«Non quia timemus non audemus, sed quia non audemus, timemus»
«Ce n'est pas parce que nous avons peur que nous n'osons pas; c'est parce que nous n'osons pas que nous avons peur».

Crise financière mondiale

Revue de presse - 4 octobre 2011

mardi 4 octobre 2011
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- U.S. "close to faltering," Fed ready to act : Bernanke

Fed ready to do more, Bernanke (02:09)

By Pedro da Costa and Mark Felsenthal

(Reuters) - The Federal Reserve is prepared to take further steps to help an economy that is "close to faltering," Fed chairman Ben Bernanke said on Tuesday in his bleakest assessment yet of the fragile U.S. recovery.
Citing anemic employment, depressed confidence, and financial risks from Europe, Bernanke urged lawmakers not to cut spending too quickly in the short term even as they grapple with trimming the long-run budget deficit.

He made clear that the U.S. central bank’s policy committee considers inflationary pressures well under control and given high unemployment, would be ready to ease monetary conditions further following the launch of a new stimulus measure in September.

"The Committee will continue to closely monitor economic developments and is prepared to take further action as appropriate to promote a stronger economic recovery in the context of price stability," Bernanke told the Joint Economic Committee of Congress.

His language was firmer than the policy-setting Federal Open Market Committee’s statement less than two weeks ago, when the Fed said it would monitor the outlook and was "prepared to employ its tools as appropriate."

Since then, uncertainty about the outcome of the euro zone’s sovereign debt crisis has undermined U.S. business and consumer confidence and helped to slow economic growth. The business cycle monitoring group ECRI last Friday said that the U.S. economy is tipping into a new recession.

Asked whether another round of bond purchases, known as quantitative easing, was in store, Bernanke was noncommittal.

"We never take anything off the table because we don’t know where the economy is going to go. We have no immediate plans to do anything like that," he said.

The prospect of further Fed support for the economy lifted U.S. stocks though, after the market saw selling early in the day, pushing the S&P 500 briefly dipping into bear market territory.

Andrew Tilton, economist at Goldman Sachs, said contagion from the European crisis is a serious risk, threatening to tighten credit availability in the United States and weaken exports to the region. "This impact is likely to slow the U.S. economy to the edge of recession by early 2012," he said.
Recent U.S. economic data has been mixed after a dismal August, with a key manufacturing survey showing an unexpected improvement, but the slightly better tone has not been sufficient to dispel fears of another downturn.

Fresh clarity on the state of the economy will come on Friday, when the Labor Department releases monthly employment figures. Economists in a Reuters poll forecast a paltry gain of 60,000 jobs for September, and Bernanke in his testimony offered little hope for much improvement.

"Recent indicators, including new claims for unemployment insurance and surveys of hiring plans, point to the likelihood of more sluggish job growth in the period ahead," he told the Joint Economic Committee of Congress.


Bernanke said government belt-tightening was likely to prove a significant drag on the world’s largest economy, which averaged less than 1.0 percent annualized growth in the first half of the year.

"An important objective is to avoid fiscal actions that could impede the ongoing economic recovery," he said,

Stressing that higher inflation earlier in the year had not become ingrained in the economy, Bernanke argued price pressures will remain subdued for the foreseeable future.

That backdrop made it easier for the Fed to launch its latest monetary easing effort in September, when it announced it would be selling $400 billion in short-term Treasuries and using the proceeds to buy longer-dated ones.

Bernanke estimated the new policy would lower long-term interest rates by about 0.20 percentage point which he said was roughly equivalent to a half percentage point reduction in the benchmark federal funds rate. Already 10-year Treasury note yields are at multi-year lows of 1.83 percent, helping keep mortgage and corporate borrowing costs extraordinarily cheap.

"We think this is a meaningful but not an enormous support to the economy. I think it provides some additional monetary accommodation, it should help somewhat on job creation and growth. It’s particularly important now the economy is close — the recovery is close — to faltering," Bernanke said.

"We need to make sure that the recovery continues and doesn’t drop back and the unemployment rate continues to fall downward."


Republican lawmakers pressed Bernanke on whether the Fed’s dual mandate for full employment and price stability meant that it had to make compromises on inflation. On the 2012 presidential campaign trail, Republican candidate, Texas Governor Rick Perry earlier said it would be "treasonous" for the Fed to add further money to the economy.

Bernanke was categorical in defending the Fed’s record of price stability in recent decades. He noted inflation has averaged 2.0 percent during his tenure and blamed regulatory failures, not excessively low rates, for the financial crisis.

Some economists believe the central bank could announce more concrete targets for policy goals, by linking the path of rates directly to unemployment and or inflation.

In response to the financial crisis and recession of 2008-2009, the Fed slashed interest rates to effectively zero and more than tripled the size of its balance sheet to a record $2.9 trillion, buyingbonds off banks balance sheets. Bernanke said this was not bailing out Wall Street, but was part of its mandate to provide price and financial stability.

- La Grèce s’apprête à vivre sa quatrième année consécutive de récession

Alors que la zone euro va tenter, lundi 3 octobre, de parachever le second pland’aide à la Grèce, le pré-projet de budget 2012, déposé lundi au Parlement grec, confirme l’état désastreux des finances du pays. Selon les prévisions, la Grèce devrait traverser sa quatrième année consécutive de récession en 2012, le produit intérieur brut (PIB) devant se contracter de 2,5 % sur l’année.

"En raison de la poursuite de l’assainissement de l’économie grecque et de la récession importante de 2011, avec une contraction attendue du PIB de 5,5 %, le rythme de l’économie doit continuer à être négatif en 2012 avant une reprise prévue en 2013", indique le texte officiel.

UNE DETTE À 161,8 % DU PIB EN 2012

En 2010, la contraction du PIB grec avait été de 4,5 % après - 2 % en 2009. La poursuite de la contraction est une conséquence de la baisse de la demande intérieure et de la consommation privée qui doit encore baisser de 3,8 % (à prix courants) contre 6,2 % en 2011 et 4,5 % en 2010, selon le pré-projet. La consommation privée à prix stables devrait elle chuter de plus de 6 % en raison de la réduction des revenus et de l’augmentation du chômage. Le chômage doitatteindre en moyenne 16,4 % en 2012 contre 15,2 % attendus sur l’année 2011, et 11,9 % en 2010.

Selon le pré-projet du budget, la dette du gouvernement général doit passer à 172,7 % du PIB à 371,920 milliards contre 161,8 % prévus pour fin 2011 (356,520 milliards d’euros). En 2011, le service de la dette (somme que l’emprunteur doitpayer chaque année pour honorer sa dette) sera de 16,3 milliards d’euros et de 17,9 milliards en 2012.


Le texte a été approuvé dimanche soir lors d’une réunion-marathon du conseil des ministres, sous l’égide du premier ministre, Georges Papandréou, qui a également donné son feu vert à l’instauration de chômage technique pour 30 000 employés du secteur public élargi d’ici fin 2011.

Cette mesure vise à réduire les dépenses publiques et alléger le déficit du pays, qui doit atteindre 8,5 % du PIB en 2011, selon le pré-budget, contre 10,5 % en 2010. Pour 2012, le déficit doit atteindre 6,8 % du PIB. Le projet de budget a été passé à la loupe des représentants de la troïka, des représentants de l’Union européenne, de la Banque centrale européenne et du Fonds monétaire international.

La visite de la troïka à Athènes, qui se poursuit cette semaine, s’inscrit dans le cadre de l’audit régulier des comptes grecs avant le versement de la sixième tranche du prêt international de 2010, prévu pour la mi-octobre.

- Occupy Wall Street is a tea party with brains

Commentary : Protesters seek political process that doesn’t exclude them

By David Weidner, MarketWatch

NEW YORK (MarketWatch) — The revolution just might be televised, after all.

More than two weeks after a band of young people began camping out in the shadow of the New York Stock Exchange, the movement to remake America’s inequitable financial system is growing

It’s been called the Woodstock of Wall Street, but that’s hardly an apt comparison. The gathering at Max Yasgur’s farm 42 years ago was built on a generation looking for peace, love, some drugs and acid rock. The kids today are looking for real, tangible change of the capitalist sort. They’re organized, lucid and motivated.


Demonstrators from the Occupy Wall Street campaign hold signs aloft as a protest march enters the courtyard near the New York Police Department.

Actually, they have more in common with the tea-party movement than the hippie dream, with one key difference : They’re smart enough to recognize the nation’s problems aren’t simply about taxes and the deficit.

They want jobs. They want the generation in power to acknowledge them. They want political change. They want responsibility in a culture that abdicates it. They want a decent future of opportunity.

If that isn’t American, then what is ?

Another key difference between today’s kids and their hippie forefathers : They’re willing to gut it out.

Not only is Occupy Wall Street showing no signs of dying out, but it’s getting stronger. On Sunday, a night of rain dampened the crowd at Zuccotti Park, but then the sun broke through, and they were back at it : challenging police, marching and drawing attention to their cause.

They’re wired and ready. They’re using YouTube and blogs. A newspaper, the Occupied Wall Street Journal, began publishing last week. They meet in the evenings in a “general assembly” to discuss tactics.

Moreover, there are signs the Left Coast wants to get into the action. On Sunday a group called Refund California announced a series of protests throughout Los Angeles. On Monday, a teach-in took place aimed at bringing awareness to how Wall Street has worsened California’s budget problems.

On Tuesday, Refund California is going to Orange County for a protest. On Wednesday, the group will target the home of a bank executive. And on Thursday a big bank in L.A. will be the next target. Protests in Chicago this weekend showed the message isn’t lost in flyover country.

Protest spreads to Chicago

Inspired by the "Occupy Wall Street" demonstrations in New York, some 100 people gathered Sunday outside the Federal Reserve Bank in Chicago to protest inequities in the nation’s financial system.

This isn’t just some anarchist or lefty agitating. Many of the protesters are furious with the Obama administration’s kow-towing to Big Finance. They’re critical of Federal Reserve policies. Refund California is aligned with 1,000 faith-based groups.

Protesters are admonished for displaying the U.S. flag incorrectly. These protests have been overwhelmingly peaceful. And, despite what you hear, there’s been a lot of goodwill between the police and protesters. They’re sharing coffee and doughnuts in the morning.

Meanwhile, another group, Occupy Los Angeles, is organizing its own protests. This movement, though small compared with the New York effort, is slowly gathering steam. Back East, Occupy Boston is gaining momentum. Protests in the financial center of Dewey Square took place Monday.

- A new Lost Decade is leading to revolution

By Paul B. Farrell, MarketWatch

SAN LUIS OBISPO, Calif. (MarketWatch) — Memo to the Super Rich, your high-paid lobbyists and your no-compromise political puppets whose sole mission is destroying the presidency : Yes, you are succeeding. You’re also killing the economy.

Thanks to your self-destructive ideology, America is now in the second of back-to-back Lost Decades. A new one on the heels of the 2000-2010 Lost Decade where Wall Street lost more than 20% inflation-adjusted. Get it ? You guys launched America’s second Lost Decade of 21st century.


Demonstrators from the Occupy Wall Street campaign march into the courtyard of New York Police Department headquarters in New York last week.

Yes, two consecutive job-killing Lost Decades. The first created by Wall Street’s obsessive greed. The new one triggered by the widening wealth gap that’s feeding endless partisan political wars powered by Super Rich conservatives hell-bent on re-establishing the same free-market, trickle-down Reaganomics policies that have been sabotaging America for the last generation.

Unfortunately, the new one gets worse : Why ? The coming Lost Decade is a backdrop for a wave of class warfare destined to trigger a historic revolution in American politics, bigger than the ‘29 Crash and Great Depression.

