Banks, corrupt politicians and mainstream media have convinced people there are no alternatives to austerity

Posted on May 10, 2012 by fjwhite

But there are many alternatives. Just don’t look to mainstream media for them

No 473 Posted by fw, May 10, 2012

“The finance sector has started a lot of think tanks, they’ve funded the research institutes, and they’ve bought control of the public media, so that they’ve been able to convince people that there really isn’t an alternative, and only talk about whether there is more austerity or chaos.” —Michael Hudson

According to economist Michael Hudson, from the Democratic Party to European “Socialists”, they manage crises in the interests of financial capitalism.

Watch today’s interview with Hudson on The Real News Network. My abridged transcript featuring added subheadings and links follows the 13:30-minute interview. To access the original program and complete transcript, click on the following linked title.

What Americans can Learn from Eurocrisis, The Real News, May 10, 2012

ABRIDGED TRANSCRIPT

Introduction by Paul Jay, Senior Editor, The Real News Network — Headlines around the world greeted the election results in Greece and France as a rejection of austerity programs by the electors of those countries. Well, what can Americans learn from the results of these elections and from the crisis in the eurozone? Now joining us to talk about all of this is Michael Hudson. Michael is a former Wall Street financial analyst, and he’s a distinguished research professor of economics at the University of Missouri–Kansas City. He has a new book coming out soon called The Bubble and Beyond. So what should Americans take away from the European elections?

Once in power, Europe’s left-wing parties are selling out to financial backers

The same thing is happening in Europe that’s happening here. Left-wing parties, socialist parties, labor parties all say that they’re going to preserve the social contract, and as soon as they get into power, they sell out to their financial backers, they double-cross labor. The socialist party in Greece fell from 44 percent to 14 percent because the last party simply moved the most vicious anti-labor measures in Europe. Same thing in France now. Hollande of the French socialists, before the election, said he was going to beg, ask Europe, will you please not insist that we roll back our social programs. And just this morning he said, well, I asked and they said no. I’m afraid that in order to preserve Europe, in order to preserve the idea of a political harmony, we’re going to have to go ahead and impose more austerity on the people. I’m terribly sorry. But if you don’t like it, you can vote for another party in four years. But there’s going to be austerity, and we’re going to have to lower wages here, and there’s nothing to do. If you don’t lose our campaign contributors, the banks could lose, and we couldn’t have that, because if the banks lose, they say that that’s intolerable to them.

Why the sellout? Is it simply the case that the financial sector is too powerful for political leaders to defy?

The banks really have no power at all except the power to bribe, and in Europe—in South America, the power to assassinate, which they do quite frequently. All they can do is bribe.

In fact, banks have no economic power. What they do have is the power to bribe corrupt politicians who are in their (the banks’) pockets.

Remember, we had the same argument over here about three years ago, when Sheila Bair wanted to take over Citibank, and she said, look, we can foreclose on Citibank, we can close down all these big banks on Wall Street anytime. They’re insolvent. We can pay all the depositors. There’s no problem at all. If the government were to take over the banks, they can pay all the depositors. The only people who would lose would be the very wealthy, who have more money in the banks that are insured. Sheila Bair said the bank bondholders would suffer, the counterparties would suffer. The banks have no power at all. The problem is the corruption of the politicians, who are just demagogues pretending to oppose the banks while actually being in their pocket. The banks don’t have any [inaudible] power. They don’t have any economic power, except they can bribe politicians.

In fact, Governments have the power, not the banks! Bailouts of “banks too big to fail” proved that

The government became the major shareholder of the insolvent banks here, like Citibank and Bank of America. The same thing in Europe. If Europe banks caused the crisis, the governments can simply say, okay, we’re taking over the banks. Now we own them. Now that we own the banks, we’re going to write down the mortgages to the price that people can pay, which is [incomprehensible] We’re not going to pay other rich people. But financial reform and tax reform have to go together. And they’d say, we’re actually going to roll back all the tax cuts for the 1 percent, and we’re going to the begin taxing real estate again, we’re going to tax monopolies, we’re going to reintroduce progressive taxation just like we had for 30 years ago. If capitalism worked 30 years ago with higher taxation, with strong labor power, with a good property tax, and with affordable houses, it can work again. All of this is unnecessary.

