by Ramin Mazaheri for The Saker Blog
There is a lot of talk about which economic bubble will burst first and burst the worst (sounds like a gangsta rap song, no?)
The stock market, real estate, luxury goods, corporate debt and government bond bubbles, and other lesser bubbles, all jockey for the titles. It’s the “Everything Bubble” for good reason.
The “good reason” is: the 1% owns everything of high value, so if Western governments make it their policy to inflate those valuations even higher, then the 1% regains everything they lost in 2008. Welcome to Western Liberal Democracy – if you have a seat in the House of Lords I’m sure you’re not suffering too badly.
Because of that “good reason” I listed all of these bubbles are worse now than in 2008. Nothing was learned and nothing was delivered: I am not a doomsdayer, but these kind of facts make me write that Great Recession II (Great Depression II?) is around the corner.
However, not all bubbles are created equal:
The luxury goods bubble, for example. It’s mildly interesting, from a sensational news aspect, that the most expensive bottle of wine is now worth $558,000…but the luxury goods market is a minuscule part of every nation’s “real” economy, excepting France, Italy and Switzerland. Back in 2008 a half-million dollars set the record for largest lot of wine ever – 27 bottles – so these stories only prove the existence huge asset inflation (bubbles) – 1/27th in the area of wine sales.
The stock market bubble is also mainly a rich-person’s problem – we only hear about it so very often because…the rich own the media in the West, and the coverage thus reflects their interests. Yes, 52% of Americans own stock, because it’s a huge part (stupidly, rapaciously) of the American private pension system, but only 18% own stock directly and can buy and sell at will. We all know that stocks no longer have any correlation to a company’s actual performance and prospects; those really paying attention also know that the Great Recession’s bailout money has been used for stock buybacks, which raise the stock price. That bubble is ending, too: taxpayer-funded stock buybacks were higher than ever in 2018 and yet produced the worst market results since 2008.
This now-failing tactic of buybacks is the source of the “corporate debt bubble”. The stock market bubble’s bursting is not that important to the everyday person, no matter how much media coverage will be devoted to it – the real economy will not not sink because of it, no matter how much less your 401k pension is now worth. The related corporate debt bubble is far more impactful: instead of using that cheaply-borrowed money from the government to hire or for RnD, corporations are thus not prepared for capitalism’s next inevitable crisis, which translates into layoffs, which translates into a huge “real economy” hit as workers are not buying lunch, paying rent or buying decidedly non-luxurious but still-necessary goods.
The real estate bubble affects many more people, and not just in the construction market. Just over 50% of Germans are homeowners, rising up to 70% as you get in the former Socialist Bloc nations, with the US around 65%. Amazingly, home prices have surpassed the prices in 2008 in the US. But it’s rarely remembered that houses are only worth what a bank will loan you to pay for them. Banks are getting money from governments cheaply, but instead of “real economy” investments they inflate houses (which they own) with incorrect valuations. When credit is so low that borrowing is near free, why not pay yourself more? So that means more dumb loans have been dangled and signed. When this bubble bursts it will hurt but it won’t bring the entire economy to a total halt.
(Sidebar: As a daily journalist who deals with housing activists regularly, let me pass this on to you – there are few mass problems easier for the government to fix than housing. Housing oversupply in the US is back to 2007 levels? Why aren’t the homeless and poorly-housed rejoicing? Because in the West housing policy is controlled by real estate speculators, lenders and landlords – not dwellers/citizens. Your country lacks (mainly low-cost) housing supply (like France and the US)? Again, the stroke of a pen creates a fabulous, real-economy and real quality-of-life-boom for your citizenry. But…not in capitalism. Think China is wrong to build “ghost cities”? I say lay off the propaganda: you are wrong to imagine that construction doesn’t move faster than government bureaucracy. Check those ready-made planned towns in 10 years – they always get filled up with Chinese “peasants” eventually.)
The bond bubble, however, is the mother of all bubbles. That’s because the most important actor in any economy is the government.
Lie to yourself about how “the West values a free market” all you want – if a government cannot pay bills & wages or provide necessary services, then the real economy will be crippled. Because so many Western governments run on deficits – which is not to say that all debt is unproductive debt – they have to borrow via bonds.
Can’t borrow, like Greece? Then you wind up…like Greece.
It takes a US government shutdown for The “socialism for the losses” New York Times to say what all lower and middle-class people know: government jobs are the best ones. The Times is right: no government jobs/cutbacks, then no more lunches at Rayetta’s Lunch Box but brown-bagging instead; no jobs for Blacks/Muslims, then it’s back to their two low-paying choices in private industry, depending on gender – janitor/security or receptionist; austerity cutbacks or shutdown-cutbacks indeed means “three families that would be getting above-average pay” won’t get it, with huge consequences on the local and national levels – reduced overall economic activity.
So I am not falsely trumpeting the virtue of “big government” when I note that if/when Eurozone governments cannot borrow money via bonds, and thus cannot fund their daily operations, then the economic output of those individual nations will plunge drastically. Government workers will likely work for free for months, as in Greece and elsewhere, mainly because they are patriots who also have nowhere else to go. They can’t become private sector waitresses because Ravetta is actually about to close the Lunch Box down – government workers have no money to lunch there, so it’s now near bankruptcy: If the public sector dies, it will take much of the private sector with it.
If national governments can’t get money, can the European Central Bank – the higher-level-but-not-really level of government in the Eurozone – step in?
No, the ECB is tapped out and on the verge of becoming a joke – they can no longer buy government bonds or help banks replace this role which the ECB has served for years. They failed because they did not attaching any strings to bailouts, thus never fundamentally strengthening a weakened economy burdened with a poor governmental structure.
