The ECB may not be issuing eurobonds or print money, but out of the public eye, they’ve definitely taken up a central role. They do this by providing banks with almost interest-free emergency capital. And those banks have come to the rescue of the governments that couldn’t sell bonds for very high interest rates a few months ago. So, as was argued for by a lot of people back then, the ECB, albeit not straightforwardly, has started to act like all other central banks around the world. Only they will not tell us this. And it seems that the eurozone now, unlike a month ago, is not teetering on the brink of collapse.
Throughout the month, countries caught in the eye of the European financial storm, including Italy, Spain and France, have repeatedly defied expectations, selling big batches of bonds to the public at interest rates significantly lower than investors demanded at the height of the euro crisis late last year.
The surprisingly successful auctions owe little to improving economic data around the region. On the contrary, many of the countries that use the euro as their currency appear to be confronting a renewed recession, and pessimism about their growth prospects remains abundant. Just last week, Standard & Poor’s stripped France of its coveted AAA rating for the first time in recent history and downgraded eight others.
Instead, most of the credit seems to go to the European Central Bank, which in late December under its new president, Mario Draghi, quietly began providing emergency loans to European banks — hundreds of billions of dollars of almost interest-free capital that the banks have used to come to the rescue of their national governments.
The central bank, based in Frankfurt, used typically understated and technical language to describe its actions, but it appears to have done what its leadership said throughout 2011 that it would not do: namely, flood the financial markets with euros in a Hail Mary attempt to make sure that the region’s sovereign debt crisis does not lead to a major financial shock.
Though on a smaller scale and in a subtler manner, it has in many ways taken a page from the United States Federal Reserve’s playbook for the 2008 financial crisis, which has been roundly criticized in Europe as a reckless bailout that risks setting off uncontrolled inflation. And, at least for now, the effort has worked. Spain’s 10-year bonds carry interest rates that hover around 5.5 percent, compared with 7 percent and higher in November, and Italy’s five-year bonds are approaching 5 percent, down from nearly 8 percent at their peak.
There have been moments before when European leaders declared the crisis contained, only to see it return with renewed fury. But the central bank’s incentives, combined with a push from the private banks’ home governments, seem to have convinced investors that this time may be different, and financial markets in Asia, Europe and the United States have responded with strong gains this year.
Yesterday and today, lots of ‘authoritative’ newspapers and journals once more published gloomy articles about the coming end of the eurozone, largely due to the perceived inaction of leading (German and other northern European, notably Dutch) politicians. Particularly their refusal to set up the ECB as lender of last resort and/or let it buy state bonds on large scale and/or let it issue eurobonds, and their continued insistence on austerity and budget cuts as the only “solution”, now leading such esteemed organizations as the OECD to condemn their inaction. France is threatened with a credit rating downgrade, as a matter of fact the entire eurozone is threatened with a downgrade, the stability fund doesn’t have nearly enough funds, and… oh well.
I’m getting kinda tired writing about this so maybe I’ll quit doing it, but here goes once more (my bet is on the end of the eurozone before New Year’s Day, by the way)…
Bloomberg (‘The Euro Area Is Coming To An End’, written by the former chief economist of the IMF):
Investors sent Europe’s politicians a painful message last week when Germany had a seriously disappointing government bond auction. It was unable to sell more than a third of the benchmark 10-year bonds it had sought to auction off on Nov. 23, and interest rates on 30-year German debt rose from 2.61 percent to 2.83 percent. The message? Germany is no longer a safe haven.
Since the global financial crisis of 2008, investors have focused on credit risk and rewarded Germany with low interest rates for its perceived frugality. But now markets will focus on currency risk. Inflation will accelerate and the euro may break up in a way that calls into question all euro-denominated obligations. This is the beginning of the end for the euro zone.
Germany is the only country in Europe that can act to save the eurozone and the wider European Union from “a crisis of apocalyptic proportions”, the Polish foreign minister warned on Monday in a passionate call for more drastic action to prevent the collapse of the European monetary union.
The OECD’s comments came as the organisation slashed its half-yearly forecasts for growth in the world’s richest countries, warning that economic activity in Europe would grind to a near-halt.
Yet their calls were met by a stubborn insistence in Berlin that only EU treaty change to forge a “stability union” in the eurozone would revive confidence in the markets.
Wolfgang Schäuble, German finance minister, rejected calls for the European Central Bank to act as a “lender of last resort” in the eurozone, and for the introduction of jointly guaranteed eurozone bonds to relieve the pressure on the most debt-strapped members of the common currency such as Greece and Italy.
De eurocrisis is in een eindfase gekomen, in beleggerstermen: het eindspel. De ontwikkelingen gaan nu razendsnel, en de tijd dat de sterke eurolanden de zwakke konden redden, is voorbij. Volgens veel economen is het een kwestie van weken, misschien van dagen, en dan moet er iets op tafel liggen om het uiteenvallen van de euro te voorkomen.
Over negen dagen houden de Europese leiders nog maar eens een ‘top der toppen’. Er was er al een op 21 juli, op 23 oktober en op 26 oktober. Maar nu leeft meer dan ooit het gevoel dat het erop of eronder is. De reeds geplande Brusselse top van vrijdag 9 december is inmiddels uitgebreid met een werkdiner op de avond ervoor. Er is immers veel te bespreken.
Columns in de Financial Times en commentaren in The Economist waarschuwen inmiddels dat de euro snel verleden tijd kan zijn. Jean Pisani-Ferry, directeur van de gerenommeerde Brusselse denktank Bruegel, stelt onderkoeld dat er ‘een nieuwe situatie in Europa’ is ontstaan. Met iets meer gevoel voor dramatiek schrijft de Vlaamse econoom Paul De Grauwe: ‘De euro heeft nog enkele weken om zichzelf te redden, terwijl verschillende instituties zich al voorbereiden op de klap.’
Wat de situatie nu zo wezenlijk anders maakt dan enkele weken geleden? Verreweg het belangrijkste signaal is dat zelfs Duitsland meer moeite heeft om zijn staatsleningen in de markt kwijt te raken. En opvallend, direct na de half mislukte emissie van vorige week verloor de euro in een tel 0,72 eurocent in waarde. Voor centrale bankiers een serieuze aanwijzing dat de munt zelf het volgende doelwit zal zijn.
Het is bijna tragisch dat de ministers van financiën vanavond alweer naar Brussel moeten afreizen om over het noodfonds te praten. Nog altijd zijn de afspraken van 21 juli (uitbreiding van noodinstrumentarium) niet in werking getreden, en nu zwoegen ze op de deal van 26 oktober (vergroting slagkracht). Het fonds heeft nog ongeveer € 250 mrd beschikbaar, maar niemand gelooft meer dat daar € 1000 mrd van te maken is, zoals een maand geleden werd beloofd.