Banks, politicians and the media have convinced people that there are no alternatives to austerity

Except if they can [inaudible] the banks and their politicians can convince people that there is no alternative. So that’s really the banks’ argument. The change over the last 30 years has been a drive by the finance sector to become more dominant steadily. So the finance sector has started a lot of think tanks, they’ve funded the research institutes, and they’ve bought control of the public media, so that they’ve been able to convince people that there really isn’t an alternative, and only talk about whether there is more austerity or chaos.

There are many alternatives. But the people won’t learn about them in the mainstream media, which is out to keep people entertained and ignorant

But, of course, the alternative to austerity isn’t chaos; its economic democracy, it’s progressive taxation, it’s taxing the rich, it’s writing down the debts. There are many alternatives. And what they’ve done is make sure that none of these alternatives get discussed in the public press or in the media. That’s why we’re on The Real News Network talking about it, not in The New York Times or the Fox media.

Welcome to the age of financial capitalism – increase the public debt load, raise debt service rates and voilà – an indentured 99%

So finance today is the means of conquering a country and getting what in the past took an army. Financial conquest is how you shift the taxes onto the population to pay the financial sector, how you load a population down with debt and make a population pay interest and amortization and penalties on debt service, you make a population pay for schooling instead of getting it free or a low price as used to be the case, you make a population take on a lifetime of debt in order to get a home that used to be affordable, you make the governments go into debt for the banks, so that in Europe governments can’t—don’t have a central bank to monetize their own deficits but actually have to borrow money from banks. You achieve—you essentially empty out an economy, and you take its economic surplus financially without an army, just by trying to promote what really is junk economics and junk politics, if the economics of Rubinomics in America under Clinton and Rubenomics in America under George Bush, and now with a vengeance under Obama—.

Come the 2012 election, backers of the Republicans are same as backers of Obama

I think the people who vote for Romney are the same people who voted in Europe for, essentially, throw the rascals out. When people are unhappy with an economic situation, they simply vote for the other party, whoever it is, and it’s a flip-flop back and forth. The Republicans very much want—the backers of the Republicans are the same backers who backed Obama. They’re the Wall Street people. They want Obama to come in for a second term and then really move against Social Security.

Compared to extreme right-wing Republicans, Obama looks reasonable. The choice is between ‘terrible’ and ‘bad’

Obama’s the only person—only a Democratic president can swing a Democratic Congress or Senate over to the right wing. So you need the Republicans to make—go so far on the right that Obama, who in the past would have been looked at as a right-winger or Republican, you need to make him look reasonable. And if you can push the crazies, as the Republicans are doing, then Obama seems less bad than the alternative. In fact, he gave a campaign speech a month ago, and he said, well, look at the alternative. I’m better. Isn’t that crazy choice, to have to choose between these two, between an absolute terrible alternative and just a bad alternative? That’s the choice we have. Yes, please, or yes, thank you, to a choice that—

Where’s the left in America and Europe?

Where is the left in America? Where is the left in Europe? Where is what used to be the left? I don’t see it anymore anywhere. Back in the 1950s, I used to go to socialist meetings, and people would say, why do the trade union people keep thinking they’re locked into the Democrats? And the answer is: well, that’s the two-party system. There isn’t really room for a third party here. And all the Republicans have to do is say, no, we’re worse, and it just scares people to actually vote for the Democrats. But people have been asking that question for 60 years, and nobody’s come up with a better answer since.