The post-2009 taxpayer bailouts for failed banks, we were told, were supposed to not just save Ravetta’s Lunch Box but to help open Ravetta’s Lunch Box II, creating jobs and circulating wealth in the real economy. There were no formal promises or strings necessary, we were told – banks would just do the right thing their own. The reality is that post-2009 banks jealously guarded their taxpayer bailouts, and refused to lend. That money went into the various 1%-benefitting bubbles.
The ECB then lowered their interest rates all the way to zero, giving commercial banks zero risk to borrow money which could be then lended to Ravetta. This means that failed investments were taken off the books of private banks, with the failures assumed by taxpayers, and now the private banks were even being staked with money. Banks, knowing how bad the Eurozone’s situation truly was, didn’t bite – they borrowed but didn’t lend. That borrowed money went into the various 1%-benefitting bubbles.
That caused the ECB to try something else in 2015 – QE. The ECB tapped a keyboard and created 2.5 trillion bitcoins out of thin air – wait, not bitcoins, but 2.5 trillion euros. This money went to buy something banks didn’t want (for obvious reasons) – government bonds – but also some private sector bonds. By taking the problem of unwanted national sovereign bonds out of the picture Eurozone QE, the theory went, would also keep private banking interest rates low. That means they could give loans to corporations and the small- and medium-sized Ravettas, finally creating economic growth.
The Eurozone is a currency area, not a country – QE had plenty of problems and entanglements which the US and Japan did not have. But what it did have was, again, no promises or strings attached. Much of the money went into the various 1%-benefitting bubbles.
However, QE did temporarily solve the problem of sovereign debt in the Eurozone by taking it on its own books and keeping it off the books of the member nations. This has allowed member nations to look attractive to investors – too bad that investors never invested in the real economy! The fake economy – stocks, Van Goghs, real estate, etc. – has been booming for 10 years, after all.
Now that QE is ending, the reality is that the bond issue was not solved because there is no one who can replace the role of the ECB: nobody can or will buy Eurozone bonds at the same level…and thus how will governments be funded? This is the main problem caused by the end of QE.
So despite 10 years of public funding, banks never forwarded any of this money to Ravetta. It should be totally clear that what banker bailouts, zero-interest lending and QE did for the Eurozone was simply to free up high finance to: 1) fund stock market buybacks to prop up the stock market 2) to inflate (non-productive) corporate debt, 3) make risky and overvalued loans to prop up values in the real estate market, 4) create the profits which the 99% never sees but which fuel sales in the luxury goods market.
Government is Mommy and Daddy – where they lead, all the children must follow. It is only the socialist-inspired systems (China, Vietnam, Iran, Cuba, etc.) – which have fundamentally different aims and which fundamentally limit the reach of high finance as well as neoliberal and foreign capitalists – which will be able to buffet the coming storm.
The Eurozone, however, could see total chaos at any moment; France has the Yellow Vests already.
Eurozone: Still the weakest link, but even weaker
I have written extensively about how the Eurozone is far, far weaker economically now than during their Sovereign Debt Crisis in 2012.
Back then, nobody wanted to loan to Eurozone nations like Greece and Ireland, whose balance sheets rocketed to awful expressly because they were laden with banker bailout debt from 2008. Given that Eurozone nations have relinquished the right to print their own money, those countries were up a creek without a paddle. Get a loan or the national economy stops.
But…why loan to many in the Eurozone in 2012? They suffered the 2008 crash PLUS banker bailout debt PLUS they had embarked on the policy of “strangle your national economy to reduce the social safety net and workers rights”, a.k.a. austerity.
The “solution” was Mario Draghi’s 2012 “Whatever it takes” speech, which translated on a practical level to Quantitative Easing, i.e. no-strings attached, near-free taxpayer money to the 1% and high finance in order to stop them from squeezing the national bond markets of the Eurozone as they had started doing. The US and Japan had embarked on QE sooner and more deeply.
This solution steadfastly refuses to inject money into the real economy, which is why Yellow Vests are suffering instead of content.
The first proof of this is that the Eurozone has achieved a Lost Decade of economic growth (average annual growth rate from 2008 to 2017 was just 0.6%.) – which the media never admits but which I detailed – despite nearly four years of QE worth 2.5 trillion euros. Money was only injected into the 1%er economy, and the second proof of this is that we now have Real Estate Bubble II, Stock Market Bubble II, Luxury Goods Bubble II, etc. Only Eurozone Government Bond Bubble II has not appeared…because when it does, by definition, all hell will break loose. The government, socialists understand, is the ONLY backstop from disaster – capitalists falsely believe it is the SOURCE of disaster.
Beyond the poor day-to-day policy of QE, there have been no structural policy changes as result of the poor, capitalist-led rules which allowed Sovereign Debt Crisis I to happen in the first place: no mutualization of Eurozone debt, no increased transparency of the EuroGroup, no changes at all. So…of course there will be Sovereign Debt Crisis II!
All this explains, to a time-traveller in 2008, that the 1% has continued to win despite the Great Recession caused by their bad decisions!
The Yellow Vests are there precisely as a result of the guaranteed failure of non-socialist inspired economic policies.
When the Eurozone bond market gets turbulent, it’s a Yellow Vest rampage – I say, ‘Good’
On top of all this practical, governmental failure, the logic, philosophy and history of capitalism dictates Sovereign Debt Crisis II will happen: punk, unpatriotic, heartless high financiers will go back to doing what they do before the European Central Bank began buying them off – squeezing the national bond markets for profit.