Initially inspired by the Arab Spring, Occupy Wall Street is a virus spreading rapidly as Occupy Everything, a reform movement that will overshadow the GOP/Tea Party as the voice of the people, leading to an Occupy America.

Investors, listen closely : First, we’ll summarize five major signs of America’s new Lost Decade 2011-2021. Then, we summarize seven diverse examples of rebellions across the world adding fuel to America’s accelerating Occupy Wall Street revolution.

Why is this crucial for investors ? Because these class wars are guaranteed to deepen America’s market and economic problems during the coming Lost Decade. So listen closely investors :

1. Decade of debt stagnation till 2021

Barron’s Gene Epstein warns that Obama’s latest is “Too Little, Too Late.” Even if the president “gets everything he asked for in his new proposals, it won’t reduce our growing public debt. And he won’t get it all.”

So America’s debt will remain around 80% of GDP for a decade, levels not seen since the 1940s. That’s right, debt will remain dangerously high at least through 2021. And it won’t matter who is president. Class warfare will accelerate this job-killing debt cycle.

2. Investors lose faith, bailing out

Over at the Wall Street Journal Tom Lauricella warns “Investors lose faith in stocks … in a historic retreat, investors world-wide during the three months through August pulled some $92 billion out of stock funds in the developed markets,” more than reversing the total “put into those funds since stocks bottomed in 2009.”

Worse, there’s a “widening belief that the mess left behind by the housing bubble and financial crisis will be a morass to contend with for years.” Yes, many years.

3. Fed surrenders, cannot fix economy

In a Cleveland speech last week Fed Chairman Ben Bernanke warned that with 45% of the unemployed out more than six months, long-term unemployment is now a “national crisis” the Fed cannot fix. “Unheard of … this has never happened in the post-war period.” They’re “losing the skills they had, they are losing their connections, their attachment to the labor force.” But a job-killing Congress won’t act.

4. Wall Street still doesn’t get it

In a recent Foreign Policy article, William Cohan, a former J. P. Morgan Chase managing director and author of “Money and Power : How Goldman Sachs Came to Rule the World,” warns Wall Street not only learned nothing after the 2008 meltdown, they’re aggressively lobbying to kill all reforms that might “break this dangerous cycle in which bankers and traders get very rich while the rest of us suffer from their mistakes.”

Wall Street is deaf, blind and myopic, wants no limits on “all manner of bets on the market,” even at the “risk of a U.S. recession.” Only a catastrophe will wake Wall Street.

5. Yes, America’s second Lost Decade just began

In a Money interview, “Are We the Next Japan ?” Nomura Research economist Richard Koo sees “striking similarities between our current malaise” and Japan’s Lost Decade. Their stimulus did work, but then “the Japanese made a horrendous mistake in 1997.”

The IMF told Japan “you’re running a huge fiscal deficit with an aging population … reduce your deficit.” So Japan “cut spending and raised taxes” and “the whole economy came crashing down.” Sure sounds familiar.

Wall Street protest spreads

Inspired by the Occupy Wall Street demonstrations in New York, some 100 people gathered Sunday outside the Federal Reserve Bank in Chicago to protest inequities in the nation’s financial system.

Warning : to Wall Street CEOs, the Super Rich, the top 1% who think they own our government … the party’s over. No matter who gets elected in 2012 and 2016, the new Lost Decade 2011-2021 will make life miserable for the president and Congress, as with Japan earlier.

Worse, this Lost Decade will make life miserable for everybody : corporations, investors, consumers, workers, small businesses and all our families, with the kind of economic suffering experienced in the painfully long Great Depression era.

- German bailout vote is ’too little, too late’

Germany’s Bundestag has voted overwhelmingly to boost the scope of the EU’s rescue fund but implicitly capped its firepower at €440bn, leaving it no clearer whether Europe has the means to halt debt contagion to Italy and Spain.

By Ambrose Evans-Pritchard

Chancellor Angela Merkel won her "own majority" for the bill, narrowly averting the collapse of her government, but only after pledging that there was no grand plan committing Germany to vast and unlimited liabilities.

Horst Seehofer, leader of Bavaria’s Social Christians CSU, said his party would go "this far, and no further", insisting any expansion of the rescue machinery was out of the question. "The financial markets are beginning to ask whether Germans can afford all this help. We must not risk the creditworthiness of the German state," he said.

Norbert Lammert, the Bundestag’s president, said lawmakers felt they had been "bounced" into backing far-reaching demands and warned that Germany’s legislature would not give up its fiscal sovereignty to any EU body.

Finance minister Wolfgang Schäuble said reports of a secret plot to boost the guarantees of the fund (EFSF) were scurrilous. "It will not be raised. There can be no debate about this. These suspicions are indecent," he said, acknowledging only that the money will deployed as "efficiently as possible".

Officials in Berlin say Mr Schäuble has been careful not to rule out use of leverage. The finance ministry has no specific plan to lever the fund but is aware of six or seven options "floating about" – pushed by France and Brussels – that might offer a solution.

One variant would be to guarantee a 20pc slice of debt in countries needing help. This would allow the fund to lever up to €2 trillion, the tradeable public debt of Italy and Spain. This resembles the structure of US subprime debt securities. It could go horribly wrong if the crisis deepens.

Italy struggled to roll over debt on Thursday, paying 4.68pc for €3.1bn of three-year debt, up 81 basis points from last month. Rome announced plans to sell €30bn of state assets, mostly property. It may include €10bn of CO2 emission rights – a form of debt reshuffling to gain time.

Silvio Peruzzi from RBS said the rescue fund is too small to stabilize the eurozone, leaving the European Central Bank (ECB) with the unwelcome task of propping up the system

"There is no choice. The ECB will have to keep buying bonds, moving ever closer to debt monetisation. If this firewall is removed, contagion will accelerate dramatically," he said.

"We think the eurozone is falling into recession and this is a big risk. It will call into question the budget consolidations of Italy, Spain and even France."

The EU’s index of economic sentiment fell sharply in September, following a collapse in August. Howard Archer from IHS Global Insight said the falls match declines after the Lehman crisis in late 2008. "It is clearly very worrying," he said.

French president Nicolas Sarkozy hailed the vote as an "important step", calling on others to ratify the measures quickly. Slovakia will be last in mid-October.

Yet the package merely enacts the EU summit deal agreed in July, which empowers the EFSF to buy bonds pre-emptively and recapitalise banks. The landscape has changed radically since then as the global downturn plays havoc with debt trajectories.

The bond crisis spread to EMU’s "soft core" in August, pushing Spanish and Italian 10-year yields above the danger level of 6pc. The ECB stepped into the breach and has been buying their debt ever since to stop the crisis spiralling out of control, despite bitter protests from the Bundesbank. This is politically untenable over time. Yet the revamped EFSF is not up the task either. "The EFSF in its current guise is too little, too late," said Suki Mann from Societe Generale.

China is unlikely to come to the rescue. Jin Liqun, head of China Investment Corporation, told an Economist forum that Beijing is worried about the "unravelling of the situation" in Europe. "China cannot be expected to buy into high risk in the eurozone without a clear picture of debt workouts. Sorry if I have ruffled feathers," he said.

Stefan Homburg, head of Germany’s Institute for Public Finance, said the EMU crisis had already gone beyond the point of no return. "The euro is nearing its ugly end. A collapse of monetary union now appears unavoidable. The Chancellor should have no illusions about this," he said.

"The eurozone’s leaders and the ECB have breached all the stability rules, the debt ceiling, and the ban on bond purchases. This isn’t the rule of law, it’s the rule of the jungle," he said.

Meanwhile, the International Monetary Fund has approved an additional $675m under a standby arrangement for Romania.

The IMF said Romanian authorities “have indicated that they will continue treating the arrangement as precautionary and therefore do not intend to draw under it”.

- Chômage, endettement, récession : les Américains ne voient pas d’issue à la crise

Plus de 700 manifestants anti-Wall Street, qui protestent depuis deux semaines à New York contre le système financier, ont été arrêtés après avoir bloqué la circulation samedi sur le pont de Brooklyn.
Plus de 700 manifestants anti-Wall Street, qui protestent depuis deux semaines à New York contre le système financier, ont été arrêtés après avoir bloqué la circulation samedi sur le pont de Brooklyn.
Le surprenant mouvement des 99% ou "Occupy Wall Street " défie les "nantis" de la finance depuis quinze jours. Le moral des ménages américains est miné par un taux de chômage record.

Quelque 700 personnes ont été arrêtées samedi à New York (photo) parce qu’elles bloquaient la circulation sur le pont de Brooklyn, provoquant sa fermeture, pour protester contre les effets de la crise économique.

"Nous sommes expulsés de nos maisons. Nous sommes contraints de choisir entre le loyer et la nourriture....Quand nous travaillons, c’est pendant de longues heures, pour des salaires misérables. Nous n’avons rien alors que les 1% restants prennent tout. Nous sommes les 99%." Dans un pays où le droit à la réussite individuelle est ancré dans la psyché collective, où la foi en l’avenir est l’un des fondamentaux de cette nation de pionniers, le mouvement des 99% ou "Occupy Wall Street " qui défie « les nantis » de la finance depuis quinze jours, si minime soit-il pour l’instant, n’en reste pas moins surprenant.

Tout à la fois peste et choléra, c’est le taux de chômage de 9,1% qui non seulement ne baisse pas mais devrait même passer à deux chiffres selon certains économistes, qui ronge les Etats-Unis de l’intérieur. Le plus élevé depuis presque 30 ans. A ce triste état de fait viennent s’ajouter des revenus en baisse de 0,1% en août comme l’a annoncé vendredi dernier le département du commerce. Une première depuis octobre 2009.

De fait, la consommation des ménages américains, cette "driving force" (pilier) de l’économie du pays, puisqu’elle compte pour 70% du PIB a stagné en terme réels au mois d’août et devrait continuer à rester atone quelques années encore tant la crainte du futur ronge une partie des foyers américains. Même si l’enquête mensuelle de l’université du Michigan publiée vendredi fait valoir une hausse du moral des ménages (59,4 en septembre contre 57,8 attendus) c’est l’exception qui semble confirmer la règle. Car l’autre indice de confiance des consommateurs du réputé Conference Board, met lui en lumière le fait que le moral des ménages est bien déprimé : depuis le mois de juillet il a chuté de 59,2 points à 45,5.

« Récession ». Le terme revient régulièrement chez les économistes bien sûr, mais aussi dans les foyers. Absurde pour les uns car il n’y a pas eu techniquement deux trimestres consécutifs de baisse de la croissance ; réalité qui ne dit simplement pas son nom pour les autres. Nouriel Roubini, "le prophète de la crise de 2008" en tête. Pour lui, la question n’est d’ailleurs pas de savoir si les Etats-Unis sont entrés en récession mais plutôt de savoir qu’elle en sera l’ampleur.

A l’instar de la "décennie perdue" du Japon

Cette inquiétude se retrouve dans toutes les strates de la société. "Les riches s’enrichissent, les pauvres s’appauvrissent. Et au milieu la classe moyenne trinque", a martelé Richard Trumka, ancien patron de la fédération des travailleurs, lors d’une conférence à la Brookings Institution, un think tank de Washington. « 50 millions de foyers dépendent entièrement des food stamps. »

Des foyers qui peinent à se désendetter tout comme à se constituer un bas de laine. Le taux d’épargne outre-atlantique est même à son plus bas niveau depuis deux ans. "En conséquence, estiment les analystes du cabinet RDQ Economics, il semble fort improbable que les consommateurs soient à même de contribuer à la reprise. " Certains économistes s’accordent même à dire que ce que traversent aujourd’hui les Etats-Unis ressemble à la "décennie perdue" au Japon dans les années 90.