Hudson predicts that Americans have become so dispirited that “most” won’t vote this November

I think you need a third party or you need to break away from the Democratic Party for people like Dennis Kucinich or the more progressive people. You need what was called 50 years ago realignment. And that realignment that people saw even then was necessary hasn’t occurred, and it hasn’t occurred in Europe either. That’s why everybody is so frustrated. In France and Greece and everywhere else in Europe, they’re equally frustrated. There doesn’t seem to be any alternative. And that’s exactly what Mrs. Thatcher liked to say, there is no alternative. And it’s just amazing when there really are so many alternatives that people can be convinced that there aren’t and become so dispirited they just give up. So the fact is that most Americans are going to vote with their backsides. They’re just not going to vote this November.

RELATED POSTS

George Carlin’s prescient political shtick, “The American Dream”, playing out before our very eyes – “Forget the politicians. The politicians are put there to give you the idea that you have freedom of choice. You don’t. You have no choice. You have owners. They own you. They own everything. They own all the important land. They own and control corporations. They’ve long since bought and paid for the Senate, the Congress, the state houses, and city halls. They got the judges in their back pocket. And they own all the big media companies so they control just about all the news and information you get to hear. They got you by the balls.”

Was Huxley right — Will our “infinite appetite” for pleasurable distractions be our downfall? — “Huxley feared the truth would be drowned in a sea of irrelevance… [That] we would become a trivial culture, preoccupied with some equivalent of the feelies, the orgy porgy, and the centrifugal bumblepuppy.”

Fair Use Notice: This blog, Citizen Action Monitor, may contain copyrighted material that may not have been specifically authorized by the copyright owner. Such material, published without profit, is made available for educational purposes, to advance understanding of human rights, democracy, scientific, moral, ethical, and social justice issues. It is published in accordance with the provisions of the 2004 Supreme Court of Canada ruling and its six principle criteria for evaluating fair dealing.

“No one has the political will, courage or imagination to deal with the Eurozone crisis” —Ilene Grabel

Posted on December 16, 2011 by fjwhite

No 368 Posted by fw, December 16, 2011

“I think the even bigger problem is this kind of institutional lacuna. There isn’t actually a space in the global economy for action to be taken. And so I think that’s why we have this effort to shift the problem back and forth between the European Union and the IMF and national governments. And not one of those entities actually has the political will or the courage or the imagination to actually deal with the problem – or the courage, for that matter. And so every day we find we’re watching for some decisions to come from some body, whether it’s the European Union or the IMF or to come out of the German and French dialogue. And yet every day we’re greeted with the kind of news that they’re going to consider it, they have a new plan, we don’t know what the plan is, no one knows what the plan is.” —Ilene Grabel

In a Real News video interview conducted by host Paul Jay, University of Denver Economics Professor Ilene Grabel explains why there’s neither the political will nor the courage to take on the austerity and privatization policies pushed by financial markets, maneuvering to augment their power. My abridged transcript, including subheadings, follows the video.

The G20 and Global Policy Paralysis by Ilene Grabel, uploaded by The Real News on December 12, 2011

ABRIDGED TRANSCRIPT (with added subheadings)

No one has the political will, courage or imagination to deal with the Eurozone crisis

When the G20 met in early November in Cannes, they had, of course, many very important things on their agenda. What we’ve been seeing at the last few G20 meetings, including the most recent one in November, there’s been a game of hot potato that’s being played between the G20, the IMF, the European Central Bank and the leaders of Germany and France. And every time they meet in the context of the global crisis they have failed to reach any clear decision that would take the Eurozone out of crisis and to deal with many of the important issues that have been on their agenda since the crisis really began in 2008. And in this last meeting in November, the G20 ministers essentially handed the ball back to the European Union and the European Central Bank and the German and the French governments. They [in turn] handed it back to the IMF. The IMF handed it back to the G20. And at this point we have a situation where nothing at all is happening and we’re seeing financial markets react to that uncertainty because it’s not clear who is going to take responsibility for getting Europe out of its national malaise. It’s clear that the IMF is not going to do it. European governments are not doing it. And as we saw late last night, leaders of the European Union are also not prepared to take any steps to get the zone out of the crisis.