“Oh, ECB interest rates are no longer 0%? Then why would we risk our own money to buy your ever-worsening country’s bond? Oh, the ECB won’t go below 0%? You mean you won’t pay us to buy your bonds? Oh, the ECB can’t buy national bonds either, because QE has bought so much (2.5 trillion euros) that its credibility is strained and its legal limits reached? And your nation can’t print money either? Well, too bad for your nation, I guess. Germany and the Dutch should be relatively ok, thankfully.”
Furthermore, we also have a generation of young capitalists who have never, ever seen a bear market. Wrap your heads around this perpetual reality of capitalism; they will get their tails handed to them on a platter, and our tails along with them.
To say that I am wrong about why the European Debt Crisis will not get start soon – given the withdrawal of high finance-pampering – is to say that capitalism is not “capitalism” but that it is a centrally-planned, regulated, protective, riches-limiting socialism instead; is to say that high-finance has found morality and wants to make money honestly; is to say that international neoliberal capitalists have rediscovered fraternal patriotism.
The Eurozone’s QE, after postponements, is now done. It was supposed to be finished in September of 2017, which is why I wrote this 7-part series about it back then, but it was postponed and prolonged with a QE2 until December 2018. The US and Japan have also had multiple rounds of QE.
The Eurozone – the largest macroeconomy in the world and yet also the weakest link the global economy, and which has been significantly weakened by the policies pursued since 2012 and since 2008) – is about to re-enter crisis mode.
Maybe at the first sign of Eurozone Sovereign Debt Bubble II they will announce QE 3, but that would require a changing of their rules – the ECB is not as independent as the US Fed or the Bank of Japan, after all. It is very likely – given the horrifically slow nature of the EU’s 18th-century Liberal Democratic system – that the rules will not be changed in time, given the fact that QE 3 would come amid such a very worse economic and bubble situation than QE 1 or QE 2.
And now France has the Yellow Vests: angered, rendered desperate and emboldened by eight years of austerity.
Just imagine the effect any major economic shock and subsequent slowdown will have on the Yellow Vests – what if unemployment goes from 9% to 11%? The Yellow Vests are marching every Saturday because they want immediate improvement, not a dramatic worsening.
How would they respond to the 1%’s faux-solutions to an economic shock?
Are they going to sit back and hold their tongue in order to placate the “confidence fairy”? Are they going to put their faith in the campaign promises of a patsy like Francois Hollande? Are they going to “give a chance” to a candidate who is even more last-minute and even more falsely fabricated than Emmanuel Macron? Are they going to take a chance on Marine Le Pen, even though they firmly rejected her in 2017?
The answer is no. The answer is: we don’t know what the Yellow Vests will do on any given Saturday.
All we know is that recession is around the corner, outright economic crisis appears extremely possible, and that every possible outcome strengthens the Yellow Vests:
Macron will not do what it takes to gain credibility with the Yellow Vests – admit that all of France’s and the Eurozone’s policies have failed and have also been morally wrong.
Even if Macron does break down and end austerity completely, that will require more borrowing. That means the 1% and their supporters – like Reuters – will cry foul over the same old absurd all-deficits-are-bad fears, and raise borrowing rates (bond rates) as well.
If Macron continues on his path, that means more poor economic performance, which means more Yellow Vest supporters. That is certainly what he will do: in the first cabinet meeting of the year he instructed cabinet minsters to be “more radical in their attempt to reform the country” – i.e. continue with real economy-crushing reforms to the unemployment and social security systems in 2019. This might keep France’s bond rates low, but France is in the Eurozone – French success is tied to keeping Italy’s, Spain’s and everyone else’s bond rates low as well. As the 2nd-largest motor in the Eurozone France’s economic stagnation heightens the risk of all their Eurozone partners.
The Eurozone is not the US or Japan, and certainly not China: It only takes one nation – in the context of multiple bubbles caused by 10 years of terrible economic policies, which are in place to paper over 30 years of terrible economic policies – to bring the Eurozone back into crisis with higher bond rates.
So higher bond rates are inevitable, it’s just a matter of when. High finance already knows all this: This week saw Latin American bank bonds become less risky than Eurozone bank bonds, which hasn’t happened since 2012. How long until they move to Eurozone nations?
Where the French are at now is: zero tolerance. That’s a very intelligent place for the masses to be, given the recent history I’ve recounted.
The Yellow Vests are calling January 19th “Act 10”, which has reached the point of absurdity. I realize that the French have a culture which overwhelmingly stresses the visual, aesthetically-concerned aspects of culture – painting, fashion, acting – but revolution is not theater.
Are the Yellow Vests going to have “Act 324” one day?! Leftist revolutionary political change is not a pose, nor a role, nor a shirt to put on, but a permanent and committed determination.
Regardless for how long France wants to persist with these theater-inspired slogans, Sovereign Debt Crisis II will make permanent believers out of the Yellow Vest. Don’t look at the Yellow Vests in an isolated vacuum – the only thing “new” about the Yellow Vests is purely sartorial (how very French): It’s just 1 protest…which has lasted 8 years.
Times have changed: The Yellow Vests were not on the ground in 2008. Nor will the response to economic recession/crisis be like in 2012, when France continued to put their faith in a mainstream politician – Francois Hollande.
Indeed, with the Yellow Vests mobilised so well I say this: let the bubbles burst and the crisis hit as soon as possible – it would be far better in the long run.
Ramin Mazaheri is the chief correspondent in Paris for PressTV and has lived in France since 2009. He has been a daily newspaper reporter in the US, and has reported from Iran, Cuba, Egypt, Tunisia, South Korea and elsewhere. His work has appeared in various journals, magazines and websites, as well as on radio and television. He can be reached on Facebook.