- "C’est "hôtel California" : une fois entré dans l’euro, on ne peut plus en repartir"

Il est fascinant d’entendre certains "analystes" évoquer la fin de l’euro comme s’il s’agissait d’une affaire sans importance spéciale. Imaginez trente secondes que le dollar explose... Mais voilà : certains eurosceptiques veulent nous faire croire que la disparition de l’euro, seconde monnaie de réserve mondiale, n’aurait aucun effet ou si peu pour nos économies. En réalité, tous les économistes sérieux s’accordent sur un point : l’éclatement de l’euro serait une véritable apocalypse dont les pays européens auraient le plus grand mal à se remettre. Ce n’est pas pour rien qu’Angela Merkel, la chancelière allemande, après avoir longtemps hésité, est désormais convaincue qu’il faut tout faire pour que cet évènement ne se produise pas.

J’ai, pour en parler, interrogé Stéphane Déo, « head of European economic research » (responsable de la recherche économique pour l’Europe) d’UBS. Il vient de publier, avec le Britannique Paul Donovan et l’Américain Larry Hatheway, une étude sur les conséquences dramatiques d’une explosion de la zone euro : « Euro break-up, the consequences » (à télécharger ici). Détail amusant : la banque suisse a recruté pour la diriger Axel Weber, qui, en démissionnant de la Bundesbank, en février dernier, a montré qu’il ne croyait plus en l’avenir de la zone euro. Les conclusions des travaux de Stéphane Déo rejoignent celles de la totalité des études déjà réalisées (lire par exemple ici). Accrochez-vous, ça secoue !

RTR2RLDU_CompLa Grèce pourrait-elle quitter la zone euro ?

C’est toujours possible, mais les conséquences seraient absolument catastrophiques à la fois pour le pays qui renoncerait à l’euro, mais aussi pour les pays qui resteraient dans la zone euro. La Grèce ferait immédiatement défaut sur sa dette publique, puisque celle-ci serait convertie dans la nouvelle monnaie, sinon quitter la zone euro n’aurait aucun sens. Mais on oublie que le secteur financier ferait aussi faillite, comme on l’a vu en Argentine : en effet, tous les détenteurs de dépôts dans les banques grecques les retireraient pour les placer dans des banques étrangères en euros afin de ne pas les voir perdre environ la moitié de leur valeur, voire plus. C’est ce qu’on appelle un « bank run ». Ensuite, si les entreprises grecques ont des dettes extérieures en euros, par exemple auprès d’une banque allemande ou française, la charge deviendra trop forte et elles feront aussi défaut. Je rappelle qu’en Argentine, onze ans après le défaut, la banque centrale gère ses réserves en investissant en papiers de la Banque des règlements internationaux (BRI) faute d’avoir accès aux obligations américaines ou européennes : en effet, si la banque centrale le faisait, ces papiers seraient saisis par les créanciers, puisque la dette argentine n’a pas été remboursée. Enfin, comme la sortie de l’euro n’est pas prévue par les traités européens, il faudra soit les violer, soit sortir de l’Union, seule possibilité actuellement prévue, soit les modifier, ce qui prendra du temps et laissera le temps à la panique de s’installer.

Mais en quittant l’euro, la Grèce ne pourra-t-elle pas retrouver plus rapidement sa compétitivité grâce à sa drachme dévaluée ?

La dévaluation n’est pas forcement la panacée que certains prétendent, les choses sont malheureusement plus compliquées. Le déficit commercial de la Grèce est énorme : le ratio des exportations grecques rapporté au PIB est le plus faible de la zone euro (en dessous de 20 % avant la crise, un peu au-dessus aujourd’hui). Si la monnaie se déprécie de 40 ou de 50 % comme c’est probable, le coût des importations sera renchéri le coût des exportations sera diminué. Comptablement il y aura donc une augmentation du déficit commercial. En outre, vu le niveau de ce déficit, la Grèce n’aura plus accès à un financement extérieur une fois sorti de l’Union. Ce qui signifie que les Grecs ne pourront plus financer leurs importations et qu’il pourra y avoir des pénuries de produits de base (alimentation, pétrole, etc.). Enfin, il y a de fortes chances que l’Union impose des droits de douane à un pays qui l’aurait quitté pour dévaluer... Bref, le gain pour les exportations n’est absolument pas certain. En réalité, on fait comme si sortir de l’euro n’était pas destructif. Or c’est faux, car cela créerait de tels désordres économiques et financiers que même si on fait l’hypothèse que la dévaluation aidera la croissance, ces gains seraient mineurs en comparaison du choc subi.

Avez-vous chiffré le coût d’une telle sortie pour la Grèce ?

On est sur des scénarios tellement extrêmes que les modèles économiques ne veulent plus dire grand chose. Mais nous estimons qu’une sortie de l’euro coûterait environ 10.000 euros par citoyen grec la première année et plusieurs milliers d’euros les années suivantes. L’ordre de grandeur de contraction du PIB sera compris entre 30 à 40 %. En fait, les Grecs perdraient environ la moitié de leur richesse actuelle. Si l’on compare avec l’Argentine ou d’autres pays qui ont connu des évènements approchant, ce sont des ordres de grandeur crédibles. Nous sommes absolument convaincus de l’ampleur du désastre qu’une sortie de l’euro représenterait.

Un défaut de la Grèce dans la zone euro n’aura pas les mêmes effets ?

On peut très bien faire défaut dans une zone monétaire sans en sortir. Le comté d’Orange a fait défaut dans les années 90, la ville de New York s’est déclarée en faillite en 1977 et personne ne leur a suggéré d’abandonner le dollar. Le coût d’un défaut sera supporté par les créditeurs du pays, comme dans le cas d’une sortie de l’euro. Mais les Grecs, eux, garderont l’euro, c’est-à-dire leur argent et pourront bénéficier de l’aide européenne. Certes, ce défaut ne sera pas sans conséquence grave. Ainsi, les banques grecques, qui possèdent à peu près 72 milliards d’euros d’obligations grecques dans leurs comptes, auront énormément de difficultés à absorber un tel choc. De même, le système de retraite grec, qui s’appuie sur les obligations d’États, serait dans un état très détérioré. Surtout, la Grèce ne fera pas l’économie d’une résorption de son déficit commercial, car il n’est pas tenable, ce qui implique qu’il faudra gagner en compétitivité. Cela passe malheureusement par la réduction des salaries et de l’emploi. Donc rester dans l’euro ne sera pas une sinécure pour les Grecs. L’ajustement restera douloureux. Mais une sortie de l’euro ajouterait une catastrophe à la catastrophe.

RTR2S0D3_CompSi la Grèce sort de l’euro, y a-t-il un risque de contagion aux autres pays ?

Elle peut se faire par deux voies : les marchés peuvent légitimement penser que d’autres pays pourraient suivre. Ils vont donc demander une prime de risque sur les emprunts des pays les plus exposés. Il faut se souvenir que les taux d’intérêt du Portugal dans les années 90 étaient de 10 % supérieur à ceux de l’Allemagne alors que sa dette était peu élevée. Pour l’Espagne et l’Italie, c’était 7 % de plus. Donc on parle de chiffres qui peuvent rendre les États insolvables. Le second canal peut être celui des banques : si vous possédez un compte dans un des pays fragiles, vous allez transférer vos avoirs dans des banques sûres. Donc on se retrouvera face à un bank run sur le système financier, ce serait potentiellement bien pire que la faillite de Lehman Brothers.

L’Allemagne n’a-t-elle pas à gagner à une sortie de l’euro ?

Certains arguments qui militent contre une sortie de la Grèce ne s’appliquent pas à l’Allemagne, car sa nouvelle monnaie sera forte. Ainsi, le mark s’appréciant mécaniquement par rapport à l’euro, elle pourra continuer à rembourser sa dette en euros, ce qui allègera son fardeau, sans faire défaut… Malgré tout, le coût de sortie sera aussi prohibitif pour Berlin, car sa devise va fortement s’apprécier, ce qui mettra en danger ses exportations qui représentent environ 45 % de son PIB. Ensuite, ses banques, qui ont prêté à d’autres pays de la zone euro, devraient faire face à des pertes de change colossales. Sans compter que la sortie de l’Allemagne pourrait déclencher une panique qui pousserait certains États à faire défaut, ce qui alourdira la facture des banques allemandes. Nous avons estimé le coût de cette sortie à environ 5000 euros par personne la première année alors que le coût, pour l’Allemagne, d’un défaut de la Grèce, de l’Irlande et du Portugal, hypothèse très agressive, ne serait de 1000 euros par personne.

RTR2RZOX_CompLes coûts seraient uniquement économiques et financiers ?

Ils seront aussi géopolitiques, un élément qui est souvent négligé par les économistes. Pour l’Allemagne ou pour la France, le fait de parler au nom d’une zone qui pèse 300 millions d’habitants, dont le PIB équivaut à celui des États-Unis et dont la devise est la seconde monnaie de réserve au monde représente quelque chose qui est loin d’être négligeable. Mais le plus grave est ailleurs : historiquement, on sait que sortir d’une zone monétaire est beaucoup plus compliqué et coûteux que de mettre fin à un système de change fixe. Surtout, dans la très grande majorité des cas, les pays qui ont tenté ce genre d’aventure se sont retrouvés avec des régimes autoritaires. Pourquoi ? À cause des désordres sociaux que ce choc a entrainé.

En clair, quand on est dans une monnaie unique, on ne peut plus en sortir ?

C’est un peu comme dans la chanson « hôtel California » : vous pouvez entrer, mais plus en repartir. Il faut trouver des solutions pour régler les problèmes et elles existent. Par exemple, pour augmenter les exportations grecques, on peut instituer une TVA sociale qui permet de financer une baisse des cotisations sociales et donc diminuer le coût du travail. Cela s’assimile à une dévaluation sans en avoir les effets néfastes. On sait aussi que les aides régionales européennes vers la Grèce vont être augmentées, ce qui va permettre de financer des réformes structurelles et donc améliorer la compétitivité. Enfin, on peut créer des eurobonds c’est-à-dire lancer des emprunts européens : s’ils sont émis, on n’évite probablement pas le défaut de la Grèce mais on met immédiatement fin à la contamination aux autres Etats.

Rédigé le lundi 03 octobre 2011 à 03:24 dans Avenir de l’Europe, Crise financière,Grèce | Lien permanent

- Zone €/crise : "une menace" (Cameron)

La crise de la zone euro "représente une menace pour l’économie mondiale", a estimé dimanche le Premier ministre britannique conservateur David Cameron, appelant les "dirigeants européens à relever leurs manches" pour régler la situation.

Dans une interview à la BBC au premier jour de la conférence annuelle de son parti à Manchester (nord-ouest de l’Angleterre), M. Cameron a par ailleurs affirmé ne pas soutenir l’idée d’un référendum sur le maintien ou non du Royaume-Uni dans l’Union européenne, défendue par des eurosceptiques de sa formation. "L’eurozone représente une menace pour elle-même, mais aussi une menace pour l’économie britannique et une menace pour l’économie mondiale", a déclaré le chef du gouvernement sur la chaîne publique. "J’aimerais voir les dirigeants européens relever leurs manches, faire fonctionner le marché unique", a-t-il ajouté.

La disparition de l’euro serait "très mauvaise" pour le Royaume-Uni, a-t-il prévenu, rappelant que son pays, même s’il ne fait pas partie de l’eurozone, réalise 40% de ses exportations dans cette région. Concernant l’organisation hypothétique au Royaume-Uni d’un référendum sur l’UE, M. Cameron a affirmé : "Ce n’est pas notre opinion qu’il devrait y avoir" un tel vote. "Notre intérêt est de rester dans l’Union européenne parce que nous avons besoin de ce marché unique", a-t-il ajouté, estimant cependant que le Royaume-Uni avait confié "trop de pouvoirs à l’Europe".