Every day there’s news of a new plan but nobody knows what the plan is

The fundamentals are certainly all wrong. I think the even bigger problem is this kind of institutional lacuna. There isn’t actually a space in the global economy for action to be taken. And so I think that’s why we have this effort to shift the problem back and forth between the European Union and the IMF and national governments. And not one of those entities actually has the political will or the courage or the imagination to actually deal with the problem – or the courage, for that matter. And so every day we find we’re watching for some decisions to come from some body, whether it’s the European Union or the IMF or to come out of the German and French dialogue. And yet every day we’re greeted with the kind of news that they’re going to consider it, they have a new plan, we don’t know what the plan is, no one knows what the plan is. And of course last night, we had the announcement that some important European government, like the English government, is not prepared to participate in these dialogues in any sort of meaningful way.

Meanwhile the financial sector takes advantage of the crisis to augment its power

The financial sector is using the opportunity, the crisis, to push forward on the kinds of reforms that financial actors have long sought, which is to say, policies which give the financial sector far more power than it ordinarily has — pushes government into austerity, pushes government into dismantling the welfare state, pushes them into privatizing state-owned enterprises and generally shrinking the public sector and public employment. So it certainly is an opportune time for financial actors to push forward on the kind of agenda that they have long sought in Europe.

“We haven’t seen the worst of this at all”

I think we’re entering the period where the crisis is actually going to intensify. We may have hoped that all of the bad news was actually out but I think we haven’t seen the worst of this at all. The plan that was announced last night and was being discussed this morning doesn’t at all address the seriousness of the crisis in Europe. And, indeed, this morning the credit-rating agencies downgraded three major French banks. There’s talk of downgrading further banks in Europe. There have also been studies which have shown that European banks have a huge deficit of capital and that they’re seriously undercapitalized. That should make things far worse. And the European Union, this morning, is in much worse shape than it was in even last night because of the failure to reach an agreement. And so it’s hard to imagine that European leaders can engage in some new round of productive dialogue. After all they failed to reach a decision at the most important moment last night. And so I think that they’re very much out of the picture right now.

The US is not going to ride to the rescue of European banks

I think that the suggestion that the US Fed should come to the rescue and buy up some of these European bonds is completely implausible. I understand that that proposal has been discussed. It’s impossible for me to imagine the US Federal Reserve actually taking on that role. US Treasury Secretary Timothy Geithner has been making it clear over the last couple of months that Europe’s problem is Europe’s problem. And given the political heat that he’s faced over the bailout in the US, I think it’s just politically not possible for the US Treasury and for the Obama administration to play any role in Europe other than to say “We feel your pain” at this point. But it’s really impossible to imagine the Federal Reserve taking responsibility for buttressing the capital reserves of European banks or in any way facilitating any further activity by the European Central Bank.

Sure, Europe’s problem is Obama’s problem but US isolationist sentiment prevents intervention in Europe

I think it [the European crisis] is very much [President Obama’s] problem because we cannot separate the fate of European economies from the fate of the American economy. That’s certainly true. But I think politically isolationist sentiment in the US right now is such that it really prevents the President and the US Treasury Department from taking any kind of decisive action that commits US economic resources to Europe. I just don’t think it’s politically possible to do so even though failure to do so certainly has very serious negative ramifications for the US economy.

“We will stumble into deeper global recession”

I think it’s clear that we will stumble into deeper global recession. It’s been fascinating over the last couple of weeks to see Europeans go hat in hand to some of the largest and most rapidly growing developing countries. We know that European leaders have been really trying to pound the pavement in China, in Chile, in Brazil, saying — “Okay, we need your sovereign wealth fund money, we need your governments to buy up European bonds.” And I think many of the rapidly growing developing countries’ policy makers have very rightly suggested that they’re not really interested in playing the role of bailing out Europe.