Inmiddels is duidelijk dat het beleggers helemaal niet meer uitmaakt dat de betrouwbare technocraat Mario Monti als premier is aangetreden. Net zomin als zijn bezuinigingsplannen nog indruk maken. Het is de les van twee jaar eurocrisis: paniek en wantrouwen slaan niet met enkele ferme politieke daden om in volledig vertrouwen. Voor België dreigt hetzelfde lot. Verrassend genoeg reageerden beleggers maandag positief op het nieuws dat er na anderhalf jaar eindelijk een regering komt. Maar de aanstaande premier Elio Di Rupo kan de snel opgelopen rentelasten voor België waarschijnlijk niet zomaar ongedaan maken. Ook hij zal ervaren dat eenmaal afgehaakte beleggers niet snel tevreden zijn.
De euro is een misgeboorte en had beter niet ingevoerd kunnen worden. Dat zegt oud-AFM-topman Hans Hoogervorst in een aflevering van het geschiedenisprogramma Andere Tijden, die op 11 december wordt uitgezonden.
Hoogervorst zegt daarin: ‘De enorme problemen die we nu hebben op de kapitaalmarkten en de enorme risico’s die worden gelopen, als we dat tevoren hadden geweten, dan denk ik niet dat iemand bij zijn volle verstand eraan was begonnen.’
Volgens Hoogervorst kan de munt ‘wel als mislukt’ kan worden beschouwd.
One of the most worrying articles I’ve read so far on the ongoing European debt crisis. The Economistis seriously discussing the prospect of imminent bank runs in the eurozone. In fact, in one country, Latvia, this has already happened with a mid-sized bank. That’s the first time I read something about this most scary of economic malfunctions (although Paul Krugman was there first, I’m informed).
With the debt crisis spreading and deepening further to the core of the eurozone – France and Austria are defending their triple-A ratings, Belgium, the Netherlands and now Germany are having bonds issues – and politicians unable (and unwilling) to do something about it, banks are more and more exposed to great financial risks. These stem from the drying up of funds to these financial institutions, which could ultimately lead to one or more of them going down. One of the most worrying signs of this is corporate institutions withdrawing their money from banks. And that’s exactly what’s happening now in Italy, Spain, France and Belgium.
I believe articles like these are called “bearish” in the financial world. Still frightening nonetheless.
- Edit: CNBC is on it as well, referring to the same Economist article. Their message: hoping that customers don’t notice that every other source of bank funding is depleting is not a wise strategy.
ONE can almost hear the gates clanging: one after the other the sources of funding for Europe’s banks are being shut. It is a result of the highly visible run on Europe’s government bond markets, which today reached the heart of the euro zone: an auction of new German bonds failed to generate enough demand for the full amount, causing a drop in bond prices (and prompting the Bundesbank to buy 39% of the bonds offered, according to Reuters).
Now another run—more hidden, but potentially more dangerous—is taking place: on the continents’ banks. People are not yet queuing up in front of bank branches (except in Latvia’s capital Riga where savers today were trying to withdraw money from Krajbanka, a mid-sized bank, pictured). But billions of euros are flooding out of Europe’s banking system through bond and money markets.
At best, the result may be a credit crunch that leaves businesses unable to get loans and invest. At worst, some banks may fail—and trigger real bank runs in countries whose shaky public finances have left them ill equipped to prop up their financial institutions.
To make loans, banks need funding. For this, they mainly tap into three sources: long-term bonds, deposits from consumers, and short-term loans from money markets as well as other banks. Bond issues and short-term funding have been seizing up as the panic over government bonds has spread to banks (which themselves are large holders of government bonds). This blockage has been made worse by tighter capital regulations that are encouraging banks to cut lending (instead of raising capital).
Markets for bank bonds were the first to freeze. In the third quarter bonds issues by European banks only reached 15% of the amount they raised over the same period in the past two years, reckon analysts at Citi Group. It is unlikely that European banks have sold many more bonds since.
Short-term funding markets were next to dry up. Hardest hit were European banks that need dollars to finance world trade (more than one third of which is funded by European banks, according to Barclays). American money market funds, in particular, have pulled back from Europe. Loans to French banks have plunged 69% since the end of May and nearly 20% over the past month alone, according to Fitch, a ratings agency. Over the past six months, it reckons, American money market funds have pulled 42% of their money out of European banks. European money market funds, too, continue to reduce their exposure to France, Italy and Spain, according to the latest numbers from Fitch.
Interbank markets, in which banks lend to one another, are now also showing signs of severe strain. Banks based in London are paying the highest rate on three month loans since 2009 (compared with a risk-free rate). Banks are also depositing cash with the ECB for a paltry, but risk-free rate instead of making loans.
That leaves retail and commercial deposits, and even these may have begun to slip away. “We are starting to witness signs that corporates are withdrawing deposits from banks in Spain, Italy, France and Belgium,” an anlayst at Citi Group wrote in a recent report. “This is a worrying development.”
With funding ever harder to come by, banks are resorting to the financial industry’s equivalent of a pawn broker: parking assets on repo markets or at the central bank to get cash. “We have no alternative to deposits and the ECB,” says a senior executive at one European bank.
So far the liquidity of the European Central Bank (ECB) has kept the system alive. Only one large European bank, Dexia, has collapsed because of a funding shortage. Yet what happens if banks run out of collateral to borrow against? Some already seem to scrape the barrel. The boss of UniCredit, an Italian bank, has reportedly asked the ECB to accept a broader range of collateral. And an increasing number of banks are said to conduct what is known as “liquidity swaps”: banks borrow an asset that the ECB accepts as collateral from an insurer or a hedge fund in return for an ineligible asset—plus, of course, a hefty fee.
The risk of all this is two-fold. For one, banks could stop supplying credit. To some extent, this is already happening. Earlier this week Austria’s central bank instructed the country’s banks to limit cross-border lending. And some European banks are not just selling foreign assets to meet capital requirements, but have withdrawn entirely from some markets, such as trade finance and aircraft leasing.
Secondly and more dangerously, as banks are pushed ever closer to their funding limits, one or more may fail—sparking a wider panic. Most bankers think that the ECB would not allow a large bank to fail. But the collapse of Dexia in October after it ran out of cash suggests that the ECB may not provide unlimited liquidity. The falling domino could also be a “shadow” bank that cannot borrow from the ECB.