Le Premier ministre réagissait aux propos de la présidente de la commission parlementaire britannique chargée de l’Economie, Natascha Engel du Parti travailliste (opposition), qui a affirmé qu’il y avait "une claire majorité de parlementaires souhaitant débattre" de la tenue d’un référendum sur le maintien ou non du Royaume-Uni dans l’UE. "Nous devons répondre à cette attente", a-t-elle estimé dans une interview au Mail on Sunday. Selon le journal, le débat devrait avoir lieu d’ici Noël. Si un tel débat se tenait au parlement, il est improbable qu’il débouche sur un vote en faveur d’un référendum, le Parti conservateur de M. Cameron et ses alliés libéraux-démocrates, pro-européens, y disposant de la majorité absolue.

- Taxe Tobin en Europe : une avancée qui vient trop tard

par Attac France

Le président de la Commission européenne, M. Barroso, va proposer au Conseil européen un projet de directive sur la taxation des transactions financières. Il y a dix ans nous aurions crié victoire. Mais aujourd’hui c’est trop peu, trop tard.

Que tous les responsables politiques européens reprennent une proposition que nous portons depuis douze ans représente une victoire des idées d’Attac. Les modalités proposées par la Commission rejoignent sur plusieurs points nos propositions : un taux de 0,1 %, appliqué à toutes les transactions impliquant des opérateurs financiers européens, aurait indiscutablement un effet régulateur important en dissuadant les opérations les plus spéculatives, notamment le "trading à haute fréquence". La prise en compte des transactions sur les produits dérivés, à leur valeur nominale, serait également une avancée importante, même si on peutregretter que le taux proposé ne soit alors que de 0,01 %. L’ampleur de la proposition est malheureusement limitée par l’exclusion de la taxation des transactions sur le marché des changes (entre l’euro et d’autres devises ) car ce marché pèse 4 000 milliards de dollars par jour, soit près de la moitié des transactions financières dans le monde.

Des interrogations majeures subsistent sur l’utilisation des fonds récoltés. Si le produit n’est utilisé que pour combler les déficits et renflouer une nouvelle fois les banques sans contrepartie, l’efficacité sera nulle. Les dizaines de milliards d’euros que la taxe pourrait rapporter doivent alimenter des fonds européens et mondiaux pour financer la lutte contre la pauvreté en Europe et ailleurs, contre les épidémies et le réchauffement climatique, et pour amorcer la transition écologique.

Nous ne sommes pas dupes : les dirigeants européens ne se sont résolus à nous donner raison que pour mieux justifier auprès des opinions publiques le passage du rouleau compresseur de l’austérité, avec son lot de politiques injustes. Une offensive d’une virulence inédite se déroule en ce moment en Europe contre l’Etat social alors que les dettes publiques et la crise de l’euro, loin de résulter d’un excès de dépenses, proviennent de la crise financière et des cadeaux fiscaux consentis depuis vingt ans aux privilégiés. La taxe sur les transactions financières ne suffira aucunement à redistribuer les richesses à la hauteur des nécessités actuelles. Il n’est pas non plus anodin qu’elle soit annoncée au moment où se profile une recapitalisation des banques européennes par les fonds publics : il s’agit d’éviterune révolte contre ce nouveau sauvetage des banques, en donnant l’impression que la finance est elle aussi mise à contribution.

Cette taxe – et seulement en 2014 – c’est trop peu, trop tard. Trop peu car le désarmement des marchés financiers, nous l’avons toujours dit, ne peut se limiterà une taxe : il faut aussi des réglementations énergiques (démantèlement des banques "trop grosses pour faire faillite", contrôle de flux des capitaux, interdictions des transactions de gré à gré, stricte limitation des marchés de produits dérivés, surtout sur les marchés de produits alimentaires…). Trop tard, car la crise financière provoquée par trente années de laxisme prend aujourd’hui des dimensions dramatiques.

Des solutions radicales deviennent désormais incontournables, comme la socialisation du secteur bancaire et sa mise sous contrôle de la société ; l’audit des dettes publiques et la répudiation de leur part illégitime ; la réforme de la Banque centrale européenne pour qu’elle puisse financer directement les Etats… Nous avions raison sur la taxe Tobin ; souhaitons qu’il ne faille pas encore dix ans et une crise cataclysmique pour que nos propositions actuelles soient elles aussi prises au sérieux.

- G.-B. : 35 000 personnes dénoncent les coupes budgétaires

De nombreux fonctionnaires, dont des enseignants et des sapeurs-pompiers, mais aussi des employés du privé ont répondu à l’appel de la confédération des syndicats britanniques, le Trades Union Congress (TUC), qui a intitulé le défilé « L’alternative - emplois, croissance, justice ».


Environ 35 000 personnes ont défilé à Manchester dimanche, au premier jour du congrès du Parti conservateur britannique au pouvoir, organisé dans cette ville du nord-ouest de l’Angleterre, pour dénoncer les restrictions budgétaires, selon la police.

« Conservateurs pourris, dehors », ont crié les manifestants en passant devant le centre qui accueille la conférence nationale des Tories.

De nombreux fonctionnaires, dont des enseignants et des sapeurs-pompiers, mais aussi des employés du privé ont répondu à l’appel de la confédération des syndicats britanniques, le Trades Union Congress (TUC), qui a intitulé le défilé « L’alternative - emplois, croissance, justice ».

« Je suis contre la politique du gouvernement de réduction du montant des retraites. Il y des milliers de personnes ici, mais connaissant les conservateurs, je doute qu’ils écoutent, a estimé Gerry Collier, 64 ans, employé dans une entreprise de vérification des alarmes incendie.

Les pancartes dans la foule affirmaient « Les coupes ne sont pas le remède », « Manchester, une ville unie contre les coupes » ou encore « Il doit partir », un message adressé au premier ministre conservateur David Cameron.

Le gouvernement britannique, auquel participent les conservateurs et les libéraux-démocrates, a lancé l’an dernier un plan d’austérité drastique, considéré comme l’un des plus sévères des grands pays développés, afin de venir à bout d’ici 2015 d’un déficit colossal.

Ce plan se traduit notamment par une réforme des retraites du secteur public et la suppression de plus de 300.000 postes d’ici quatre ans dans le public.

En réponse aux manifestants, le ministre des Affaires étrangères William Hague a affirmé dimanche que « l’argent promis par le précédent gouvernement travailliste n’a jamais existé ».

« On nous a laissé la tâche de vous dire la vérité », a-t-il lancé lors du congrès des Tories, qui se tient jusqu’à mercredi et devrait se concenter sur l’économie et l’Europe.

« Un gouvernement trahit son pays quand au lieu de servir sa population, il l’autorise à vivre dans l’illusion. Et par-dessus tout, c’est injuste et irresponsable de laisser une énorme dette aux générations futures au lieu d’y faire face maintenant », a-t-il ajouté.

Les syndicats comptent organiser le 30 novembre une deuxième grève contre la réforme des retraites, après celle de juin, qui avait été le plus grand conflit social depuis l’arrivée au pouvoir de M. Cameron en mai 2010.

« On est sur le point d’avoir la plus grande grève depuis 80 ans en Grande-Bretagne », a assuré dimanche Mark Serwotka, à la tête du Public and Commercial Services Union (PCS), premier syndicat de la fonction publique d’État). « Si après le 30 novembre, ils ne font pas marche arrière, s’ils continuent avec les coupes, continuent à nous voler nos retraites, et bien on fera encore grève jusqu’à ce qu’on gagne », a-t-il affirmé.

- America’s Debt Crisis

Why Europe Is Right and Obama Is Wrong

A Commentary by Michael Sauga

US President Barack Obama has suggested that Europe should expand economic stimulus.

US President Barack Obama has recently suggested that Europe must take on more debt to stimulate the economy. Such reliance on cheap money, though, is what got us into the current crisis in the first place — both in Europe and in the US. America’s problem isn’t too little money. It’s a lack of competitive products.

"The Broken Jug" is one of the most frequently performed plays in German theater. With the village judge Adam, who passes judgment on a crime he committed himself, Heinrich von Kleist created one of the classic comedic figures of world literature.

US President Barack Obama currently seems to be portraying a modern version of Kleist’s village judge. He is increasingly vocal in his criticism of Europeans for supposedly having exacerbated the ongoing economic crisis with their caution. His audience, however, seems to sense that the plight Obama is lamenting originated in his own country.

It stems from a doctrine that has dominated economic thought for the last two decades and consists of two elements : turbo-capitalism, whose only tenet is that any regulation of financial markets inhibits growth, and its more accommodating but no less dangerous brother, turbo-Keynesianism.

American economists, central bankers and fiscal policy makers have reinterpreted British economist John Maynard Keynes’s clever idea that government spending is the best way to counteract a serious economic downturn — and have turned it into a permanent prescription. In their version of the Keynesian theory, declining growth or tumbling stock prices should prompt central banks to lower interest rates and governments to come to the rescue with economic stimulus programs. US economists call this "kick-starting" the economy.

Laying the Groundwork for the Next Crash

The only problem is that this method of encouraging growth has not stimulated the US economy in recent years, but in fact has put it on a crash course. From the Asian economic crisis to the Internet and subprime mortgage bubbles, economic stimulus programs by monetary and fiscal policy makers have regularly laid the groundwork for the next crash instead of encouraging sustainable growth. In the last decade, the volume of lending in the United States grew five times as fast as the real economy.

Cheap money created the fertilizer for the excesses of the US financial industry. Low interest rates seduced mortgage providers into talking even the homeless into taking out mortgages. And the same low rates made it easier for investment banks and hedge funds, using increasingly risky loan structures, to transform the once-leisurely insurance and bond markets into casinos.

Now the bubble has burst. This has not, however, prompted the US government to conclude that its prescriptions could have been wrong. On the contrary, now it wants to increase the dose. Obama plans to follow the largely unsuccessful 2008 economic stimulus program with a new program this year. Meanwhile, Federal Reserve Chairman Ben Bernanke says that he intends to flood the economy with cheap liquidity — for years, if necessary.

The real problem, though, is a different one. The US economy doesn’t lack money. Rather, it lacks products that can compete in the global marketplace. The country has a deep trade deficit, yet the Obama administration is borrowing money at the same rate as near-bankrupt Greece.

A Rapid End

Not even the financial sector, with its affection for cheap money, believes that this is the way to guide the United States out of the crisis. When the Fed recently announced a new version of its low-interest-rate policy, with the snappy name "Twist," it led to a sharp decline in the stock market instead of the expected boost.

It is all the more disconcerting that Obama is now recommending that the Europeans emulate his failed strategy. To save the euro, the president has proposed that Europe take on more debt to augment their bailout funds and stimulate their economies. Like a doctor caught prescribing performance-enhancing drugs, Obama has not chosen to cease his activities. Rather he is trying to ensure that as many people as possible have access to his wares.

The fact that Europeans are unwilling to comply with Obama’s strange logic gives reason for hope. It makes no sense to pile up more and more debt on already unstable piles of debt. The world doesn’t have too little debt, but too much.

Obama should retract his advice, or he might end up like the village judge in Kleist’s comedy. When his deception was discovered, he was forced to flee and his days as a judge came to a rapid end.

- Euro Crisis ’Could Become a Global Conflagration’

European leaders need to act fast, says former Obama adviser Austan Goolsbee.

European leaders need to act fast, says former Obama adviser Austan Goolsbee.