Policy makers in rapidly developing countries question the credibility of the entire Eurozone project

I agree with what some of the Chinese commentators are saying — “Why don’t we wait until it bottoms out then we’ll think about coming in.” It’s clear that Chinese policy makers, and policy makers in many other rapidly developing countries are quite rightly skeptical about the credibility Eurozone’s planning and even the credibility of the entire Eurozone project. So they’re not keen to commit any economic resources to stabilize Europe. We know that Brazil has very recently agreed to provide more funding through the IMF but not directly to the Eurozone itself because of the lack of credibility, the lack of commitment that Eurozone leaders have really shown to take serious action to get out of crisis.

“We have real reason to be worried about the future of the world economy”

I think people should be worried. At this point it seems clear that we’re headed for a new round of crisis coming this time from Europe. And this is really the time, I suggest, to batten down the hatches. I mean certainly we can try to influence debate in the US to press our government to get more involved in trying to get the US out of recession, to promote employment, to get behind the President’s job promotion plan. But we are in a situation of political gridlock, and this is the silly season in the US right now. It doesn’t seem like the US government is actually able at this point to take steps that make any sense to get us out of the crisis. With the President being hammered on all sides by Republican candidates really puts him in a situation where he’s paralyzed. And as you noted, Eurozone leaders are also paralyzed. And so this is the time I think when we have real reason to be worried about the future of the world economy.

Past missed opportunities for decisive action constrain future bold initiatives

There were certainly missed opportunities to make the case that getting the US out of the financial crisis was in everyone’s interest. That moment seems to have been lost in the US right now. And I think that makes it even more difficult to imagine the US government taking steps to try to stabilize Europe because after all there isn’t even a consensus among the broader populous of the US that further steps need to be taken to get the US out of its crisis.

FAIR USE NOTICE: This blog, Citizen Action Monitor, may contain copyrighted material that may not have been specifically authorized by the copyright owner. Such material, published without profit, is made available for educational purposes, to advance understanding of human rights, democracy, scientific, moral, ethical, and social justice issues. It is published in accordance with the provisions of the 2004 Supreme Court of Canada ruling and its six principle criteria for evaluating fair dealing

“We should not take democracy as a given anymore” —Dr Heiner Flassbeck

Posted on December 13, 2011 by fjwhite

No 363 Posted by fw, December 13, 2011

“I think it’s extremely dangerous. We should not take democracy as something natural or given. If you look at southern Europe people are on the streets every day. The riots are getting harder to fight and the governments really do not know what to do anymore. So if you put people into such a situation where they’re really desperate about their outlook, where they’re desperate about their kids’ future, and so on, then people are doing things that might look quite unreasonable but it’s just a result of their desperation. And so far I think G20 could be the forum to act but in a more rigorous and a totally different way. I have been following G20 in the last year and it was unfortunately a very bureaucratic affair. I would hope that the leaders come together one more time and to see that they need a bigger approach, a broader approach. And they have to face not only some minor economic questions but they’re facing a big challenging century, a question of a century in terms of overall politics.” —Dr Heiner Flassbeck, Director, Globalization and Development Strategies, United Nations Conference on Trade and Development (UNCTAD)

In a Real News interview, Eurocrisis: Democracy is Not a Given, Dr Heiner Flassbeck talks about the European Union Summit agreement of September 9, 2011, and the Eurocrisis that precipitated it. He concludes that the German policy of low wages and beggar-thy-neighbour remedies is the root cause of the crisis. This latest agreement, concocted by Sarkozy and Merkel, has not resolved the crisis. We have reached a point, as Flassbeck says in the above passage, where “We should not take democracy as something natural or given.”

Watch a video of the interview here, followed by my transcript with added subheadings and links. As Woody Allen said about accountants, in one of his movies, “They have a language all their own.” So, too, do economists. Much of the Flassbeck interview is heavy slogging, with a relatively long historical account of wage developments, replete with economic jargon. Viewers and readers may prefer to skim through to the second half of the interview – the last 5 or so paragraphs of the transcript – which focuses on the impact of the flawed summit agreement.

Eurocrisis: Democracy is Not a Given, Real News interview with Dr Heiner Flassbeck, December 10, 2011.

