More Pain' for Greece / Common Dreams

If alternatives are not pursued, Greece faces many years of economic pain along austerity path

- Common Dreams staff
If the European authorities are unwilling to abandon their destructive prescription of deeper cuts and continued austerity, Greece should seriously consider a planned default and exit from the euro, according to a new paper by the Center for Economic and Policy Research (CEPR).
People shout during a huge anti-austerity demonstration in Athens' Syntagma square. (Photo: Reuters) “The IMF has consistently underestimated the depth of the Greek recession,” said Mark Weisbrot, CEPR Co-Director and lead author of the paper. “At some point, it becomes rational for Greeks to ask, is the euro worth this kind of punishment?”
The paper (pdf) discusses the most recent agreement between the Greek government and the so-called Troika -- the European Central Bank (ECB), the International Monetary Fund (IMF), and the European Commission (EC) -- which included reducing public employment by 150,000 workers by 2015, cutting the minimum wage by 20 percent (and by 32 percent for those under the age of 25); and weakening of collective bargaining in exchange for a 130 billion Euro package. "All of this," according to CEPR, "will have the effect of reducing living standards for workers and redistributing income upward."
One of the many problems of the austerity push is that it comes from European authorities who look at Greece’s situation "mainly from a creditor’s point of view," says the report. From the Troika's point of view, it is "not necessarily bad that the adjustment is painful" for the Greek people.
Ideologically/politically, [the Troika wants] a smaller government in Greece, with less regulation, much lower wages, and weaker unions. [...] The IMF lists reducing the size of the public sector as an “essential element” of its program.
Louise Armistead, writing for The Telegraph, says that "Unlike the troika’s messy efforts, the CEPR’s arguments are clear and compelling." And continues:
Greece has already suffered among the worst losses of output from financial crises in the 20th and 21st centuries, says the CEPR. Even if the economy starts to recover, Greece will have lost 15.8% of GDP since its peak.
Greece is paying crippling interest rates of 6.8% of GDP - one of the highest rates in the world. In the eurozone, only two are above 4% - Italy and Portugal. It seems unlikely that the bailout will bring the interest payments down.
Mark Weisbrot and Juan Antonio Montecino, the authors of the paper, argue that the "most important problem with the commitments that Greece has made to the European authorities is that its fiscal policy is pro-cyclical – that is, the government has been, and is committed to, tightening its budget while the economy is in recession. In 2010-11, the Greek government adopted measures to cut spending by 8.7 percent of GDP. This is comparable to cutting U.S. federal spending by $1.3 trillion."
Greek unemployment hit a record of 20.9 percent in November and the IMF forecasts that it will still be at 17 percent in 2016. Employment as a percentage of the working age population is now less that it was in 1994.
Following Argentina's path the sane alternative?The paper notes that Argentina reached its pre-recession GDP in just three years, while Greece is expected to take at least a decade to reach that benchmark. The authors suggest that if the European authorities are unwilling to consider other alternatives, a planned default and exit from the euro is one alternative that should be considered.
The authors also look briefly at the alternative of a planned default and exit from the euro, considering that such an outcome might happen in any case due to recurrent crises and continued recession. They look at the case of Argentina, which unsuccessfully tried an internal devaluation with a deep recession from 1998-2001, as a relevant comparison. After default in December 2001 and devaluation a few weeks later, the Argentine economy shrank for just one quarter (a 4.9 percent loss of GDP), but then recovered and grew by more than 63 percent over the next six years.

“Argentina’s success after its default and devaluation show that rapid recovery is possible,” said Weisbrot. “It was not, as many claim, a commodities boom, or even export-driven growth. Argentina recovered rapidly because it was able to abandon the kinds of destructive economic policies that Greece is following today, and switch to pro-growth policies.”

The paper notes that Argentina reached its pre-recession GDP in just three years, while Greece is expected to take at least a decade to reach that benchmark.

An exit from the Euro would not be without risk, the authors acknowledge. They write: "A lot would depend on how skillfully and quickly the authorities could move from the financial crisis that would ensue, to economic recovery. As noted.. it took just one quarter for the economy to resume growth in Argentina after the default/devaluation."
In the case of Greece, there is no way to know in advance how severe the financial crisis, and associated loss of output and employment, would be if the government were to decide to default and exit from the euro. And that is what makes this decision difficult for the government or any political party: on the other side of the equation, it is not known when the Greek economy will begin to recover under the current program. So, although the current program has failed miserably and can be expected to continue to fail in the foreseeable future, there is considerable uncertainty regarding the effects of either choice. And for political leaders, it may be easier to accept the troika’s program as though –as the European authorities and most of the media frame it – there is no choice.

But, the idea that default/exit would be a catastrophe on the order of a Great Depression is false. The Great Depression was not the result of any one-time event; it was a long series of bad policydecisions over years. [...] A default/exit would likely bring on a financial crisis, but it would not by itself cause a Great Depression.
And finally, "Given the prognosis for Greece under the current program, and the probability that it will be plagued with recurrent crises and could even end in a chaotic default, a planned default/exit option could very well be the more prudent choice. It should be taken seriously as an alternative."