Austan Goolsbee was President Barack Obama’s most important economic adviser until August. He told SPIEGEL that Europe must recapitalize its banks immediately to avoid the risk of a financial collapse. He says that Europe has been far too hesitant in combatting the ongoing debt crisis.

SPIEGEL : Many US economists now say that Europe’s currency crisis could destroy the US economy. Do you agree ?


Goolsbee : It is a very serious threat. Though since US banks underwent extensive stress tests in 2009, markets have a good idea of what the capital positions are of the financial institutions here. Also, central banks would step in to try to prevent financial contagion.

SPIEGEL : But that doesn’t protect the US economy from renewed difficulties.

Goolsbee : Certainly people in Washington are very concerned about what is going on in Europe. If the crisis there devolved into banks failing and a run on financial institutions, we saw in 2008 that such a situation could be highly contagious and lead to runs on all sorts of financial institutions worldwide. Also, it seems pretty likely that Europe is going to have a significant economic slowdown from dealing with these issues. If such a large segment of the world economy slows down that much, exports from the United States are going to go down. There would be negative ramifications in America — which is still trying to recover from the last crisis — but also globally.

SPIEGEL : Is Chancellor Angela Merkel up to the task of managing the crisis ?

Goolsbee : Her leadership at this moment is very important for managing the crisis that is looming in Europe.

SPIEGEL : President Barack Obama speaks with Merkel often on the phone. What exactly does he expect from Merkel ?

Goolsbee : I don’t speak for President Obama. But I don’t think Europe will be able to get out of this without committing to the equivalent of a full stress test, where they make clear what the positions are of the banks, and committing to the recapitalization of the banks. There is a feeling among investors that continental European banks never did that in the earlier crisis. And now, with those institutions holding sovereign debt in Europe, these sovereign debt problems are going to further degrade their capital and could very well lead to bank runs. Chancellor Merkel, and other European leaders, will in the end have to recapitalize banks.

SPIEGEL : Such a move would be extremely expensive. And it would be very unpopular in Germany.

Goolsbee : It is indeed going to cost a lot of money up front. Everybody has seen how unpopular it was in the US and in every other country that has done it. But it was vital to keep the financial system from collapsing. If we were a parliamentary system, we would have had the government fall over this two times in the last three years, in 2008 and in 2010. So I understand Merkel’s hesitation.

SPIEGEL : Will European governments have to buy up all toxic assets as the US government tried to do in 2008 ?

Goolsbee : Buying toxic assets was not actually the main strategy in 2008. Instead, the focus became forced recapitalization of the banks with the government putting money into the financial institutions and getting some of the upside from their recovery. At some point the Europeans are going to have to put equity into their banking system. Not all of the money has to come from the government. In our case, when US banks opened the books and people could see it was not as bad as they feared, it paved the way for new investors from the private sector to invest capital. Even though these measures were highly unpopular, the banks did pay back the money and the US government made back all of the money from its initial outlay.

SPIEGEL : Once passed by all euro-zone countries, the euro backstop fund, theEuropean Financial Stability Facility (EFSF) will have a lending capacity of €440 billion. Will that be enough ?,

Goolsbee : Quite possibly it will need more up front money but that also depends significantly on how such a fund is structured. Each government could directly recapitalize the banks. Or Europe could provide the European Central Bank (ECB) with money to create a fund to support sovereign debt markets and fill holes at troubled banks. Richer countries could make aid available to help troubled countries pay their debts and attach conditions on the assistance. Any of these will make ordinary people quite angry. But two things are certain : First, waiting until this turns into a full blown financial panic will guarantee that the cost will be dramatically higher than it is now. Second, without creating a growth strategy for southern Europe, these same issues will arise again.

SPIEGEL : Should a Greek default be considered as an option ?

Goolsbee : If the Greeks cannot pay, I do not see how this cannot be considered an option. But we are really close to playing with fire here, because if the Greeks start defaulting, the financial institutions holding Greek bonds would lose stock value. That would likely drive a few banks into insolvency and could start a bank run, which would be hard to stop without some confidence in the recapitalization plans.

SPIEGEL : Does the Obama administration understand just how opposed most Germans are to bailouts for countries like Greece ?

Goolsbee : I am not in the administration any longer, but I am sure they are aware of it. Bailouts for domestic banks have been deeply unpopular in the US, too. And the thought of bailouts and guarantees to other countries is even more toxic. Bailing out AIG, when much of the money ended up helping European banks, was very unpopular in the US. I have no doubt the German people detest the idea.

SPIEGEL : You recently said that Germans must recognize that they have been the greatest beneficiaries of the euro zone.

Goolsbee : One of the great beneficiaries. Germans have had an export-oriented growth strategy, and one major enabler of that strategy is that their currency cannot appreciate, so they remain internationally competitive in part because of their membership in the euro zone. The southern European nations cannot devalue their currency and engage in a similar export strategy to counter their slow productivity growth. They are stuck in the euro zone at the wrong price. All discussion about their debt levels aside, this has to be taken into consideration.

SPIEGEL : Germans were always told they would never be held liable for debts accrued in euro-zone countries that exhibited fiscal irresponsibility.

Goolsbee : I am not taking the side of the Greeks, the Italians or the Spanish. But one has to keep in the mind that normal economic policy channels that you would use are not available within the euro zone. If you cannot devalue the currency, one alternative would be a European Union modeled after East and West Germany, with extended transfer payments. The other is to grind down the wages in southern Europe and that is a very hard thing to do.

SPIEGEL : Is Obama losing patience with the Europeans ? He just recently blasted European leaders for being too slow in combating the crisis. Treasury Secretary Timothy Geithner has also regularly complained about European hesitancy.

Goolsbee : I think he is losing patience due to the immediate risk of financial crisis and the contagion effects that would have. The issue is with the banks, whether the banks are going to become insolvent. Europe has got to deal with that problem quickly.

SPIEGEL : And yet, the US was responsible for the last global financial crisis just three years ago. Furthermore, ratings agencies have downgraded the US because of its vast amount of debt. And now Washington wants to lecture Europe ?

Goolsbee : It is true, we Americans are still trying to deal with problems in the real economy. But our financial system was about to collapse, and through the stress test plus forced recapitalization, we were able to avoid the collapse. I don’t think the Obama administration is trying to lecture the Europeans. They pleaded with them saying : "Look, we were in your exact circumstance, and you would be far better off dealing with it quickly rather than waiting for it to spiral into a full blown panic."

SPIEGEL : In a number of books that have appeared recently, the Obama administration is described as being disorganized and not up to the task — particularly when it comes to economic policy.

Goolsbee : It was largely one book, by Ron Suskind. He tried to portray the president as being indecisive and not in charge. That was absolutely the opposite of my experience.

SPIEGEL : Is it not strange though that Obama has managed to alienate all sides ? The right thinks he is a Socialist who increased the debt and failed to create jobs. The left believes he sold out to Wall Street.

Goolsbee : I don’t understand it either. We implemented the most stringent regulation of the financial sector since the 1930s — Wall Street itself is furious at the president. But at the same time, you have another group of people saying he is in the pocket of Wall Street. In the moment, we were just trying to put our heads down and prevent the world from blowing up and make sure we didn’t have another Great Depression in the United States. I think historians will look back and say that was a significant accomplishment.

SPIEGEL : The American voters seem unwilling to give Obama much credit. On the campaign trail, he now strikes a more populist tone, such as pushing for a — largely symbolic — tax on millionaires.

Goolsbee : That the right-wing Tea Party movement is portraying him once again as a left-wing populist, I just curious. I mean, the president is calling for payroll tax cuts for employers and workers and public-private partnerships for infrastructure projects. These are hardly extreme left-wing views.

SPIEGEL : At the 2009 G-20 Summit in London, Obama apologized for the US having caused the financial crisis. Now, he is blaming Europe for all negative developments. Is he relying on Europe-bashing to boost his reelection campaign ?

Goolsbee : No. This is a different financial crisis than the one in 2008. It is one not predominantly created by the United States, but by Europe. If Europe does not deal with the problem of undercapitalized banks, it could easily blow up and turn into another worldwide conflagration.

SPIEGEL : Has Chancellor Merkel been too hesitant when it comes to accepting that truth ?

Goolsbee : Europe as a whole has certainly been too hesitant. Germany is part of the leadership in the euro area — and it has not yet stepped up and done what has got to be done.

Special Report : A "great haircut" to kick-start growth

A vacant home for sale is pictured in Yonkers, New York, October 26, 2010. REUTERS-Mike Segar

A realtor and bank-owned sign is displayed near a house for sale in Phoenix, Arizona, January 4, 2011. REUTERS-Joshua Lott

A mortgage specialist speaks with a client at a JPMorgan Chase foreclosure consultation event in New York, in this file photo taken March 31, 2011. REUTERS-Shannon Stapleton

By Jennifer Ablan and Matthew Goldstein

NEW YORK | Sun Oct 2, 2011 7:31pm EDT

(Reuters) - More than three years after the financial crisis struck, the economy remains stuck in a consumer debt trap.

It’s a situation that could take years to correct itself. That’s why some economists are calling for a radical step : massive debt relief. Federal policy makers, they suggest, should broker what amounts to an out-of-court settlement between institutional bond investors, banks and consumer advocates - essentially, a "great haircut" to jumpstart the economy.

What some are envisioning is a negotiated process in which cash-strapped homeowners get real mortgage relief, even if it means forcing banks to incur severe write-downs and bond investors to absorb haircuts, or losses, in some of the securities sold by those institutions.

"We’ve put this off for too long," said L. Randall Wray, a professor of economics at the University of Missouri-Kansas City. "We need debt relief and jobs and until we get these two things, I think recovery is impossible."

The bailout of the nation’s banks, a nearly trillion dollar stimulus package and an array of programs by the Federal Reserve to keep interest rates near zero may have stopped the economy from falling into the abyss. But none of those measures have fixed the underlying problem of too much consumer debt.

At the start of the crisis, household debt as a percentage of gross domestic product was 100 percent. Today it’s down to 90 percent of GDP. But by historical standards that is high. Households are still more indebted than their counterparts in Austria, Germany, Spain, France and even Greece - which is on the verge of defaulting on its government debt.

Tens of millions of citizens remain burdened with mortgages they can no longer afford, in addition to soaring credit card bills and sky high student loans. Trillions of dollars in outstanding consumer debt is stifling demand for goods and services and that’s one reason economists say cash-rich U.S. companies are reluctant to hire and unemployment remains stubbornly high.

Take Donald Bonner, for example, a 61-year-old from Bayonne, New Jersey, who lost his job working on a dock in June. Back in March, he attended a "loan modification" fair held by JPMorgan Chase in New York. He has lived in his home since 1970, but was on the verge of losing his job. After falling behind on his $2,800-a-month mortgage, he sought to reduce his monthly payment. Bonner says the bank denied the request on the grounds that he is ineligible because his income is higher than the minimum threshold set by the Federal government for loan modifications.

"They keep asking me for additional documentation," Bonner said on Friday. "It seems to me there is never enough documentation and it has to be renewed every month. It does make you wonder with all this bailout money these banks have received, they don’t want to lend the money."


The idea of substantial debt restructurings and a haircut for bondholders has been raised by financial pundits, including Barry Ritholtz and Chris Whalen, two popular analysts and bloggers.

Renowned economist Stephen Roach, currently non-executive chairman of Morgan Stanley Asia, has gone a step further, calling for Wall Street to get behind what others have called a "Debt Jubilee" to forgive excess mortgage and credit card debt for some borrowers. The notion of a Debt Jubilee dates back to biblical Israel where debts were forgiven every 50 years or so. In an August appearance on CNBC, Roach said debt forgiveness would help consumers get through "the pain of deleveraging sooner rather than later." (here)

But it’s not just the liberal economists and doom-and-gloom financial analysts calling for a great haircut. Even some institutional investors, who might suffer some of the impact of debt reductions on their portfolios, are seeing a need for a creative solution to the mess.