Many good points as always Ramin but some disagreements about definitions of the problem.
What I see as having happened in the west is a corporate fascist takeover.
1) Transnational corporations control the governments, particularly financial cororporations (eg the private central banks). So called “politicians” move back and forth between government jobs and high positions within these corporations.
2) All political parties represent only the interests of the corporations,
3) The 99.9 percent, ie the people, have no representation whatsoever in their parliaments. They are ignored or actively repressed.
4) Voting changes nothing. It is merely theatre. The French election for example offered a choice between two fanatical Zionists representing corporate interests only. Also in Britain the two main parties actively collude to wreck the vote to leave the EU which the people voted for.
5) Instead of ensuring the interests of their people, governments wage war on their populations on behalf of private corporations through use of extremely authoritarian methods as we are seeing now in France.
6) Total corruption (pedophilia, money laundering, warmongering, drug trafficking ) goes on because they are above the law and untouchable.
7) There is no proper justice sytem.
The above shows that totalitarian fascism is now the model for western regimes. “Capitalism” in the sense of small to medium sized businesses, has been abolished . The future if they get away with it is serf-slavery for a micro chipped population and a super rich elite where everything is owned by a few private families under a one world government.
I think the yellow vests, judging by some of their banners realise the truth of all this.
That’s why we need a Caesar or Tsar at the top who centralizes power against and away from the plutocracy.
Centralization of power at the top actually leads to a stable economy. Because to maintain that kind of power, there should be lawful authority which leads to order, stability and even religion or a common culture and citizens being kept happy in order to support such an imperium.
Its Capitalism which is a revolutionary force which constantly forces people to change jobs/profession in order to even survive, thus destabilizing all workers.
Capitalism is inherently based on flux or “becoming” and definitely NOT based on authority/order/stability/justice. Thats why Culture also keeps changing according to the dictates of “Capital”.
Nietzsche’s heroes were Caesar, Napoleon, Borgia and some Popes who centralised power to such a degree that Europeans could work towards a common destiny and a sense of purpose instead of looking at their dumb TV watching petty squabbles of oligarchs.
Nietzschean, I am not sure if having Tsar really solves the problem. People need real democracy, where they can have real control over the government. Notice, I did not say the parliament. Parliament and the party system has no place in real democracy. People should vote for number Government ministers and should have the power to get rid of them as soon as they are committing “crime” against the people. Again not against democracy but the people.
Yes but in this world centralization of power at the top is going to have to be democratically validated to both survive and find stability. Otherwise the plutocrats would find subverting and overthrowing that centralized power all too easy. Look what happens to those who try it by force of their own individual will; Julius Caesar is an easy example. So this brings the issue of centralization of power back into the realm of democratic culture. And that leads to the unavoidable solution of socialism. And look at how much propaganda heat socialist countries have to take around the issue of dictatorship. They are attempting to do in as balanced a way as they can exactly what you are asking for. Which is why Marx wrote about the “dictatorship of the proletariat” needing to be a genuinely democratic dictatorship. But fulfilling that requirement demands a further spiritual enrichment of the culture itself, would you not say?
So basically a popular monarchy and centralization for, by and of the people? Sounds alright but there would have to be democratic mechanisms by which to avoid oligarchic tendencies. It makes me wonder how history would have turned out if Caesar had not been assassinated or if Napoleon had remained in power? Maybe there is a new Caesar/Napoleon just around the corner.
Jason, In XVII century Poland had elected kings, which actually caused nothing but disaster for Poland. The ended up with French king Henry (somehow related king of France husband of Queen Mary of Scots, younger brother? something like that). Then they had Swedish king. I could go on and on. Anyway, this lead to total Political B…lo, which ended up in Poland’s occupation by the cousins (Prussia, Austro-Hungary, and Russia).
Poland did not recover until Lenin decided to end the occupation. Which in turn ended up in Poland attacking Soviet Russia in 1922? and grubbing Ukraine, Belorus, and so on.
Believe me, there are many noises about reviving Royal houses all over, but people who suggest that must be on something. I realize that none of us is really free, but I refuse to be someone’s personal property (officially).
Caesar was not a feudal “divine” monarch but the a popular one. Learn how to distinguish between Greco-Roman monarchy and feudal monarchy. Poland is irrelevant, its peripheral to the Germano-Roman world and its contradictions.
The French elections offered more than two choices.
The French elections for President occurred in two rounds. In the first, there were multiple parties. The vote was split largely among four parties. Of these, the top two were chosen for the 2nd round. But this means two things.
One was that the first round was close and even a slight increase of one of the 3rd or 4th place parties could have resulted in a different ballot in the 2nd round. All four leading parties were above 20%. It is interesting that it is a possibility that the election could have been rigged just by a small increase in LeFascist’s first round vote making her the opposition candidate for the 2nd round.
Second, this is one of the reasons why Macron is so weak right now. People talk as if he received a big mandate in the 2nd round with his victory. But when people had more of a choice than LeFascist as his opponent, Macron only got about 25%. Macron’s arrogance then made matter much, much worse, because he chose not to govern as if he had 25% support but as if he was an Emperor with universal support.
Jewish France
https://en.wikipedia.org/wiki/La_France_juive
Azorka1861
Macron is a Rothschilds banker, doing as told. His job is to keep France in the EU. He is more concerned with the EU than with France. Latest news is that he has warned EU members that they will be fined if they don’t accept their quota of “migrants”, and he has also attacked Hungary, accusing it of curtailing the independent status of NGO’s, as if these NGO’s are really independent, and not under foreign control.
What we have here is the destruction of sovereign European states and ethnic groups and a reversal of Europe back to the Dark Ages of barbarism.