TRANSCRIPT (abridged)

“More austerity for Europe” that’s a major implication of the Dec 9, 2011 European Union Summit agreement

Well this agreement first of all is about more austerity for Europe. It’s an agreement that more or less all the countries in the Eurozone, and some others, are going for more austerity, are going to cut down public expenditure, and that they are going to try to improve what they call, improve the competitiveness. But that means wage cuts.

The core of the Eurozone dilemma is the divergence of wage development between Germany and southern Europe

Well I think the rule of this crisis is not a violation of rules of fiscal discipline, of degrees of public debt in the Eurozone, different degrees of public debt. What I think is the core of the issue is the divergence of wage development. Unit labor costs have diverged dramatically in the last ten years. They did not follow the commonly agreed inflation target in Europe. On the one hand southern Europe went beyond this inflation target of 2% but, more so, Germany went below this target by a very wide margin and this has led to an overall gap in competitiveness inside the Eurozone where you cannot depreciate or appreciate anymore of something like 25% between Germany and southern Europe and 20% between Germany and France.

Wage cutting and pressure on unions, designed to reduce unemployment, have failed dramatically

It was dramatic pressure, political pressure on the unions, on wage agreements that we had never before [seen] in Germany. First of all it started at the end of the 90s with a tripartite agreement between government, unions and employer associations. But then on top of that the red-green – paradoxically, the red-green government – put another big round of pressure on the unions by restricting the possibility to negotiate certain wages for low skilled by reducing unemployment contributions and so on. So in that way, wage flexibility has decreased dramatically. It was part of the program that everybody called “labor market increase”, your labor market flexibility, and that is exactly what is asked for now from the other Europeans.

That was the idea. They had clearly what we economists call a neoclassical approach. They tried to improve employment by wage cutting and pressure on the wage negotiations. But it dramatically failed in terms of the domestic markets. It dramatically failed. The only thing that happened, and that could be expected by all reasonable economists would have expected, that if you go into a currency union at the same time the other countries will have no chance to depreciate their currencies. Well, the end is that you beggar your neighbours and that is exactly what happened. So we have huge current accounts of business in Germany and huge current account deficits in the other countries. The unfortunate thing is that we cannot correct it anymore by exchange rate changes.

Overall it failed. It benefitted only the export industry, that’s right. And a certain kind of elite, that’s right also. But overall, German growth was weak. Over the time Germany, in the first ten years in the Eurozone was the worst country in terms of growth and in terms of employment. But only, if you do something like that, you know the increase, the improvement in competitiveness accumulates over time. So you start with say a difference of 2% and after 10 years you have, as I say, 25%. So under these conditions you have 25% premium over your competitors, over the other countries, then the increase, the benefits that you get in the export industry are accelerating and this is why Germany at the end was extremely strong and the others extremely weak.

Without radical policy changes in Europe and the U.S. we’re headed for deflation and stagflation

I think the most probable outcome that we are facing now, not only in Europe but in the United States and in Japan is something like the Japanese two lost decades that started at the beginning of the 90s because we’re heading for a deflation clearly, a deflation in Europe, and stagnation, because wages are not rising anymore. Wages are cut in the south and in Germany they’re not rising very much. That leads immediately to faltering domestic demand. On the export side we cannot expect very much from, as I said, the United States and Japan and China cannot do it alone. So we’re really in a trap that will not . . . you will not be able to escape if you do not [have] radical changes over our policies in Europe and, maybe, in the United States.