"If there is something constructive that can be done it should be," said Ash Williams, executive director of the Florida State Board of Administration, which oversees $145 billion in public investments and pension money. "You don’t want to reward bad behavior and you don’t want to reward people who were irresponsible. But if there is a way to do well by doing good, then let’s take a look at it."

To be sure, consumer debt levels have been coming down since the crisis began. The Federal Reserve Bank of New York reported in August that outstanding consumer debt has fallen from a peak of $12.5 trillion in third quarter of 2008 to $11.4 trillion. (NY Fed report : tinyurl.com/3uuvk8d) That’s a sign that consumers are getting less indebted.

But households are still carrying a staggering burden of debt.

As of June 30, roughly 1.6 million homeowners in the U.S. were either delinquent on mortgages or in some stage of the foreclosure process, according to CoreLogic. And the real estate data and analytics company reports that 10.9 million, or 22.5 percent, of homeowners are underwater on their mortgage — meaning the value of their homes has fallen so much it is now below the value of their original loan. CoreLogic said the figure, which peaked at 11.3 million in the fourth quarter of 2009, has declined slightly not because home prices are appreciating but because a growing number of mortgages are entering foreclosure.

The nation’s banks, meanwhile, still have more than $700 billion in home equity loans and other so-called second lien debt outstanding on those U.S. homes, according to SNL Financial.

Debts owed by American consumers account for almost half of the nearly $9 trillion in worldwidebonds backed by pools of mortgages, car loans, credit card debt and student loans, which were sold to hedge funds, insurers and pension funds and endowments.

And that doesn’t include the $4.1 trillion in mortgage debt sold by government-sponsored financefirms Fannie Mae and Freddie Mac.

Kenneth Rogoff, professor of economics and public policy at Harvard University and former chief economist at the International Monetary Fund, has said the ongoing crisis should be called the "Second Great Contraction" because households remain highly leveraged. He says the high level of consumer debt is what distinguishes this from other recessionary periods.


For those in favor of a radical solution, there are a lot of headwinds.

Any debt reduction initiative must confront the issue of "moral hazard" - the appearance of giving a gift to an unworthy borrower who simply made unwise spending choices.

Institutional investors who own securities backed by pools of mortgages are reluctant to see struggling homeowners get their mortgages reduced because that means those securities are suddenly worth less. Any write-downs that banks are forced to take could imperil their capital levels.

Banks and bondholders, meanwhile, have competing interests. This is because mortgage write-downs depress the value of the securities in which mortgages are pooled and sold to investors. Big institutional investors like BlackRock have long argued that any meaningful principal reduction on a mortgage must also include a willingness by banks to take their own write-downs on any home equity loans, or second liens, taken out by the borrower on the property. The banks continue to hold those second liens on their balance sheets and so far have been reluctant to mark down the value of those loans, even though the borrower often has fallen behind on their primary mortgage payments.

In other words, bondholders are taking the position if they must suffer losses, so must the banks.

"Institutional investors, pension funds and hedge funds all have fiduciary obligations and they can’t necessarily agree to haircuts solely because it may be good social policy," Sylvie Durham, an attorney with Greenberg Traurig in New York, who practices in the structured finance and derivatives area.

Tad Rivelle, chief investment officer of fixed-income securities at TCW, which manages about $120 billion of which $65 billion is in U.S. fixed income, doesn’t support a big haircut. But he says he can see why some economists and consumer advocates would favor debt reductions and debt workouts as way of dealing with the financial crisis and freeing up more money for spending.

Barry Ritholtz, director of equity research at Fusion IQ and a popular financial blogger, said the standoff between the banks and bondholders is untenable and doing a good deal of harm. An early critic of the bank bailouts, Ritholtz says bankers and bondholders are all in denial and both need to get far more pragmatic.

"They’d be bankrupt if not for the bailouts," says Ritholtz of the banks’ position. "For their part, bondholders need to understand that we’re not earning our way out of this mess and should eat losses now before they get nothing."


Given the standoff, there’s a sense nothing will happen unless federal policymakers make the first move. The Fed reports that 71 percent of household debt in the U.S. is mortgage-related.

But so far Washington policymakers seem more content to rely on voluntary measures. The two main programs set up by the Obama administration to reduce home mortgage debt - the Home Affordable Refinance Program and the Home Affordable Modification Program - have had limited success.

To date, the Treasury Department reports that those voluntary programs have resulted in 790,000 mortgage modifications, saving those borrowers an average of $525 a month in payments. Many of those modifications, however, were for borrowers paying high interest rates, not ones underwater on their mortgages.

In fact, Bank of America, one of the nation’s largest mortgage lenders, said it has offered just 40,000 principal reductions to its borrowers.

Administration sources told Reuters that they support the concept of carefully targeted principal reductions for underwater borrowers. But these sources, who did not want to be identified, say the administration cannot mandate banks and bondholders to accept any principal reductions absent Congress authorizing the procedure.

The sources point out that federal authorities don’t have a "magic wand" - even at Fannie Mae and Freddie Mac, the government-backed home-loan titans.

These sources explain that even though Fannie and Freddie are effectively owned by the federal government, they are controlled by an independent regulator, the Federal Housing Finance Agency. And it’s up to the FHFA, and not the administration, to approve any principal reductions on home loans involving Fannie and Freddie.

An FHFA spokeswoman declined to comment. The agency has repeatedly taken the position that its first job is protect taxpayers’ return on investment in Fannie and Freddie rather than reducing mortgages for underwater borrowers.


The fear of some economists is that the economy may be going into a double dip recession. That means precious time is being lost if a negotiated approach to debt reduction isn’t taken now.

But the banks also have their own big debt burdens to deal with. Next year alone, banks and financial institutions must find a way to either pay off or refinance $307.8 billion in maturing debt, compared to the $182 billion that is coming due this year, according to Standard & Poor’s.

This maturing debt for banks comes at a time when they must start raising capital to deal with new international banking standards and are facing the possibility of a new recession that will crimp earnings. (Bank of America story : link.reuters.com/sys63s)

Beyond bank debt, hundreds of billions of dollars in junk bonds sold to finance leveraged buyouts also are maturing soon. S&P says "the biggest risk" comes in 2013 and 2014, when $502 billion in speculative-grade debt comes due.

Still, there are still plenty of economists who say the concern about consumer debt is overdone and that doing anything radical now would only make things worse. One of those is Mark Zandi, chief economist of Moody’s Analytics, who says a forced write-down or haircut of debt "would only result in a much higher cost of capital going forward and result in much less credit to more risky investments."

He said significant progress has been made in reducing private sector debt, and draconian debt forgiveness measures would be a mistake. "Early in the financial crisis I was sympathetic to passing legislation to allow for first mortgage write-downs in a Chapter 7 bankruptcy, but the time for this idea has passed," says Zandi.

Still, the notion of a debt write-down and bondholder haircuts will probably be around as long as the unemployment rate stays high and the housing market remains depressed.

Indeed, it has been two years since the notion of a "Debt Jubilee" made it into the popular culture when Trey Parker and Matt Stone used it for an episode of the politically incorrect cartoon "South Park." In the episode aired in March 2009, (here) one of the characters used an unlimited credit card to pay off all the debts of the residents of South Park to spur the economy.

At the time, the idea seemed like just a funny satire on the nation’s economic mess. But now it seems like no joke at all.

(Reporting by Jennifer Ablan and Matthew Goldstein ; Additional reporting by David Henry and Joseph Rauch ; Editing by Michael Williams and Claudia Parsons)

- Eurogroup to discuss EFSF leveraging, Greek reforms

Luxembourg’s Prime Minister and Eurogroup chairman Jean-Claude Juncker (1st Row L), Treasury Minister Luc Frieden (1st Row L) and Euro zone finance ministers gather around the European Financial Stability Facility (EFSF) in Luxembourg June 7, 2010. REUTERS/Eric Vidal

By Jan Strupczewski

(Reuters) - Euro zone finance ministers will discuss ways to leverage their EFSF bailout fund on Monday and put pressure on Greece to implement agreed structural reforms to try to get its economy growing again, euro zone officials said.

Finance ministers from the 17 countries sharing the euro meet in Luxembourg after Athens acknowledged it would miss fiscal targets set as conditions for continued emergency funding this year from the European Union and International Monetary Fund.

Greece said on Sunday that the budget deficit this year would be 8.5 percent of gross domestic product, missing a 7.6 percent target agreed in the bailout that saved it from bankruptcy. It would also miss next year’s deficit target in terms of percentage of GDP — 6.8 percent instead of 6.5 — but would meet it in nominal terms.

Athens blames its failure to meet EU/IMF deficit targets on the worse-than-forecast contraction of the economy, while its lenders say failure to push through structural reforms is also largely to blame.

"We will be pressing the Greek finance minister to do some more tough talking about the implementation of reforms at home," said one euro zone official involved in the preparation of the meeting.

"Greece would be well advised not only to announce but also to implement reforms," the official said.

To avoid bankruptcy, Greece needs the next, 8 billion euro ($11 billion) tranche of emergency aid from the EU and the International Monetary Fund — otherwise it could run out of money to pay state wage bills within weeks.

Euro zone ministers will not decide on Monday whether the next tranche should be paid out, leaving that decision to the next meeting on October 13.

Officials expect the next tranche will be paid, because the euro zone will not be ready to cope with the fallout of a Greek default until its bailout fund, the European Financial Stability Facility (EFSF), gets its new powers of market intervention ratified in the next two weeks.

Even then, however, while the 440 billion euro fund will be able to buy government bonds from the market, recapitalize banks and extend precautionary credit to sovereigns, it may not have enough cash to cope with all the financing needs.

Euro zone ministers will therefore also discuss on Monday way to increase the firepower of the fund through leveraging, without increasing guarantees that back the fund’s borrowing, but no decision is expected yet.

"The ministers on Monday will come closer to a solution, but not to a conclusion," the euro zone official said.

The leveraging idea, suggested by the United States, has some opponents in the euro zone, who fear it could lead to higher liabilities for euro zone countries above the 780 billion euros in current EFSF guarantees, or downgrades of either the AAA-rated EFSF or its triple-A guarantors.

Officials said only options that would not lead to a downgrade would be examined.

Among the ideas under consideration is allowing the EFSF to refinance itself at the ECB’s liquidity operations for banks. The EFSF could also guarantee to cover a percentage of potential losses investors could incur in case of a hypothetical sovereign default.

Any solution, however, should not require another round of ratification, officials said, because policy-makers realized how difficult and lengthy the process was given the growing opposition to bailouts in many euro zone countries.

The ministers will also decide who will replace Juergen Stark on the European Central Bank Executive Board. Stark resigned citing personal reasons although sources said it was mainly over his opposition to the ECB undertaking on the task of buying government bonds.

Ministers will discuss changes to euro zone economic governance, prepared for the October 17 summit of EU leaders by the European Commission, the Eurogroup and the President of the European Council Herman van Rompuy.

- Prophets Of Doom : 12 Shocking Quotes From Insiders About The Horrific Economic Crisis That Is Almost Here

We are getting so close to a financial collapse in Europe that you can almost hear the debt bubbles popping. All across the western world, governments and major banks are rapidly becoming insolvent. So far, the powers that be are keeping all of the balls in the air by throwing around lots of bailout money. But now the political will for more bailouts is drying up and the number of troubled entities seems to grow by the day. Right now the western world is facing a debt crisis that is absolutely unprecedented in world history. Europe has had a tremendously difficult time just trying to keep Greece afloat, and several much larger European countries are now on the verge of a major financial crisis. In addition, there is a growing number of very large financial institutions all over the western world that are also rapidly approaching a day of reckoning. The global financial system is a sea or red ink, and when we get to the point where there are hundreds of ships going under how is it going to be possible to bail all of them out ? The quotes that you are about to read show that quite a few top financial and political insiders know that things cannot hold together much longer and that a horrific economic crisis is coming. We built the global financial system on a foundation of debt, leverage and risk and now this house of cards that we have created is about to come tumbling down.