So the Mayor of New York, Michael Bloomberg – who happens to be a former Wall Street banker and the 12th most wealthy person in the US – has evicted the nucleus of the Occupy movement from Zucotti Park, where they had been camping for two months. In that process, the NYPD has not shunned violating constitutional rights, including the right to free speech and the right to protest, in addition to preventing the democratic press from doing its job. Books were burned.
This process is likely to repeat itself elsewhere. In the Netherlands, local politicians of the conservative liberal (and, arguably, banking-aligned) VVD party are demanding the exit of Occupy protesters from public places throughout the country. Public attention has declined. So what’s next for the Occupy movement?
In all honesty, personally, while I am very sympathetic to a vocal social movement addressing the immense wealth and especially political power of global financial institutions, the injustices in that sector (such as exorbitant bonuses, the sale of intransparent financial products, and the power of credit rating agencies to almost topple entire economies), and rising economic inequality, I had become a bit disappointed with the Occupy movement. During my (admittedly short) visit to Occupy Amsterdam, what I saw was a shanty town with a lot of pot smokers and squatters, talking vaguely about the need to discuss, not have any organization, etc.
Of course any movement that starts out from a feeling of discontent needs time to organize and formulate demands, but the point of Occupy seemed to be to disavow any kind of organization or concretization. Again: I very much admire proto-democratic experiments, and disagreed with the choir of commentators who kept blattering from the very beginning that it was unclear what Occupy was about (that’s very clear), but even a die-hard communal hippie has to admit that a certain point, you need organization and representation.
Occupy has historical predecessors way earlier than the Tahrir Square protesters. The early labour union movement in the nineteenth century everywhere started out grass-roots democratically; but during the way, they learned to organize, formulate demands, and still keep an internal democratic process. You need a distinction between principles and concrete demands, for instance; or a distinction between a general assembly and working groups; and people who specialize in tasks they’re good at (like creating leaflets, organizing, negotiating, doing practical stuff, etc.). In that way, you can develop from an inspired, resounding but vague movement to an organization that actually works.
Once again, I completely understand the distaste of Occupy protesters for “standard” kinds of political organizaton, like political parties and trade unions, and wouldn’t want them to develop in that way. But any movement that doesn’t develop further than a general assembly that discusses every tiny little detail doesn’t get very far (the meeting reports of Occupy Amsterdam attest to that). And now, public attention has declined, the authorities have zoomed in and it will probably not take long before the physical manifestion of Occupy on squares around the world disappears.
So what’s next for Occupy? Opinion polls are showing that they have struck a nerve – in the US, but I imagine also elsewhere, economic inequality and financial malpractices are on the agenda, and opposed by a majority of voters. In that sense, Occupy has already been a success. Some people are arguing that the forced removal of protesters from squares may re-ignite the movement (it would have been wiser for the authorities to wait for winter). Others are saying that the Occupiers need to penetrate existing movements and organizations to address their (and our!) concerns.
Personally, I would like a vocal and identifiable Occupy movement to remain in existence, get its act together, and start thinking about ways to reform the system while continuing to exert pressure on the political-financial axis. This could be done by spreading awareness (the big pro of this movement) and keep protesting, even occupying places. After all, the big invention of the Arab Spring was the protesting technique of permanently occupying a place, rather than having your average one-afternoon demonstration. However, it is essential (I think) to develop an organization, first to make sure that encampments aren’t turned into shantytowns, trouble makers are fended off, and violence doesn’t spread; second to develop ideas, demands and rallying points, appoint representatives, and create a more focused media outreach.
Will this happen? Probably not, but I hope so. The Tea Party has shown that you can move from a vague movement to something approaching a working organization. For Occupy as well, it’s probably time to move from subcultural self-expression to a fight for political change.
[The] truth is, Bloomberg might have just done Occupy Wall Street a favor. Next week, temperatures are projected to dip down to the high 30s. Next month, they’re projected to dip into the mid-20s. The month after that, as anyone who has experienced a New York winter know, they’re going to fall even lower.
The occupation of Zuccotti Park was always going to have a tough time enduring for much longer. As the initial excitement wore off and the cold crept in, only the diehards — and those with no place else to go — were likely to remain. The numbers in Zuccotti Park would thin, and so too would the media coverage. And in the event someone died of hypothermia, or there was some other disaster, that coverage could turn. What once looked like a powerful protest could come to be seen as a dangerous frivolity.
In aggressively clearing them from the park, Bloomberg spared them that fate. Zuccotti Park wasn’t emptied by weather, or the insufficient commitment of protesters. It was cleared by pepper spray and tear gas. It was cleared by police and authority. It was cleared by a billionaire mayor from Wall Street and a request by one of America’s largest commercial real estate developers. It was cleared, in other words, in a way that will temporarily reinvigorate the protesters and give Occupy Wall Street the best possible chance to become whatever it will become next.
The question is what, if anything, comes next for Occupy Wall Street. The movement has already scored some big wins. As this graph by Dylan Byers showed, they have changed the national conversation. Income inequality is now a top-tier issue. Before Occupy Wall Street, it wasn’t.
And perhaps that will be the legacy of Occupy Wall Street. That would certainly be more than most protests achieve. If they are to go further, however, they are going to have to figure out a way to wield power in a more direct and directed form. The movement has always been uncertain on whether it wants to do that, and if it does, how to do it. It requires a willingness to work with the system that is, in certain ways, inimical to the founding of Occupy Wall Street. The good news, if they choose to make that transition, is that they don’t need a park to do it. The bad news is that, in most cases, it requires more hierarchy, clearer leaders, a more obvious agenda.
Back in October, I asked Rich Yeselson, a union researcher and a scholar of social movements, what he thought Occupy Wall Street would need to do to survive and succeed. “Whether they will grow larger and sustain themselves beyond these initial street actions will depend upon four things,” Yeselson said. “The work of skilled organizers; the success of those organizers in getting people, once these events end, to meet over and over and over again; whether or not the movement can promote public policy solutions that are organically linked to the quotidian lives of its supporters; and the ability of liberalism’s infrastructure of intellectuals, writers, artists and professionals to expend an enormous amount of their cultural capital in support of the movement.”
I still think that’s right. So then: Can the post-Zuccotti Park incarnation of Occupy Wall Street furnish skilled organizers who are able to keep the protesters involved, come up with solutions — or at least problems — they’re willing to agree on and fight for, and attract the sort of media attention that they need if they’re going to be able to continue forcing their issues into the national conversation?
The odds are probably against it. The odds are against any social movement, always. But it’s probably likelier under these conditions, where the occupiers were cleared from the park all at once, under sympathetic conditions, and so all of them can agree that this is the moment in which to decide what comes next.
Supporters of the Occupy movement are gearing up for a national day of protest and direct action across America, taking in dozens of events from New York to Chicago to Los Angeles.