@B.F.
_ ” what we have here is deconstruction of sovereign european states _ ” …
Could we also observe that present day eu states are as sovereign as states
under rule of adolf hitler in his third reich ,
And that EU is just third reich , renewn as fourth reich under angela merkel ?
Combined with orders comming from commisars directive orders from Brussel ?
Withe their power source is outside of EU ?
So since III reich failed , and IV reich is on path to fail , will there be V reich ?
or will be : _ ” reversal back to dark ages of barbarism _ ” ?
Tomsk
Just to add that the total global debt has surpassed 244 trillion dollars. Both the euro and dollar are printed backed by nothing, the difference being that the dollar is printed in larger amounts than the euro. Does anybody have any idea how all of this will end ? A crash perhaps ? And then what ? Who will take the lead after that ? Russia and China perhaps, who have been accumulating gold for years ?
As long as most of the people have confidence in USD, and most of Americans are confident in their Democracy, Freedom and Rights (no matter that 40 % decided not to vote), nothing is going to change.
Anonymous
I am afraid that you are right. Most believe what the MSM tells them, and most have no idea what is going on as far as the economy and finances go. Many are aware what the foreign debt of the US amounts to. However, how many know there is such a thing as a domestic debt. Very few.
““Capitalism” in the sense of small to medium sized businesses, has been abolished”
Good point! Few in America recognize the role of the International Standards Organization (ISO) in creating a massive onerous paper trail fro businesses to comply with. Big Business has no problem with compliance due to an economy of scale but smaller businesses cannot afford the compliance costs. Besides, the total quality management approach of ISO does nothing to increase quality and everything to do with stifling competition, much like the Guilds of the 14th Century (see Tuschman’s book).
Ramin, I do not understand your “note that if/when Eurozone governments cannot borrow money via bonds, then 1) they cannot continue zero-interest lending to banks”.
I thought govt Borrow from Banks ie, banks buy govt Bonds at x% interest. So why should govt then Lend to Banks at 0% interest? And if so, is govt simply Lending back to banks at 0% the money which they Borrow from banks at x%?
I’m no expert, but I think it is something vaguely like this.
In Italy for example, the Italian government has been propping up the banks that are in trouble. The Italian government does this by borrowing from the European Central Bank, then giving that money to the Italian banks. Ramin appears to refer to some limits in how much the ECB can do this, but that gets beyond me.
The QE programs of the ECB have been buying government bonds, in this example, Italian bonds, thus forcing the interest rates on those bonds to near zero. If the Italian government knows the ECB will buy all Italian bonds on the market, why pay high interest rates? But if the ECB hits a limit on what it can do and suddenly the Italian government has to attract money by offering market interest rates, then you get what Ramin is describing as what happened in the last Euro crisis.
Or at least that’s my guess as to an explanation. It does get confusing as there are different levels of governments and different levels of banks. And for obvious reasons it is preferred if the people don’t really understand this. Its so much easier to make the people blame the immigrants for all the problems.
@Anonymous — the one who posted above: “The QE programs of the ECB have been buying government bonds, in this example, Italian bonds, thus forcing the interest rates on those bonds to near zero. If the Italian government knows the ECB will buy all Italian bonds on the market, why pay high interest rates? But if the ECB hits a limit on what it can do and suddenly the Italian government has to attract money by offering market interest rates, then you get what Ramin is describing as what happened in the last Euro crisis.”
Which is what I thought: the Italian govt is Borrowing from one set of Banks at x% interest in order to lend that money back to the European Central Bank at 0% interest!
I know nothing of High Finance, but I believe that All Banks (except in Syria and Iran — and Iraq and Libya until they were conquered) are ultimately controlled by House of Rothschild amid a small group of High Financiers. If this is true, then in your example, the Italian govt is _Borrowing at Interest_ from a small group of High Financiers in order to _Lend Interest-Free_ that same money back to that same small group of High Financiers.
Dr. Maroudas, you are such a good commenter that I cannot wait for my article to be updated.
Unfortunately, I sent in an earlier draft by mistake, and it has not been updated as of yet. What I was referring to, in your first question, was the ECB and not national governments, but the Anonymous commenter shows how convoluted the situation is that it can still make sense the other way around. I was trying to be brief – as I am often so wordy – but my true final version explained the situation in more detail, and tried to give a daily-journalism-like chronology of what has transpired here in the Eurozone.
But my ABSOLUTE MAIN POINT point, which the first & incorrect version of this article did not include by accident (arghhh!), is that: the ECB, by buying unwanted government bonds via QE, HAS INDEED effectively solved that problem for years…but what now? Deficit-run governments NEED buyers of their bonds to have money to function – but nobody will buy Eurozone bonds at the same level that the ECB was doing. Why should they, when the Eurozone’s economic situation is far worse? That is why – in my reading – European Sovereign Debt Crisis II simply must be around the corner.
Here is the soon-to-be-updated version of this article, and I thank you Dr. Marudas for all your comments over the years:
“So I am not falsely trumpeting the virtue of “big government” when I note that if/when Eurozone governments cannot borrow money via bonds, and thus cannot fund their daily operations, then the economic output of those individual nations will plunge drastically. Government workers will likely work for free for months, as in Greece and elsewhere, mainly because they are patriots who also have nowhere else to go. They can’t become private sector waitresses because Ravetta is actually about to close the Lunch Box down – government workers have no money to lunch there, so it’s now near bankruptcy: If the public sector dies, it will take much of the private sector with it.
If national governments can’t get money, can the European Central Bank – the higher-level-but-not-really level government in the Eurozone – step in?