“The majority of political leaders really do not understand”

Well, it’s not benefitting and I think they really do not understand — some may understand — but the majority of the political leaders I think really do not understand. And Germany, to be frank, people are talking all the time about the Swabian housewife, which means you do not spend too much. You’re saving a lot of your income. And this is the model for our policies so they take a micro-model for the macro economy and they do not understand that the macro economy is functioning in a totally different way. So it’s not just about who benefits or not. The core of it in my view is economists, the majority of economists, the mainstream in economics, strongly believe that saving is a good thing. And they do not understand the kind of Keynesian restriction or the Keynesian argument against this saving approach. And, more important, is that all good economists, as they say, on earth, believe that wage flexibility is a good thing and they do not understand fully that wage flexibility first of all leads to falling demand and not in the first round to rising employment. So you have a demand restriction, you have a demand constraint and that demand constraint will be very difficult to overcome. I mean look at the discussion in the United States. It’s quite similar to the European discussion. The people really do not take care of the very low wages of the family income expectations that are, as far as I see it, at the lowest level in the United States ever. And to overcome this you need a huge fiscal stimulus, and even that may not be possible. And this is exactly an analogy to the Japanese, the beginning of the Japanese two last decades.

We are in an age of diminished expectations, a totally new experience for capitalism

I think you need a mixture, you need a reasonable mixture. You need stimulus from the government side but given the political opposition against further stimuli you need in addition something like an incomes policy or at least more freedom to unite for the workers to do what is necessary. But you see the point is, in the United States, if unemployment is higher — and that was the case in the beginning of this century in Germany also – if unemployment is high it’s very difficult to negotiate for higher wages. Then the government has to give a strong signal either through minimum wages or other instruments, say wages in the public sector, so to make clear that people can expect that they have their part in the productivity increase in the future. We have a totally new situation, I think, in the capitalist system that we have never seen in 30-40 years before, namely, that we really have an age of diminished expectations, so to say, of the average people. And this diminished expectation, so to say, naturally leads to a stagnative mood and we have to overcome that by a very heterodox, unorthodox instrument. Just monetary policy does not work anymore. Fiscal policy is politically blocked. So you need to think hard about other instruments.

“We should not take democracy as something natural or given”

I think it’s extremely dangerous. We should not take democracy as something natural or given. If you look at southern Europe people are on the streets every day. The riots are getting harder to fight and the governments really do not know what to do anymore. So if you put people into such a situation where they’re really desperate about their outlook, where they’re desperate about their kids’ future, and so on, then people are doing things that might look quite unreasonable but it’s just a result of their desperation.

The time has come for the G20 to act “in a more rigorous, totally different way”

And so far I think G20 could be the forum to act but in a more rigorous and a totally different way. I have been following G20 in the last year and it was unfortunately a very bureaucratic affair. I would hope that the leaders come together one more time and to see that they need a bigger approach, a broader approach. And they have to face not only some minor economic questions but they’re facing a big challenging century, a question of a century in terms of overall politics.

Austerity is not enough. We need political leaders to understand just how serious the situation is

I think they have to realize that the bond holders are not so stupid. If you look at the much-criticized, in Europe, much criticized opinion from Standard and Poor’s this week about the rating of Europe as a whole, the Eurozone as a whole, then Standard and Poor’s has said something quite reasonable. They said just austerity is not enough. So if you just go for austerity then we have to downgrade you because the overall situation is deteriorating. And what was not clearly in the cards last year in the negotiation of the G20 was this dramatic development in the real economy and this has changed the situation. So this should be a wakeup call for everyone to go more serious than ever into negotiations about who could stimulate and who has to do some austerity even at this very critical circumstance. There was a very fruitful discussion at the beginning of last year but it faded away and it didn’t have the political momentum so I very much hope that we will have some political leaders somewhere in the world who will understand how serious the situation really is.

RELATED READING

Eurozone Agreement: Bad For Germany, Bad For The World Seeking Alpha, December 9, 2011 — “Europe is heading for what looks to be at least a 4% contraction in GDP in 2012, and there’s very little chance that this won’t impact the rest of the world, even if it isn’t accompanied by a financial crisis. The U.S. running high single-digit deficits-to-GDP has helped it and the rest of the world, but with China also looking very shaky, the global economy could be squeezed pretty hard between Occidental and Oriental book ends. And if the U.S. gets serious about jumping on the same leaky austerity ship that most of the world is on, watch out.”