A lot of people in politics and in the financial world know what is about to happen. Once in a while they will even be quite candid about it with the media.

As I have written about previously, Europe is on the verge of a financial collapse. If things go really badly, things could totally fall apart in a few weeks. But more likely it will be a few more months until the juggling act ends.

Right now, the banking system in Europe is coming apart at the seams. Because the global financial system is so interconnected today, when major European banks start to fail it is going to have a cascading effect across the United States and Asia as well.

The financial crisis of 2008 plunged us into the deepest recession since the Great Depression.

The next financial crisis could potentially hit the world even harder.

The following are 12 shocking quotes from insiders that are warning about the horrific economic crisis that is almost here....

#1 George Soros : "Financial markets are driving the world towards another Great Depression with incalculable political consequences. The authorities, particularly in Europe, have lost control of the situation."

#2 PIMCO CEO Mohammed El-Erian : "These are all signs of an institutional run on French banks. If it persists, the banks would have no choice but to delever their balance sheets in a very drastic and disorderly fashion. Retail depositors would get edgy and be tempted to follow trading and institutional clients through the exit doors. Europe would thus be thrown into a full-blown banking crisis that aggravates the sovereign debt trap, renders certain another economic recession, and significantly worsens the outlook for the global economy."

#3 Attila Szalay-Berzeviczy, global head of securities services at UniCredit SpA (Italy’s largest bank) : "The only remaining question is how many days the hopeless rearguard action of European governments and the European Central Bank can keep up Greece’s spirits."

#4 Stefan Homburg, the head of Germany’s Institute for Public Finance : "The euro is nearing its ugly end. A collapse of monetary union now appears unavoidable."

#5 EU Parliament Member Nigel Farage : "I think the worst in the financial system is yet to come, a possible cataclysm and if that happens the gold price could go (higher) to a number that we simply cannot, at this moment, even imagine."

#6 Carl Weinberg, the chief economist at High Frequency Economics : "At this point, our base case is that Greece will default within weeks."

#7 Goldman Sachs strategist Alan Brazil : "Solving a debt problem with more debt has not solved the underlying problem. In the US, Treasury debt growth financed the US consumer but has not had enough of an impact on job growth. Can the US continue to depreciate the world’s base currency ?"

#8 International Labour Organization director general Juan Somavia recently stated that total unemployment could "increase by some 20m to a total of 40m in G20 countries" by the end of 2012.

#9 Deutsche Bank CEO Josef Ackerman : "It is an open secret that numerous European banks would not survive having to revalue sovereign debt held on the banking book at market levels."

#10 Alastair Newton, a strategist for Nomura Securities in London : "We believe that we are just about to enter a critical period for the eurozone and that the threat of some sort of break-up between now and year-end is greater than it has been at any time since the start of the crisis"

#11 Ann Barnhardt, head of Barnhardt Capital Management, Inc. : "It’s over. There is no coming back from this. The only thing that can happen is a total and complete collapse of EVERYTHING we now know, and humanity starts from scratch. And if you think that this collapse is going to play out without one hell of a big hot war, you are sadly, sadly mistaken."

#12 Lakshman Achuthan of ECRI : "When I call a recession...that means that process is starting to feed on itself, which means that you can yell and scream and you can write a big check, but it’s not going to stop."


In my opinion, the epicenter of the "next wave" of the financial collapse is going to be in Europe. But that does not mean that the United States is going to be okay. The reality is that the United States never recovered from the last recession and there are already a lot of signs that we are getting ready to enter another major recession. A major financial collapse in Europe would just accelerate our plunge into a new economic crisis.

If you want to read something that will really freak you out, you should check out what Dr. Philippa Malmgren is saying. Dr. Philippa Malmgren is the President and founder of Principalis Asset Management. She is also a former member of the Bush economic team. You can find her bio right here.

Malmgren is claiming that Germany is seriously considering bringing back the Deutschmark. In fact, she claims that Germany is very busy printing new currency up. In a list of things that we could see happen over the next few months, she included the following....

"The Germans announce they are re-introducing the Deutschmark. They have already ordered the new currency and asked that the printers hurry up."

This is quite a claim for someone to be making. You would think that someone that used to work in the White House would not make such a claim unless it was based on something solid.

If Germany did decide to leave the euro, you would see an implosion of the euro that would be truly historic.

But as I have written about previously, it should not surprise anyone that theend of the euro is being talked about because the euro simply does not work.

The only way that the euro would have had a chance of working is if all of the governments using the euro would have kept debt levels very low.

Unfortunately, the financial systems of the western world are designed to push governments into high levels of debt.

The truth is that the euro was doomed from the very beginning.

Now we are approaching a day of reckoning. We have been living in the greatest debt bubble in the history of the world, but the bubble is ending. There are several ways that the powers that be could handle this, but all of them will lead to greater financial instability.

In the end, we will see that the debt-fueled prosperity that the western world has been enjoying for decades was just an illusion.

Debt is a very cruel master. It will almost always bring more pain and suffering than you anticipated.

It is easy to get into debt, but it can be very difficult to get out of debt.

There is no way that the western world can unwind this debt spiral easily.

The only way that another massive economic crisis can be put off for even a little while would be for the powers that be to "kick the can down the road" a little farther by creating even more debt.

But in the end, you can never solve a debt problem with more debt.

The next several years are going to be an incredibly clear illustration of why debt is bad.

When the dominoes start to fall, we are going to witness a financial avalanche which is going to destroy the finances of millions of people.

You might want to try to get out of the way while you still can.

- Analysis : Greece’s Sisyphean task to replace debt with growth

By Alan Wheatley, Global Economics Correspondent

(Reuters) - Drowning in red ink, Greece has nowhere to turn to revive the economic growth that might put its debt on a sustainable trajectory, reassure angry foreign creditors and offer hope to its recession-weary citizens.

Instead, the country finds itself in a vicious circle — a death spiral, some would say — in which it is borrowing ever more to keep up on its existing debts, crushing growth in the process and thereby worsening its all-important ratio of debt-to-gross domestic product.

Springing the debt trap would not be a miracle cure either : a manageable level of borrowing is a necessary but not a sufficient condition for Greece to start restoring competitiveness and resume growth after three years of economic contraction.

"If there was a deus ex machina tomorrow and you halved Greece’s debt-to-GDP ratio overnight, there’d obviously be a huge benefit in terms of cash flow," said George Magnus, senior economic adviser to UBS in London.

"So you can alleviate the financial stress on Greece quite quickly and effectively, but I don’t think that in and of itself means the economy is going to grow," he said.

New figures dramatize Athens’s bind. As recently as July, the International Monetary Fund was forecasting that Greece would eke out 0.6 percent growth next year. Just 10 weeks later, it reckons the economy will in fact shrink 2.5 percent in 2012 after a 5.5 percent slump this year.

With tax revenues shrinking as the economy shrivels, debt is likely to rise to an eye-watering 173 percent of GDP in 2012 from 162 percent this year.

To illustrate the speed of the deterioration, the IMF based its May 2010 bailout of Greece on forecasts that gross debt would peak in 2012 at 149 percent of GDP.

Dimitris Drakopoulos, an economist at Nomura in London, agreed that it was an illusion to think that the economy was sinking solely under the burden of debt.

"Greece has large structural bottlenecks to growth, and the sustainability of the public finances is only one of the bottlenecks," he said.


Greece has accepted a raft of conditions set by the IMF, European Union and European Central Bank in return for a financial lifeline. These include slashing the public payroll, raising the retirement age and opening up protected sectors of the economy, including trucking and the law, to more competition.

Economists estimate such deep-seated changes could raise total output by 10 percent over 20 years. That is not to be sneezed at. The problem is that measures such as cutting civil service numbers and wages initially take a big bite out of demand.

"All these structural reforms are making things worse in the short term," Drakopoulos said. "Liberalizing the economy, at the start, under this sort of conditions is going to make things more tough for the first few years."

With a low labor force participation rate, thickets of red tape tying business in knots and productivity 30 percent below the EU average, Athens has little chance of battling back to growth by tightening its belt, markets believe.

Under scenarios prepared after a second 109 billion euro bailout-in-principle agreed on July 21, Nomura reckoned Greece would have to run a primary budget surplus — before interest payments — of 5 percent of GDP to stabilize its debt by 2014 and a 9 percent surplus to reduce it to 90 percent by 2031.

"Besides Belgium and Denmark, which have both had average primary surpluses of around 5 percent of GDP for almost 10 years, there are few other examples of advanced economics showing a similar performance," Nomura said in a report.


In a similar exercise, economists Stephen King and Janet Henry at HSBC calculated that Italy, prior to the economic crisis, needed to run a primary budget surplus of 3.5 percent of GDP to shrink its debt to 90 percent of GDP by 2014.

That figure, they reckon, has now risen to a whopping 20 percent of GDP. No wonder bond markets have taken fright.

Austerity alone was highly unlikely to lower the borrowing costs of the likes of Greece, Italy andIreland to levels at which they can achieve debt sustainability any time soon.

"Faced with year after year of economic pain, default looks ever-more enticing, particularly if the creditor nations look as though they may otherwise be able to escape with no more than a bloody nose," they said in a report.

Lax lending by euro zone creditor nations, led by Germany, was as much to blame as unbridled borrowing by the currency bloc’s periphery, King and Henry argued : "The solution lies in a much greater pooling of sovereignty over bond issuance and fiscal policy."

Holding Germany responsible for the shortcomings of others angers Berlin. But Magnus at UBS agreed that far-reaching changes were needed to address the ’imbalances management problem’ between euro zone surplus and deficit countries.

"How do you get growth ? It depends partly on micro and structural measures at home to increase supply responsiveness. But it’s also down to the external environment and whether the creditor nations of Europe — which is code for Germany really - are willing to change their behavior to allow that growth to happen," he said.

"Germany is a prolific saver and Greece is a prolific borrower. How do you manage that relationship so that the Greeks can borrow less and the Germans don’t lend as much ? That’s ultimately the acid test about whether monetary union will work," Magnus said.

- Les ritals reprennent la route de l’exil

L’histoire se répète, et c’est mauvais signe. Confrontés à la crise et à la pauvreté, les Italiens du Sud reprennent le chemin de l’émigration. 580 000 personnes ont quitté le Mezzogiorno lors des dix dernières années. Naples (Campanie) a perdu 108 000 habitants, Palerme (Sicile), 29 000, Bari (Pouilles), 15 000. En 2010, 134 000 terroni (les "culs-terreux", comme les appellent les sympathisants de la Ligue du Nord) sont partis s’établir au nord de la Péninsule, et 13 000 ont passé la frontière pour s’installer à l’étranger.

Ces chiffres alarmants ont été rendus publics, mardi 27 septembre, par le Svimez, une institution qui depuis 1946 surveille l’économie du Mezzogiorno. "Si rien n’est fait, nous assisterons à un véritable tsunami démographique", conclut ce rapport.