Thursday has been declared a day of “solidarity” with the Occupy Wall Street activists in New York after their camp in lower Manhattan’s Zuccotti Park was raided and dismantled by police. But it is also aimed at highlighting several of the movement’s broader aims in terms of income inequality and a desperate need for job creation in America’s floundering economy.
The Occupy movement, which began two months ago with the occupation of Zuccotti Park, has since spread to scores of cities and towns across the country, with varying success. It has often rejuvenated left-leaning political activists but also brought down a heavy police response, frequently at the behest of city mayors.
In recent days, police evictions and crackdowns on protesters in New York, Seattle, Berkeley, Portland and other places have caused widespread condemnation of alleged heavy-handedness by police.
In New York, protesters are planning actions all day in each of the city’s five boroughs. A potential early flashpoint will be a rally planned to begin at 7am that will target Wall Street itself, as the protesters seek to disrupt the operations of the New York Stock Exchange before the ringing of the opening bell that signals the start of trading at 9.30am.
Since the protests began, Wall Street has become a virtual permanent protest zone, ringed by steel fences and heavily policed. Later actions are planned to take place across the city’s subway system, as marchers will enter at 16 different stations and begin protesting.
Finally, the day will end with a rally at Foley Square, near New York’s Town Hall, and then a march to the Brooklyn Bridge, where hundreds of protesters were arrested in a previous headline-grabbing mass action.
Bridges will be the focus of some actions in other cities too. In Boston, Detroit, Washington DC, Portland and Seattle, protesters, some allied with union workers and community groups, will march on high-profile bridges in order to highlight the problem of America’s crumbling and underfunded infrastructure.
The range of activities across America spans a spectrum from the dramatic to the small-scale, including teach-ins, rallies and direct actions aimed at banks and corporations. In Portland, Oregon, protesters plan to target a city bridge and then try to organise flashmobs to go to local banks. In Detroit, protesters are marching from their camp downtown to the city’s municipal centre, where they aim to highlight the brutal impact of government cuts on ordinary citizens.
The Guardianschrijft dat er al maanden gesprekken gaande zijn om de eurozone toch maar op te breken. Nu de rente op Italiaanse obligaties torenhoog is, en er zeker geen kans is op een bail out van Italië door het Europees noodfonds, komt een ’herstructurering’ van Italiaanse schulden (d.w.z. een half bankroet) in zicht. Dat treft de Franse financiële mega-conglomeraten hard, betekent een monsterrecessie, en waarschijnlijk het einde van de euro.
Wtf! Opbreken van de eurozone? Say what? Het lijkt erop dat de negatiefste voorspellingen van commentatoren stuk voor stuk uitkomen. De totale ellende is inmiddels niet meer te overzien.
Het lijkt er ook steeds meer op dat er een realisering ontstaat dat het door Merkel, de ECB en het IMF voorgeschreven programma van “bezuinigen” als panacée voor alle problemen niet de weg is. Je kunt bezuinigen wat je wil, maar speculanten op de financiële markten geloven er toch niet in. Sterker nog, ze hebben er belang bij als de boel onderuit gaat. Bovendien wordt landen onder curatele stellen en de hele verzorgingsstaat wegbezuinigen op een gegeven moment ook ondemocratisch; wat dat betreft is het jammer dat dat Griekse referendum er niet gekomen is, dan konden ze tenminste kiezen.
Wilders heeft gelijk gehad: Griekenland had bij het begin van de crisis al uit de eurozone gekickt moeten worden, i.c.m. schuldherstructurering en een terugkeer van dit land naar een eigen monetair systeem. Zoals een LSD-reaguurder schrijft:
Misschien een interessant alternatief voor het hameren van Merkel en de ECB op een uitgebalanceerd huishoudboekje voor Griekenland, met als gevolg elkaar versterkende opeenvolgende bezuinigingen en hemeltergende werkloosheidscijfers enkel om de schuldeisers te plezieren: laat Griekenland de weg van Argentiniė volgen! Dus een gecontroleerd bankroet en herstructurering van schulden (plus een vertrek uit de euro), zodat het land weer kan investeren en ja, ook werk maken van hervormingen en een minder gestoord belastingsysteem opzetten. Hebben ze ook geen vaste wisselkoers meer. Voorheen alleen de positie van de PVV en SP, nu hoor je het vaker.
Een klein landje kan zich terugtrekken uit de financiële markten, zich minder afhankelijk maken van speculanten en geld bijdrukken, zodat er weer geïnvesteerd kan worden i.p.v. alle economische groei op recept van het IMF en Noord-Europese liberalen kapotbezuinigen. Wellicht dat de crisis dan niet was verspreid naar Italië. Maar nu is het te laat voor deze optie (al kan het nog steeds als de hele euro uit elkaar klapt).
Het enige alternatief nu? De ECB staatsobligaties laten opkopen, en instellen als lender of last resort. Dat wil zeggen dat de ECB gaat functioneren zoals de centrale bank doet in normale economieën. De eurozone is een mislukt project gebleken, omdat landen met uiteenlopende economieën én aparte obligaties niet kunnen functioneren onder een regime dat één munt hanteert. Amerikaanse economen roepen het al maanden, en misschien wordt het tijd dat dit ook eens doordringt in Europa. De EMU in haar huidige vorm kan niet bestaan.
Dat betekent dus “meer Europa”. Want als je dat doet, moet je je economische systeem ook verder integreren. Duitsland wil geen ECB als lender of last resort, omdat ze bang zijn voor inflatie. Maar het is dit, of het opbreken van de eurozone. De heilloze weg van het voorschrijven van bezuinigingen, leidend tot nieuwe vertrouwenscrises en weer nieuwe landen die de prooi worden van speculanten (Frankrijk?) moet in ieder geval verlaten worden.
Morgen is het zo ver: de Nederlandse vertakking van de Occupy-beweging slaat haar vleugels uit te Amsterdam. De Occupy Wall Street-beweging in de V.S. is al wekenlang bezig, in groeiende getale en onder toenemende media-aandacht, een progressieve protestbeweging van formaat te worden. Een linkse variant op de Tea Party.
De concrete doelen zijn wellicht nog onduidelijk, maar het van de Arabische Lente overgenomen permanent kamperen op de heilige grond van het financieel kapitalisme blijkt een succesvolle innovatie in protestmethodes te zijn. Evenals in Caïro, en daarna in Madrid en Barcelona, wordt geëxperimenteerd met directe vormen van democratie en participatie, als alternatief naast de vertegenwoordige democratie. Men maakt bovendien – eindelijk - een vuist tegen die sector die de Westerse maatschappij nu al jaren in haar greep houdt: de financiële industrie. De door haar veroorzaakte financiële crisis wordt betaald door de belastingbetaler, die er het oprollen van de verzorgingsstaat voor terug krijgt. Ondertussen worden de bonussen nog steeds uitgedeeld. Gek genoeg zijn het alleen de meest linkse partijen in het parlement die hiertegen ageren.