No, the ECB is tapped out and on the verge of becoming a joke – they can no longer buy government bonds or help banks replace this role which the ECB has served for years. They failed because they did not attach any strings to bailouts, thus never fundamentally strengthening a weakened economy burdened with a poor governmental structure.
The post-2009 taxpayer bailouts for failed banks, we were told, were supposed to not just save Ravetta’s Lunch Box but to help open Ravetta’s Lunch Box II, creating jobs and circulating wealth in the real economy. There were no formal promises or strings necessary, we were told – banks would just do the right thing their own. The reality is that post-2009 banks jealously guarded their taxpayer bailouts, and refused to lend. That money went into the various 1%-benefitting bubbles.
The ECB then lowered their interest rates all the way to zero, giving commercial banks zero risk to borrow money which could be then lended to Ravetta. This means that failed investments were taken off the books of private banks, with the failures assumed by taxpayers, and now the private banks were even being staked with money. Banks, knowing how bad the Eurozone’s situation truly was, didn’t bite – they borrowed but didn’t lend. That borrowed money went into the various 1%-benefitting bubbles.
That caused the ECB to try something else in 2015 – QE. The ECB tapped a keyboard and created 2.5 trillion bitcoins out of thin air – wait, not bitcoins, but 2.5 trillion euros. This money went to buy something banks didn’t want (for obvious reasons) – government bonds – but also some private sector bonds. By taking the problem of unwanted national sovereign bonds out of the picture Eurozone QE, the theory went, would also keep private banking interest rates low. That means they could give loans to corporations and the small- and medium-sized Ravettas, finally creating economic growth.
The Eurozone is a currency area, not a country – QE had plenty of problems and entanglements which the US and Japan did not have. But what it did have was, again, no promises or strings attached. Much of the money went into the various 1%-benefitting bubbles.
However, QE did temporarily solve the problem of sovereign debt in the Eurozone by taking it on its own books and keeping it off the books of the member nations. This has allowed member nations to look attractive to investors – too bad that investors never invested in the real economy! The fake economy – stocks, Van Goghs, real estate, etc. – has been booming for 10 years, after all.
Now that QE is ending, the reality is that the bond issue was not solved because there is no one who can replace the role of the ECB: nobody can or will buy Eurozone bonds at the same level…and thus how will governments be funded? This is the main problem caused by the end of QE.
So despite 10 years of public funding, banks never forwarded any of this money to Ravetta. It should be totally clear that what banker bailouts, zero-interest lending and QE did for the Eurozone was simply to free up high finance to: 1) fund stock market buybacks to prop up the stock market 2) to inflate (non-productive) corporate debt, 3) make risky and overvalued loans to prop up values in the real estate market, 4) create the profits which the 99% never sees but which fuel sales in the luxury goods market.
Government is Mommy and Daddy – where they lead, all the children must follow. It is only the socialist-inspired systems (China, Vietnam, Iran, Cuba, etc.) – which have fundamentally different aims and which fundamentally limit the reach of high finance as well as neoliberal and foreign capitalists – which will be able to buffet the coming storm.”
I believe you’re on the right track here. One constant source of confusion is the assumption that central banks are owned or controlled by the governments which host them. Central banks are part of the global banking complex and answerable to the Bank for International Settlements, not governments. Quantitative easing as well as direct monetization are tools used by banks to support the bond market. Both methods involve bond purchases but differ in their effects on the monetary base. Under a policy of monetization, the central bank buys sovereign debt (bonds) directly from the issuer (government). Under quantitative easing policies such as those of the Federal Reserve in the US, central banks purchase bonds from other banks, not directly by the issuer. But the fundamental role of the government is simply as a borrower. Governments do not normally function as lenders to banks.
In theory, these policies should only be stop-gap measures to be used until the real (production) economy can grow to such an extent that these debts become manageable. Unfortunately, these policies have themselves had the effect of draining capital investment in the “real” economy making this effectively impossible. The only solution is to write off the bad debt. This would bankrupt much of the banking system of course, so the odds of that happening are not good.
The article has been updated and now includes the above.
Accidents happen, LOL! That’s what happens when you don’t have an editor, and are working for free in your spare time. I recall one time I mistakenly conflated Imam Ali with Imam Hossain in an article – quite mortifying, LOL, but it could not be remedied and remains on the internet as a testament to my enormous imperfections, LOL.
And thank you for your note below, Dr. Maroudas. The Saker is full of people of such intelligence that longer is usually appreciated – very rare.
Just because I think it’s so important, I include the accidentally-omitted part once more:
“Now that QE is ending, the reality is that the bond issue was not solved because there is no one who can replace the role of the ECB: nobody can or will buy Eurozone bonds at the same level…and thus how will governments be funded? This is the main problem caused by the end of QE.”
Ramin….you could ask for some educated volunteer editors who are willing to spare some free time, just like you are doing. Thanks for the informative article, even if it was a bit chaotic lol.
Looking forward to reporting from the government public consultations….whether tragedy or comedy…….wonder if gillets jaune will insist France drops sanctions against Russia…..!
Anyone who sits in the traffic jams of the typical American city for hours every day in order to get to and from work knows that capitalism does not build in advance for future growth. The typical sequence is for traffic to get horrendously bad with long delays, then finally money is allocated for improvements, the construction of the improvements snarls traffic even worse than before and lasts for year, then finally the construction is complete and the traffic returns to its horrendously bad state with long delays because the additional capacity from the just completed construction barely if at all matches the increased growth in traffic during the process of planning and building the construction. The process only really serves to let the owners of the construction firms to afford a mansion in the county away from the traffic and a helicopter to get about over the snarled traffic.
