Archive for June 12th, 2010

A war on austerity is being waged on three fronts today:

Italians on Reuters today:

ROME (Reuters) – Thousands of Italians marched in Rome on Saturday to protest against the government’s austerity measures that include cutting funding to local authorities and freezing the salaries of public sector workers.

The “It’s all on our shoulders” protest by Italy’s largest union comes ahead of its one-day strike on June 25 against the 25-billion-euro austerity plan approved by Prime Minister Silvio Berlusconi’s government to stave off a Greek-style debt crisis.

Read more here.

Germans on Reuters as well:

BERLIN (Reuters) – Tens of thousands of Germans protested on Saturday against Germany’s biggest austerity drive since World War Two, adding to pressure on Chancellor Angela Merkel’s increasingly unpopular coalition.

Merkel’s cabinet on Monday unveiled plans for 80 billion euros ($96.30 billion) in budget cuts and taxes over the next four years, but faces a challenge convincing parliament, unions and voters to accept the savings package.

Organisers said between 15,000 and 20,000 people demonstrated in Berlin, in one of the biggest protests against government reform in recent years. Police estimated that up to 10,000 people took part in protests in Stuttgart.

See that here.

And Paul Krugman on Time:

At a time when most people are saying the path out of the financial crisis and European debt problem is for individuals and governments around the world to cut back, Paul Krugman wants us to spend, spend, spend.

So how much we spend on supporting the economy in 2010 and 2011 is almost irrelevant to the fundamental budget picture. Why, then, are Very Serious People demanding immediate fiscal austerity?

The answer is, to reassure the markets — because the markets supposedly won’t believe in the willingness of governments to engage in long-run fiscal reform unless they inflict pointless pain right now. To repeat: the whole argument rests on the presumption that markets will turn on us unless we demonstrate a willingness to suffer, even though that suffering serves no purpose.

Read more here.

“Sent from my BlackBerry® wireless handheld”

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Just requoting Paul Kedrosky’s post today:

What people don’t get about sovereign debt is that countries are sharks when it comes to debt and default. That is the real lesson of research and writing and history in this area – that countries have been messing around, defaulting and restructuring in debt markets for hundreds and hundreds of years. Defaults, busted banks and the like is what happens when you lend to countries that have much more experience and cynicism about their use of debt than you think they do.

This blogger through firsthand experience in a commercial bank’s risk and asset division, is witness to the financial wizardry the modern financial system employs to build the mountain of debt on which our capitalist societies exist on. In the news we are also witness to the horrors that mismanagement of debt and currency can create.

Kedrosky is not a lone voice here. We’ve captured the sentiments of others
like Gerald Celente, Max Kaiser, and Peter Schiff all of whom have put up credible arguments about how tentative and fragile a system based on debt is.

Not all who understand the system are speaking up vehemently against it. Our favorite speculator George Soros certainly understands the goings-on but is content to “game” the system for profit (and successfully too).

What this blogger finds interesting is despite all these critiques, the system continues unabated–notwithstanding the ever increasing magnitude of crises that recur. The arguments put forth by the pundits are actually dated–these sentiments have been around for as long as a monetary system has been around. Our favorite skeptical empiricist, Nassim Taleb, blames moral hazards for perpetuating the flawed system, but even the question of moral hazards isn’t new.

After all isn’t rewarding someone for “bad” behaviour the crux and aspiration of prosperity and decadence? The whole system is rigged to feed on itself! So far the common alternatives to the flawed system, barring a return to primitive times, propounded by the pundits range from a form of “modified capitalism” (shades of the Austrian School) to more “radical socialism” (e.g. Zeitgeist, Venus Project).

Which is why it far from surprises this blogger that “experience and cynicism” are the placeholders that Kedrosky chose to describe what underpins the motive of governments regarding debt. There are those who complain and those who game, but the last bucket are those who still choose to participate in the system–maybe in a fit of realism, maybe fatalism.

Meanwhile someone please buzz this blogger when and if we decide to let go of this monetary system and its sydstem of debt.

“Sent from my BlackBerry® wireless handheld”

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