Er bestaat regionale variatie – in de V.S. staan drommen politici op de loonlijst van Wall Street, in Griekenland is de staat mede debet aan de ellende – maar overal in het Westen kan de financiële sector uiteindelijk verantwoordelijk worden gehouden voor de huidige economische ellende. In de meeste landen buiten Nederland is de (jeugd)werkloosheid afschuwelijk opgelopen; er groeit nu een ‘verloren generatie’ op zonder uitzicht op een baan. Speculanten houden de eurozone bovendien nog steeds in hun greep. Maar ook in Nederland zijn onder dit kabinet, met haar domme mantra van ‘achttien miljard‘, de gevolgen groots: eliminering van zorg voor (jong)gehandicapten, sociale werkplaatsen, speciaal onderwijs, korten op hoger onderwijs, het verdwijnen van openbaar vervoer, bezuinigingen op kunst en cultuur, en ga zo maar door. Terwijl er tegelijkertijd wél een extreem kostbare subsidie voor rijken in stand wordt gehouden: de hypotheekrenteaftrek.
Ik hoop dan ook dat de Nederlandse Occupy-beweging dáárover zal gaan: de Nederlandse issues, die niettemin niet los van de internationale financiële crisis kunnen worden gezien. Het kabinet-Rutte staat evident niet aan de kant van gedupeerden in de crisis. Er is Nederland meer, meer dan genoeg om massaal tegen te protesteren, waarbij het overkoepelende punt zou kunnen zijn: de onrechtvaardige maatschappelijke verdeling van de kosten van de crisis. Dat geldt in alle landen, en dat is waarin in Nederland die waardeloze, onnadenkende bezuinigingen vandaan komen, terwijl de financiële sector op oude voet verder gaat en regelingen voor het niet-hulpbehoevende deel der natie in stand blijven.
Occupy Amsterdam heeft potentie. Tradionele media als Nieuwsuur, 1Vandaag, DWDD, BNR en AT5 hebben er al aandacht aan besteed. De Twitter loopt, en de Facebook-pagina telt bijna 3500 aanmeldingen. Het is te hopen dat men een algemeen aansprekende, op Nederland toepasbare boodschap weet te formuleren; en het is te hopen dat de boel niet, zoals in Nederland vaker gebeurd, door krakers of andere links-radicale figuren wordt overgenomen. Kritiek op de uitwassen van een doorgeschoten kapitalisme en haar vervlechting met politieke systemen isniet per se links of radicaal; het is pure common sense die iedereen aan kan spreken, wat hij of zij ook stemt.
Volgens mij bestaat er onder veel mensen die zich niet vertegenwoordigd voelen door dit kabinet – en met name onder jongeren – al tijden een grote behoefte om de straat op te gaan. Misschien wordt dit ‘m dan…
Now that they’re growing, spreading and getting some more serious attention, here’s a couple of news articles and blog posts that I thought were worthwhile to get some insight into how the Occupy Wall Street movement developed, what the background is, and what they seem to express. There’s also some stuff that compares them to the Tea Party (as a progressive variant, of course), and people speculating at how this might help Obama and the Democratic Party. In short, it provides some perspectives that might be interesting or useful.
The Occupy Wall Street protests, for their part, shine a spotlight on an industry that has attracted mass disgust yet escaped accountability. Almost everybody hates Wall Street, but the anger at Wall Street was deflected to the financial bailout, and thereby (even though it preceded him) to Obama. In a development that may have appeared shocking three years ago, Wall Street has resumed its place of privilege in Washington. Politicians are courting the financial industry, its barons speaking out with pre-crisis confidence. The Republican Party has openly pledged to kill the Dodd–Frank regulations.
The protests, for all this incoherence, restore Wall Street to a central place in the economic narrative. Here is the financial industry, not just as recipient of taxpayer funds but as originator and aggravator of the crisis. The protests may not have an agenda, but they do not need an agenda other than to return political focus onto Wall Street.
The larger role of the protests, should they continue, ought to be to reestablish the terms of the political debate. Historically, liberalism best succeeds when compared against a radical alternative. In the thirties and sixties, fear of extremism and mob violence made business elites eager to accept liberal compromise designed to preserve the system. Since 2009, the question of how to respond to the economy has been framed as a debate between meliorative liberalism and vicious reaction. In this climate, Wall Street has been howling about Obama’s mild verbal scolding of the industry, his plans to impose some measure of regulation upon it, and ever-so-slightly raise the tax levels of the very rich.
It’s not the arrests that convinced me that “Occupy Wall Street” was worth covering seriously. Nor was it their press strategy, which largely consisted of tweeting journalists to cover a small protest that couldn’t say what, exactly, it hoped to achieve. It was a Tumblr called, “We Are The 99 Percent,” and all it’s doing is posting grainy pictures of people holding handwritten signs telling their stories, one after the other.
These are not rants against the system. They’re not anarchist manifestos. They’re not calls for a revolution. They’re small stories of people who played by the rules, did what they were told, and now have nothing to show for it. Or, worse, they have tens of thousands in debt to show for it.
Let’s be clear. This isn’t really the 99 percent. If you’re in the 85th percentile, for instance, your household is making more than $100,000, and you’re probably doing okay. If you’re in the 95th percentile, your household is making more than $150,000. But then, these protests really aren’t about Wall Street, either. There’s not a lot of evidence that these people want a class war, or even particularly punitive measures on the rich. The only thing that’s clear from their missives is that they want the economy to start working for them, too.
But you look around and the reality is not everyone is suffering. Wall Street caused this mess, and the government paid off their debts and helped them rake in record profits in recent years. The top 1 percent account for 24 percent of the nation’s income and 40 percent of its wealth. There are a lot of people who don’t seem to be doing everything they’re supposed to do, and it seems to be working out just fine for them.
But this is why I’m taking Occupy Wall Street — or, perhaps more specifically, the ‘We Are The 99 Percent’ movement — seriously. There are a lot of people who are getting an unusually raw deal right now. There is a small group of people who are getting an unusually good deal right now. That doesn’t sound to me like a stable equilibrium.
The organizers of Occupy Wall Street are fighting to upend the system. But what gives their movement the potential for power and potency is the masses who just want the system to work the way they were promised it would work. It’s not that 99 percent of Americans are really struggling. It’s not that 99 percent of Americans want a revolution. It’s that 99 percent of Americans sense that the fundamental bargain of our economy — work hard, play by the rules, get ahead — has been broken, and they want to see it restored.