And these are the people who sneer at the idea of “central planning” and instead claim that a blindfolded and invisible hand of an imaginary market (imaginary because modern markets are rigged and thus cannot serve their theoretical roles) will magically take care of all problems.
A government exists, at least in concept, so that the people can come together and get done the tasks that the people want to get done. Capitalists sneer at this and hate it and do their best to kill off the ability and instead to corruptly use the governments created by the people and for the people to instead make themselves rich off the people’s taxes. You hear this over and over in the capitalist west as the elites sneer at Big Government and thus work to deny that the people can ever get together and do anything that doesn’t make the rich even richer. The amazing thing is that the elites now have the people so ill-educated and brain-washed into going along with plans to destroy the ability for them to do what they need to have done, proudly doing so believing that they are killing a mythical beast known as Big Government whom they’ve been told is about to eat them and destroy their home.
And, in terms of the capitalist business cycle, which has not been repealed, these are the good times. This is the top of the cycle. This is capitalist society after a long time of economic growth and upswing since the Great Not-A-Depression of 2006-2008. Isn’t that what the propaganda is telling us?
If they are protesting in the streets in the best of times, what will occur during the worst of times?
Ramin, excellent take on the issue. But, I think that there were more than II bubbles.
Your comment regarding overinflated real-estate prices is dead on. The real-estate is overinflated in order to steal the money from Chinese and other Asian buyers. At some point there will be a crush and the money theft will be complete. Only to start at some later time.
Great article.
Another writer I like has also been writing about “The Everything Bubble”. It seems a very accurate term, as the flood of free money from the printing presses of the central banks has caused inflation in all the asset classes that the recipients of all of that free money like to buy.
Separate analysis of various markets shows bubbles in the individual markets. But this time around, its really all one giant bubble. Which means they all pop at once.
Places like China that have tried to stay disconnected to the capitalist running dog financial system might survive. And strangely, all the sanctions against Russia have forced them to plan for such disconnections even beyond the once forced by the sanctions. So, they might survive as well. Especially since the friendship of China will help.
Put for everyone else…..? Well, the last one was a real estate bubble popping which led to discovering weakness in the banks. That was the worst crash since the Great Depression. When all the bubbles pop at once, when the Everything Bubble goes pop, and the banks are all weaker than the last time, it will be much worse.
Like with the last Great Depression, Trump’s trade wars and tariffs will likely get the blame from the people who emerge from the rubble. Its probably always more complicated than that, but that will be the simple reason taught in schools.
Excellent essay.
Another, and congruent, way to see the matter is that we have a singularity. An example of a mechanical singularity might be a pair of meshed gears spinning along in non-singular fashion, until a gear tooth broke and jammed the machine. The sudden jamming is when things cannot continue as before. Similar to zuswang, but more kinetic I should say.
In Geo-political realm singularity generally means violence, as in fist and face cannot occupy same space at same time. Of course this can become generalized and in not limited to fists and faces…violence with weapons. Mao’s famous dictum about where Power comes from.
Just now the violence seems to be undercover finks doing it.
That’s going to change, I mean, hanged for a sheep, hanged for a lamb an’ all that stuff.
Time for governments to build FEMA camps in Europe! The step to use German military inside the country is already done. They train city combats in a town called „Schnöggersburg“ in the Altmark region.
US General Michael Hayden (a former CIA Director) in his at speech at Kansas State University 2008: European countries, many of which already have large immigrant communities, will see particular growth in their Muslim populations while the number of non-Muslims will shrink as birthrates fall. „Social integration of immigrants will pose a significant challenge to many host nations — again boosting the potential for unrest and extremism“.
Washington Post on 1. Mai 2008
http://www.washingtonpost.com/wp-dyn/content/article/2008/04/30/AR2008043003258.html?noredirect=on
That was a good read Mr Ramin. Our UK yellow vests are just tuning up also, waiting for what Brexit (if it ever happens) will bring, to see which way the wind blows.
I agree with your conclusion also, the sooner we get this done (reach crisis point) the better for all concerned in the long term, as the denouement is inevitable, either now or down the road a bit.
Helloooo! Gansta rap? Did you say worst verse? That is right up my way, most fit for Cafe, but not for today
I upon you I lay:
“What bubble bursts first and bursts the worse?
say, run on the banks, the economy tanks…
what the hey!!
The case of Greece is the most extreme one, but it is very interesting to analyze what the outcome has been after 10 years since the slbeginning of crisis.
Well, Greece now is essentially a colony with governments playing the role of collaborators-representatives of the occupation forces.
Almost all state/public property or everything of value (including buildings, ports, airports, forests, parks, mines, public utilities, water/electricity companies beaches, museums etc) has been liquidated/privatised & transfered to foreign control (similar to what happened to the East German state property) as collateral for “loans” to sustain an unsustainable public debt (which will never be repaid).
In addition, thousands of private houses have been confiscated from their owners by the banks through electronic auctions because the owners could not repay their loans.
And how can they repay their loans?
Real unemployment must be over 50%, the huge proportion of workforce has been casualised working on temp contracts, many times the employees are being paid with great delays or receiving reduced payment by the employers. Neoliberal norms are the norm in the greek working life .
The quality of jobs is in the decline too. Tourist temp jobs (with very low pay rates), call centre jobs etc Graduates with master degrees end up working for peanuts or doing low skill casual jobs in hospitality etc. Employers put you to work for free as “trainee” with promises of full employment, only to fire you before the have to pay you.
The economic model is that of a 3rd world country, relying on tourism ….
There is also a nomenklatura of public sector employees , numbering 2 to 3 mil. Public sector employees get higher wages than private sector employees. This happened for many decades before, and led to a situation where corrupt practices prevailed between government/politicians and people so as to secure a safer higher paying state job.