I’m embarrassed to admit my first reaction to Occupy Wall Street was cynicism. Along with some other folks on Twitter when it began Sept. 17, I wondered aloud why it started on a Saturday, when Wall Street was quiet. I couldn’t find a list of its goals. Visiting New York a few days later, I walked along Wall Street in the rain trying to find protesters, but though there were barricades all along that dark canyon, and cops everywhere, nobody was protesting; I later saw a few dozen people among tents at Liberty Plaza, but by that time I was running to catch my plane home.
The next day, the New York Police Department cruelly pepper-sprayed female protesters, and suddenly the movement came alive. Ever since, I’ve been struck by the good sense the protesters have used in dealing with the police (in contrast with the poor sense of some of the cops): They are not making them the enemy. In fact, as 700 people were being arrested on the Brooklyn Bridge on Saturday, they were chanting at the cops: “We’re fighting for your pensions!” It didn’t keep the protesters from getting arrested, but it kept them on the moral and political high ground.
The over-reaction of the police, the restraint of the demonstrators and the irresistible enthusiasm of the Occupy Wall Street crowd now has powerful allies streaming to support the movement. On Wednesday evening, major New York unions, including SEIU, the American Federation of Teachers and the Transit Workers Union, will join what is likely to be the biggest protest yet. TWU head John Samuelsen filed a federal injunction to stop the police from using city buses to transport protesters, the way they did on Saturday. “We intend to stop the NYPD from pressing our people into service to transport people who shouldn’t have been arrested in the first place,” Samuelsen told the New York Daily News.
MoveOn is backing the expanded Oct. 5 Wall Street protest, and national union leaders, including the AFL-CIO’s Richard Trumka, have endorsed the movement. Trumka’s “been publicly supportive and I know a number of local unions are getting directly involved,” says AFL-CIO spokesman Josh Goldstein. “As for our direct involvement, we want this to continue in the organic way it has. How we can be supportive and not overshadow it is important.” The federation’s executive board will vote Wednesday on whether to make a formal endorsement.
Even some politicians are beginning to express support for the demonstration. The co-chairs of the House Progressive Caucus, Raul Grijalva and Rep. Keith Ellison, released a statement supporting it on Tuesday. “We have been inspired by the growing grassroots movements on Wall Street and across the country,” the pair wrote. “We join the calls for corporate accountability and expanded middle-class opportunity.” Asked whether President Obama is following the protests, press secretary Jay Carney said he was sure he was, although they hadn’t spoken about it. Then he added, “to the extent that people are frustrated with the economic situation, we understand.” Don’t expect more from the White House, but it’s almost certain other liberal Democrats will begin to speak out to support Occupy Wall Street, unless the Wednesday protest goes awry.
Yes, young people are on the front lines of protest again, but this time, they’re more intrinsically sympathetic, and emblematic of what’s gone wrong in our country. Youth unemployment is the highest in decades. Only 55 percent of Americans aged 16 to 29 are employed today, compared to 67 percent in 2000. A third to a half of African-American youth, depending on the under-30 subgroup examined, is unemployed. College educated students are leaving with unprecedented levels of debt; about 15 percent of student loans are currently in default. On the movement Tumblr blog, “We are the 99 percent” – the 99 percent of the country left out of the prosperity monopolized by the top 1 percent – the voices and photos of unemployed and underemployed young people are some of the most riveting.
Political action on the ground can (…) lead to increased presence at the polls. The Tea Party mobilized so many voters because of its activism prior to the 2010 mid-terms. Asking a political group to go back in time to get voters to the polls is absurd. Telling people to just shut up and quietly vote for one of the two parties is to misunderstand democracy. It’s more than just voting.
Furthermore, as Matt Yglesias convincingly argued, the lack of a mobilized left and a mobilized youth movement is largely the fault of Democratic leadership, including president Obama. Matt writes, that in light of the Occupy Wall Street protests “it’s hard not to be reminded of the lost opportunity to mobilize a left-wing popular movement back in the winter of 2008-2009 and the spring of 2009. That was a time when Congress was psychologically prepared to address the issues of joblessness, the availability of health care and education, and the ecological sustainability of the global economy.”
Writing off protesters because they’re young, because they weren’t politically active before, or because their demographic didn’t hit the polls as hard as the already-organized conservative base is really off-base.
This sort of condescending nonsense was hurled at the Tea Party. That movement has effectively pushed the entire national conversation the right, and the Republican party along with it. I respect the activism and drive that they drummed up to achieve that. They didn’t do it by just voting either.
After Tunisia and Egypt, we were mightily inspired by the fact that a few smart people using Facebook and Twitter can put out calls and suddenly get huge numbers of people to get out into the streets and start giving vent to their anger. And then we keep on looking at the sorry state of the political left in the United States and how the Tea Party is passionately strutting their stuff while the left is sort of hiding somewhere. We felt that there was a real potential for a Tahrir moment in America because a) the political left needs it and b) because people are losing their jobs, people are losing their houses, and young people cannot find a job. We felt that the people who gave us this mess — the financial fraudsters on Wall Street — haven’t even been brought to justice yet. We felt this was the right moment to instigate something.
We are not just inspired by what happened in the Arab Spring recently, we are students of the Situationist movement. Those are the people who gave birth to what many people think was the first global revolution back in 1968 when some uprisings in Paris suddenly inspired uprisings all over the world. All of a sudden universities and cities were exploding. This was done by a small group of people, the Situationists, who were like the philosophical backbone of the movement. One of the key guys was Guy Debord, who wrote “The Society of the Spectacle.” The idea is that if you have a very powerful meme — a very powerful idea — and the moment is ripe, then that is enough to ignite a revolution. This is the background that we come out of.
1968 was more of a cultural kind of revolution. This time I think it’s much more serious. We’re in an economic crisis, an ecological crisis, living in a sort of apocalyptic world, and the young people realize they don’t really have a viable future to look forward to. This movement that’s beginning now could well be the second global revolution that we’ve been dreaming about for the last half a century.
Originally we thought that the idea of one demand was very important. There’s been a debate going on between the one-demand vision and this other vision that is playing itself out right now on Wall Street. I think it’s a wonderful debate and there are good pointers on both sides. Currently this leaderless, demandless movement — that is still growing in leaps and bounds — I think it is fine the way it is. After these assemblies have been conducted and debates have been had in cities all around America, demands will emerge. These demands will be specific things like reinstatement of the Glass-Steagall Act or a 1 percent tax on financial transactions or the banning of high-frequency trading. We will get into specifics, just give us time.