Then there are the very high taxes . Income taxes, GST, council rates, electricity water bills , home ownership taxetc. Same or higher to other more wealthy countries. Taxes have gone through the roof because of the crisis too as governments suck the people dry.
There are extreme levels of bureacracy to any deal with authories ir government. Legal ambiguity is the norm. Expect to waste hours and hours for small tasks.
Pension system is bureaucratic and in dissaray too. Expect to wait 3-5 years to get your pension money , even if pension has been issued and you are entitled to it.
Everyday items, like groceries, electronics, clothing etc are very expensive , comparable to New York or London.
House prices and rents have gone up in certain areas too as the government issues permanent residency to foreigners who invest /buy property. Chinese have come and bought apartments , renovating them and renting as Air bnb etc
Yet, the oligarchs continue to thrive as well a small parasitic class.
“Almost all state/public property or everything of value (including buildings, ports, airports, forests, parks, mines, public utilities, water/electricity companies beaches, museums etc) has been liquidated/privatised & transfered to foreign control (similar to what happened to the East German state property)”
This sounds also like what they tried to do to Russia after the dismantling of the Soviet Union of Socialist Republics. Putin is hated because he put an end to it.
Also, your entire description sounds a lot like what they’ve done to America. And I suspect the wearers of Yellow Vests in France might nod at its familiarity.
EXV,
I know of some people who retired and have yet to see any money. Lekakis was invited to Tranga to talk about the sell out last June. He presented an 85 page list of archeological treasures being “given” away to private vultures. The list consists of about 10,120 treasures, Knossos palace being one of them.
https://www.youtube.com/watch?v=FLde-I3B1_A
The talk really starts at 4:25
Why don’t the Greek people organize and rise up and start a coup, confiscate what was privatized by force, start civil disobedience, shut down anything that tries to make money off of them…..or are they not starving enough ?
RM
The likud trump quislings are getting nazi (zionazi, actually) about Iran and Iranians. Since you also work at Press TV, I hope you are taking extra precautions. With that freakshow, one can expect anything.
American journalist for Iran’s Press TV ‘jailed’ in US
https://www.aljazeera.com/news/2019/01/american-journalist-iran-press-tv-jailed-190117085325166.html
“American Marzieh Hashemi with Press TV is being held without charge in a Washington jail, her son says.”
Thank you, Ramin, for that expanded explanation of a complex problem. And, like with the symphonies of Schubert, we appreciate your Heavenly Length.
“I had no time to write a clear short answer, so kindly accept this longer one”. — Anon
Very well explained review of what’s happening, and what’s about to go down.
One quibble; capitalists “don’t falsely believe gov’t is the problem” they Knowingly spread this Lie to undermine faith in govt.
conservatives always campaign on govt is broken, then get elected to throw spanners in the works.
They Know they lie, but they’ll just keep repeating the lie.
They are intellectually bankrupt and I have no wish to assign them ‘intellectual’ credit.
Didn’t read past “Yellow Vests” in title. Fake movement doesn’t deserve any coverage from so-called altmedia.
That’s funny!
Fake comment about fakery. LOL
I suppose all those fed up Frenchmen are just getting paid by Rothschilds to be beaten and tear-gassed…….same as Macron is paid to do it to them??
That’s certainly an inventive, good excuse(sic) for not reading a thing or even bothering to try to think about anything further, in a Cranium That Has No More Room, Thank You..
Alternatively……Show us the “real deal” please……
Or have you already??
Ramin, If Iran were really socialist, why have they not ever publicly promoted socialism over capitalism, or even declare the “Islamic Republic” to be the “Islamic socialist Republic”? And why is President Rohani continuing to implement neoliberal “reforms”? That being said, the Iranian working class appears to be pro-socialist as all of their protests have been brutaly suppressed by the so-called “socialist” Iranian government? Until proven otherwise, I will remain a skeptic.
If you are really clueless that this guy wrote 11 articles answering your question on this website then read them otherwise stop being a troll
PS if you don’t know how type each title in the search bar.
The WSWS, Iran’s economy, the Basij & Revolutionary Shi’ism: an 11-part series
How Iran Got Economically Socialist, and then Islamic Socialist
What privatisation in Iran? or Definitely not THAT privatisation
Parallels between Iran’s Basij and the Chinese Communist Party
Iran’s Basij: The reason why land or civil war inside Iran is impossible
A leftist analysis of Iran’s Basij – likely the first ever in the West
Iran’s Basij: Restructuring society and/or class warfare
‘Cultural’ & ‘Permanent Revolution’ in Iranian Revolutionary Shi’ism
‘Martyrdom and Martyrdom’ & martyrdom: understanding Iran
‘The Death of Yazdgerd’: The greatest political movie ever explains Iran’s revolution (available with English subtitles for free on Youtube here)
“He can be reached on Facebook.”
Know this. I will never use Facebook, not even to reach out to someone.
Further more, I view the use of Facebook as a sign of low intelligence.
Yellow Vests must read this:
UC Davis Wants You To Forget About Its Pepper Spray Incident. So Here’s The Video.
https://www.huffingtonpost.com/entry/uc-davis-pepper-spray-video_us_570fc93fe4b03d8b7b9fb62b
A comment by PacificNorthWest #285108 in today’s SyrianPerspective:
“In the USA the top 0.1% of the population owns as much as 90% of the people put together. The US is a Plutocracy and its people are getting squeezed down into ever deeper misery.
Our struggle is clear, we should look at how the French people are taking matters into their hands”.
If only … !
Where are all the Communists in the EU$A? Culturally genocided?