The political left has always had problems with this. All my life I’ve been sitting in meetings where loony guys get up and talk, and eventually very little happens. This is the kind of weight that is dragging the political left down. We don’t seem to have the clarity of vision that for example the Tea Party has. This may be our undoing again. This whole movement may fizzle out in a bunch of loony lefty kind of bullshit.
Then again, at the same time, I’ve been in daily touch with dozens and dozens of people in cities all around the world who are involved in this. And I have a feeling that because of the Internet and a different kind of mentality that young people have, a horizontal way of thinking about things, this movement may not just come up with some really good demands and put incredible people pressure on our politicians, but a more beautiful thing may come out of this movement: a new model of democracy, a new model of how activism can work, of how the people can have a radical democracy and have some of their demands met. This new model may well be a new kind of a horizontal thing that in some strange way works like the Internet works.
Here in the Netherlands (the country that we write this blog out of), people may be largely oblivious to it, as a dictatorship may take over here tomorrow and all Dutch people will still sit outside on terraces enjoying their drinks. But in the rest of the world, Western and non-Western, mass demonstrations have for months been at the order of the day. These demonstrations -- whether it is in Egypt or Madrid -- are primarily attended by the young. This is Generation F*cked -- a generation already suffering from mass unemployment, that is now also hit by the financial crisis.
It is a grave injustice that, for instance in Europe, massive budget cuts are made and the welfare state is pretty much done away with, to save a capitalist financial system that was wreckaged by a few corporate elites. I’m no socialist, but you can’t ignore the structural wrongness of the current neoliberal political-economic structure that has been in the making for thirty years and now seems to be at its apex. Why, really, should the public at large suffer to save free-for-all financial capitalism? There is something rather wrong with that.
It is therefore heartwarming to see that throughout the Western world, inspired by the Arab Spring, young people have taken to street to semi-permanently occupy public spaces and form something of an alternative, proto-democratic movement. The main examples are the acampadas in Madrid and Barcelona, of course, inspired by Tahrir Square. People here are camping out, debating, discussing, having fun, united by a shared loss of trust in the system. And since two weeks, the global heart of financial capitalism, Wall Street, is also subject to a similar youth movement: that of Occupy Wall Street.
The funny thing is that it’s almost completely being ignored by most established media. Of newspapers, only The Guardianpays serious attention to it. While the goals of the movement aren’t really clear, everybody at least wants to show signs of protest to the system that through sheer irresponsibility and recklessness is causing continuing mass suffering. Wanna know you manages your pension money? Who finances, in the US, every politician that wants to get elected? Who through malpractice has brought the entire Western economy to a halt? Occupy Wall Street.
So here’s how to inform yourself on the movement, that is gathering more crowds everyday (I read this morning that the unions are planning to join in) and keeps demonstrating. These are not only young people, by the way. Check out:
Check out The Guardian‘s live blog. Glenn Greenwald -- neither, as far I know, a utopian, “leftist” or radical but like many people in the wake of the financial crisis simply concerned with the structural injustice of the current financial system, and happy that at least someone is sending a message - has the following commentary:
Does anyone really not know what the basic message is of this protest: that Wall Street is oozing corruption and criminality and its unrestrained political power -- in the form of crony capitalism and ownership of political institutions — is destroying financial security for everyone else? Beyond that, criticizing protesters for the prominence of police brutality stories is pure victim-blaming (and, independently, having police brutality highlighted is its own benefit).
And before that, about Wall Street’s hold on American (in this case, Democratic) politics:
Check out this raving stock trader on BBC News the other night! As the interviewer says, ‘jaws have collectively dropped’. Either this guy is totally honest and reveals what stock market traders and speculators really do on the financial market; or he’s on cocaine; or it’s a hoax.
Some of the things independent trader Alessio Rastani says include the statement that ‘governments don’t rule the world, Goldman Sachs rules the world’. He’s saying that stock market traders don’t really care about the euro anymore, that the financial crisis is spreading like a ‘cancer’, and that he goes to bed to dream about a new recession. Also he says that people should ‘prepare’ and that the savings of millions of people are gonna vanish into thin air.
Andrew Sullivan contrasts two takes on the future of the euro, the European Monetary Union, and the world financial system: one optimistic, and one very pessimistic. I’d suggest to read them both: each provides a good account of what’s currently at stake. But I don’t know which of them is more realistic. In a few weeks or months we’ll know, I guess.
- Edit: From hilmerv come two more interesting articles. One is of Paul Krugman in the NYT, making (once again) the Keynesian argument that austerity measures and budgets in Europe are worsening the crisis rather than ameliorating it. The other is from the Center for Economic and Policy Research, arguing that China will have to come to the rescue because of the refusal of policy-makers to invest rather than make budget cuts.
- Original post: First the pessimistic one, from The Economist:
TWO significant messages emerged from the weekend’s IMF meetings that are both striking in their own right and which, when set against each other, are deeply disconcerting. On the one hand, journalists seem to be unable to describe the meetings without noting the high level of fear and anxiety among the participants. (The Financial Times‘ Wolfgang Münchau closes his column today by saying, “I have never seen Europe’s policymakers as scared as I saw them in Washington last week.“) Along those lines, leaders came away from the meetings promising bold action by early November, including agreements on steps to recapitalise banks and increase the capacity of the European Financial Stability Facility. The message seems to be that officials have been scared into a recognition of the severity of the world’s problems and are now prepared to act.
Yet the day’s headlines carry another message: the euro zone is riven by conflict and unable to agree on the most basic of rescue measures. Euro-zone governments are still struggling to put in place an agreement reached in July. Some officials insist that Greece’s creditors must take much larger haircuts than those assumed in that deal, while Greek leaders continue to argue that they will not default. Observers are biting their nails over looming parliamentary votes on the plan to increase the EFSF, even as it becomes clear that a rise to €440 billion isn’t sufficient. On the one hand, it’s as clear as ever that the euro zone needs a massive, ambitious policy to avoid a catastrophic financial scenario. And on the other, it seems ever less likely that the euro zone’s leaders can agree on such a policy and muster the domestic political support to ratify and implement it. If Europe simply can’t do what it needs to do, that leaves the euro zone, and the world, facing a very dark economic reality.
This reality could scarcely come at a worse time. Europe is sliding toward recession. America is uncomfortably close to following behind. Even in the absence of a major financial shock, a renewed downturn across major economies would be very painful, given the lack of recovery in many labour markets and the stress contraction places on budgets. Were a double-dip to strike, far fewer economies would have the political will to intervene to support the economy, even among those with the fiscal room to help.
It’s just shocking to think about the dangers that loom and consider the extent to which they’re driven by governmental failures. Despite having been in a state of constant crisis for more than a year, the euro zone is far away from a real solution; the politics may be such that no solution is possible without a dramatic, Lehman-like collapse, at which point it may be too late to save the euro zone. Meanwhile, the European Central Bank blundered into policy tightening, seriously worsening the crisis out of a fear of mild and temporary inflation. Leaders elsewhere have hardly done better. America’s fiscal policymaking has steadily deteriorated, and the Congress needlessly sent confidence tumbling over the summer with a battle over the government’s debt ceiling. At the same time, Ben Bernanke seems to have forgotten everything he once knew about the crises in the 1930s and in Japan in the 1990s. America is sinking back toward recession while the global economy nears a cliff, and the Fed—by its own acknowledgment—has plenty of heavy ammunition sitting untouched on the shelf.
It is a damning performance. If the world economy does indeed face a new crisis and a new contraction in the weeks ahead, rich-world citizens will have every reason to question the institutions of global capitalism. If the liberal order begins to falter, even darker times still may lie ahead.
Gloomy indeed. Here’s the optimistic one, from the Daily Beast:
So the question is, will Europe implode? Contrary to the widespread assumption, I think not.
It isn’t just that Angela Merkel, Germany’s answer to Margaret Thatcher, has drawn what for her is an unequivocal line that Greece will not leave the European Union or the euro zone. It’s that slowly, sloppily, the governments of Europe are awakening to the realization that since they have tethered their collective economic fate to each other, the costs of unraveling are so immense as to be untenable. No government feels comfortable demanding more funds to bail out Greece or shore up banks or create a backstop for the tenuous finances of Italy. But each government understands at some animalistic level that no electorate will celebrate the consequences of doing too little. Even those supposedly dour, disapproving burghers of Düsseldorf who are tired of bailing out what they see as profligate Greeks would blanch at the market consequences of the end of the euro. Germany doesn’t just pay to maintain that union; it benefits mightily as well.
There is no way to prove that the officials of the EU will access their better angels at the last moment (however auspiciously named the German chancellor is). But this crisis is shaping up as the European version of the American debt-ceiling debate: messy, disheartening, but when pushed to stare at the alternatives, deeply clarifying.
Hence the lurch in the past days toward a more explicit, aggressive response, ranging from a more robust stabilization fund, to plans and statements from German Finance Minister Wolfgang Schaeuble to new IMF head Christine Lagarde that suggest at the least a recognition that this won’t magically resolve itself. Yes, the German minister has to speak cautiously, ahead of an important vote on bailout money on Thursday, and yes, Lagarde has been a study in rhetorical excess, but still, no one is in denial and most now recognize what is at stake.
To expect the resolution to be easy is foolish, but to assume that dissolution is the inevitable outcome after generations have fought and striven—that, too, is foolish. The formation of the union was never widely or easily digested, but neither was the carving together of the United States in the early to mid-19th century.
The risk remains that globally, because of Europe, we are on a precipice and will fall. That needs to be factored into any near-term decision about money, business, and economic outlook. But the costs of dissolution are prohibitive, for Europe and for the world. China, Brazil, India, the new creditor nations of the world, have begun the unthinkable conversation about bailing out Europe if Europe will not bail out itself: an unlikely event but indicative of how serious this is. In the end, it is those costs for Germany, for France, and for the entire euro zone that should act as a bulwark against the worst-case scenario.
After a financial crisis in which the state had to use public money to rescue banks who through their own exploitative neoliberal behaviour had come into trouble, and an economic recession as a result of that, now the people pay the price through the rightwing turn to huge budget cuts and “austerity” that is suddenly all the vogue – at least in Europe. This of course primarily affects already stripped-down welfare arrangements. While of course in formerly spendthrift countries like Greece and Great Britain huge cuts have to made, in a country like the Netherlands, which is basically doing fine economically and isn’t running a huge deficit at all, one can question the need for the biggest budget cuts in history, now planned by the threesome of rightwing parties that will likely form the next government. Apart from doing grave damage to the entirety of the public sector, it might stifle an economy that is just getting back on its feet.
But yeah, we have to make budget cuts of 18 billion euros in the next four years, because that’s what a healthy, sane, wise economic policy looks like.
Although you don’t hear it in the Netherlands, a lot of people think otherwise. Like President Obama, who has repeatedly warned European states that budget-slashing could threaten global economic recovery, and Nobel Prize winning economist Paul Krugman, who in this NYT piece challenges the received wisdom on the European Right that enormous budget cuts are the only remedy to help get the economy back online.
As I look at what passes for responsible economic policy these days, there’s an analogy that keeps passing through my mind. I know it’s over the top, but here it is anyway: the policy elite — central bankers, finance ministers, politicians who pose as defenders of fiscal virtue — are acting like the priests of some ancient cult, demanding that we engage in human sacrifices to appease the anger of invisible gods.
Hey, I told you it was over the top. But bear with me for a minute.
Late last year the conventional wisdom on economic policy took a hard right turn. Even though the world’s major economies had barely begun to recover, even though unemployment remained disastrously high across much of America and Europe, creating jobs was no longer on the agenda. Instead, we were told, governments had to turn all their attention to reducing budget deficits.
Skeptics pointed out that slashing spending in a depressed economy does little to improve long-run budget prospects, and may actually make them worse by depressing economic growth. But the apostles of austerity — sometimes referred to as “austerians” — brushed aside all attempts to do the math. Never mind the numbers, they declared: immediate spending cuts were needed to ward off the “bond vigilantes,” investors who would pull the plug on spendthrift governments, driving up their borrowing costs and precipitating a crisis. Look at Greece, they said.
The skeptics countered that Greece is a special case, trapped by its use of the euro, which condemns it to years of deflation and stagnation whatever it does. The interest rates paid by major nations with their own currencies — not just the United States, but also Britain and Japan — showed no sign that the bond vigilantes were about to attack, or even that they existed.
Just you wait, said the austerians: the bond vigilantes may be invisible, but they must be feared all the same.
This was a strange argument even a few months ago, when the U.S. government could borrow for 10 years at less than 4 percent interest. We were being told that it was necessary to give up on job creation, to inflict suffering on millions of workers, in order to satisfy demands that investors were not, in fact, actually making, but which austerians claimed they would make in the future.
But the argument has become even stranger recently, as it has become clear that investors aren’t worried about deficits; they’re worried about stagnation and deflation. And they’ve been signaling that concern by driving interest rates on the debt of major economies lower, not higher. On Thursday, the rate on 10-year U.S. bonds was only 2.58 percent.