Les 15-34 ans représentent la plus grande part de ce nouvel exode. Si la tendance ne s’inverse pas, ils ne seront plus que 5 millions, contre 7 aujourd’hui, à vivreencore dans le Mezzogiorno à l’horizon 2050. Les plus de 75 ans représenteront alors 18,4 % de la population totale contre 8,3 %. Les causes sont évidentes. Alors que la croissance devrait être de 0,7 % en 2011 pour toute l’Italie, elle ne dépassera pas 0,1 % au Sud où le taux d’occupation des jeunes est de 31,7 %. Seule l’agriculture propose encore un peu d’activité. L’industrie, elle, court le risque d’une extinction pure et simple. Il faudrait, estime le Svimez, investir 60 milliards d’euros pour permettre au Sud de rattraper son retard. Si l’Etat, endetté à hauteur de 120 % du PIB, a peu de moyens et pas davantage de volonté politique, l’Union européenne en possède davantage. 35 milliards d’euros ont été mis à disposition de l’Italie pour la période 2007-2013 au titre de l’aide aux régions défavorisées. Mais seuls 33 % de ces fonds ont été utilisés...

Nous n’avions pas tous ces chiffres en tête, en nous rendant, lundi 19 septembre, à la Maison du cinéma à Rome, pour la projection de Ritals, un documentaire de Sophie et Anna-Lisa Chiarello dont les chaînes de télévision des deux côtés des Alpes devraient se disputer la diffusion. Les soeurs Chiarello ne sont pas allées bien loin pour nous parler d’émigration. Sur les 30 millions d’Italiens qui ont quitté leur pays en cent cinquante ans, elles ont choisi de s’intéresser d’abord à leur propre famille : père, mère, oncles et tantes qui, entre la fin des années 1950 et 1960, ont quitté Corsano (Pouilles) pour s’établir à Enghien (Val-d’Oise).

Mais au-delà d’une simple chronique intime, nourrie d’extraits de films de famille en super-8, Ritals raconte aussi le déchirement face à l’exil. Vincenzo et Maria, les deux principaux protagonistes de ce documentaire tendre et inspiré, évoquent face à la caméra de leurs filles, leurs années de vache maigre (maçonnerie pour lui, travaux de couture pour elle) dans un pays, la France, pas complètement hostile mais pas totalement accueillant non plus pour les "Ritals". Ici, ce sont les détails qui disent mieux que les statistiques du Svimez la douleur jamais effacée du déracinement : la peur devant les arbres profus et oppressants d’Ile-de-France pour Maria qui n’avait connu que les pins et les oliviers du Salento ; la difficulté presque insurmontable pour un Italien de lire le mot "beaucoup" quand, en Italie, quatre lettres suffiraient pour l’écrire.

Vingt-cinq ans plus tard, les Chiarello referont le chemin inverse pour retourner à Corsano, fortune (pas tout à fait) faite. Sur les 30 millions d’émigrés italiens, 10 millions feront aussi la route du retour au pays. Après des centaines de dimanches passés à évoquer le pays autour de la table familiale, ils sont repartis dans les Pouilles. Trop italiens pour se sentir français, ils se retrouvent presque trop français pour demeurer tout à fait italiens. Biculturels à jamais, déplacés, dans tous les sens du terme, les Chiarello vivent désormais dans un "entre-deux", mélangeant les langues et les identités et multipliant les allers et retours. Personnel et universel à la fois, politique et sentimental, Ritals nous montre ce que les chiffres ne disent pas. Partir est une souffrance, revenir en est une autre.

Retrouver des traces, donner de la chair aux statistiques, c’est aussi le but du Cisei, le Centre d’étude de l’émigration de Gênes (Ligurie), d’où sont partis une dizaine de millions de Transalpins en direction du Brésil, de l’Argentine, des Etats-Unis. Depuis sa fondation, le Cisei a déjà réuni 3 millions de "fiches signalétiques"de migrants. Réunies dans une base de données, elles sont consultables par Internet par les "Italiens du bout du monde" et leurs descendants, qui sont invités à les compléter. Lettres, passeports, photographies, le Cisei accueille tous les témoignages pour, explique son président Fabio Capocaccia, "préserver la mémoire de cet exode". Une annexe de la mer et de la navigation de Gênes leur sera dédiée à partir du 19 novembre, comme une sorte de musée d’Ellis Island à l’envers.

Bizarrement, alors que l’émigration de masse est un des événements structurants de l’identité italienne, il n’existe aucun musée national, aucune fondation consacrés à la question. Refoulement ? Pudeur ? Un peu de tout cela sans doute. Des sentiments mêlés dont témoignent justement les paroles de Rital, une chanson pas aussi légère qu’elle n’y paraît de Claude Barzotti écrite en 1983 : "Je suis rital et je le reste/Et dans le verbe et dans le geste/Vos saisons sont devenues miennes/Ma musique est italienne/Je suis rital dans mes colères/Dans mes douceurs et mes prières/J’ai la mémoire de mon espèce/Je suis rital et je le reste."

- US Closes 2010-2011 Fiscal Year With $14,790,340,328,557.15 In Debt, $95 Billion Jump On The Day, $1.2 Trillion Increase In One Year

Gross Domestic Product

America has now officially closed the books on the 2010-2011 fiscal year. It is only fitting that the last day of the year saw the settlement of all outstanding and recently auctioned off debt. The result : a surge of $95 billion in total government debt overnight, and a fiscal year closing with the absolutely unprecedented $14,790,340,328,557.15 trillion in debt. Net net, in the past fiscal year, the US has issued a total of $1.228 trillion in new debt and has accelerated over time. At a rate of $125 billion per month, total US debt to GDP will pass 100% in just over a month. Incidentally, one may inquire about the benefits of centrally planned fiscal stimulus (cough Solyndra cough) : the US economy added over 3$ trillion in debt in the past two years and the stock market is almost back to where it was back then. Perhaps it is about time someone demanded that all those lunatics who say that issuing debt for the sake of growth (and pushing the S&P higher of course) be finally locked away in perpetuity, and the key dropped into the deepest volcano in Mordor.


The dialogue above occurred at the end of the dystopian movie V for Vendetta. It is a tale of revenge and restoring hope among citizens who had chosen safety and security over freedom and liberty. Even though this movie was fictional and adapted from a comic strip, its message and warnings should be heeded. Millions of middle class citizens in the U.S. sink deeper into despair every day. Day by day hope is being lost that the future for our children will be better than our past. The political, financial, and corporate leaders of our country are intellectually and morally bankrupt. The major Wall Street banks are bankrupt. Social Security is bankrupt. Medicare is bankrupt. The whole damned world is bankrupt. Anyone with an unbiased view of our planet would conclude that we are in unfathomable danger. The list of impending catastrophic issues that will blow up the world for millions in the U.S. and across the globe is virtually endless :

U.S. Debt

The national debt is currently $14.6 trillion, up from $5.7 trillion in 2000. It took over 200 years to accumulate the first $5.7 trillion of debt and only 11 years to tack on another $8.9 trillion.

With the new $450 billion jobs package proposed by President Obama, the deficit in FY12 will likely exceed $1.8 trillion, or 12% of GDP. Greece’s 2010 deficit was 10.5% of GDP.

Kenneth Rogoff and Carmen Reinhart in their book This Time is Different : Eight Centuries of Financial Folly, using data from 44 countries over 200 years, concluded that once a country’s national debt exceeds 90% of GDP, the economy stagnates and ultimately makes that country vulnerable to a debt crisis. The U.S. national debt as a percentage of GDP is currently 97% and will reach 107% in 2012. This does not count state and local debt, Fannie Mae and Freddie Mac debt, and the unfunded liabilities for Social Security and Medicare. We are at the same place Greece was in 2007. But we’re no Greece, right ? This time is different.

Total credit market debt of $52.5 trillion is 3.5 times GDP, versus a long-term leverage ratio of 1.6. This is called living well above your means on borrowed money. We have a long way down before we reach the bottom of this mountain of debt.

Despite the rhetoric out of Washington D.C. by the thieves and knaves about cutting deficits, the National Debt is on course to increase by $9 trillion in the next 10 years. It will reach $20 trillion by 2015.


The commitments made by politicians over decades in order to get elected have resulted in unfunded liabilities for Social Security and Medicare exceeding $100 trillion.

In 1980, just 11.7% of all personal income came from government transfer payments. Today, 18.0% of all personal income comes from government transfer payments. Wages and salaries paid by private industries totals $5.5 trillion per year, while wages paid by government total $1.2 trillion and social welfare payments from the government total $2.3 trillion. Only ten years ago wages and salaries from private industries totaled $4.1 trillion, while government wages were only $800 billion and welfare payments totaled $1.1 trillion. In ten years the percentage increases paint the true picture :

Private wages & salaries increased 34%

Government wages & salaries increased 50%

Government social welfare transfer payments increased 109%

Despite the rhetoric from politicians, there is no lock box and there is no cash in the Social Security fund. John Mauldin summed it up nicely : “Social Security funds are an entry into a government accounting book that don’t really exist except as an IOU. Politicians of all stripes have used the Social Security money to pay for other government expenses. Those funds were even counted to offset the deficit, although now that Social Security is no longer in a surplus that has gone away.”

This year, about 3.3 million people are expected to apply for federal Social Security Disability benefits. That’s 700,000 more than in 2008 and 1 million more than a decade ago. Today, about 13.6 million people receive disability benefits through Social Security or Supplemental Security Income. Last year, Social Security detected $1.4 billion in overpayments to disability beneficiaries, mostly to people who got jobs and no longer qualified, according to a recent report by the Government Accountability Office, the investigative arm of Congress.


The official unemployment rate in the U.S. is 9.1% with 14 million people unemployed. The true unemployment rate, taking into account discouraged workers, part time workers who want a full time job, and people who have dropped out of the work force, is above 20%, or 31 million people.

It now takes the average unemployed worker in America about 40 weeks to find a new job.

Even after a supposed recovery, there are approximately 7 million less people employed today than there were in 2007.

The employment to population ratio of 58.2% is at the same level as 1969, before women entered the workforce in record numbers. As wages stagnated and inflation drove costs higher, families were forced to send two parents into the workforce, with predictable consequences to their latchkey children. The ratio peaked in 2001 at 64.4% and has declined precipitously since 2008.

civilian population ratio


The number of people on food stamps has gone from 27 million people receiving $30 billion of aid in 2007 to 45 million people (14.5% of U.S. population) receiving $72 billion in aid today.

food stamp participation

The number of uninsured Americans totals 49.9 million.

Those covered by employer-based insurance continued to decline in 2010, to about 55%, while those with government-provided coverage continued to increase, up slightly to 31%. Employer-based coverage was down from 65% in 2000.

One out of every six elderly Americans now lives below the federal poverty line.

Another 2.6 million people slipped into poverty in the United States last year and the number of Americans living below the official poverty line, 46.2 million people, was the highest number in the 52 years the Census Bureau has been publishing figures on it.

The percentage of Americans living below the poverty line last year, 15.1%, was the highest level since 1993. (The poverty line in 2010 for a family of four was $22,314)

Blacks experienced the highest poverty rate, at 27%, up from 25% in 2009, and Hispanics rose to 26% from 25%. For whites, 9.9% lived in poverty, up from 9.4% in 2009. Asians were unchanged at 12.1%.


Median household income fell 2.3% to $49,445 last year and has dropped 7% from the peak of $53,252 reached in 1999.

Median household income for the bottom tenth of the income spectrum fell by 12% from a peak in 1999, while the top 90th percentile dropped by just 1.5%.

Between 1969 and 2009, the median wages earned by American men between the ages of 30 and 50 dropped by 27% after you account for inflation.

Median income fell across all working-age categories, but the sharpest drop was among young working Americans, ages 15 to 24, which experienced a decline of 9%.

When you adjust wages for inflation, middle class workers in the United States make less money today than they did back in 1971.

Wealth Inequality

The wealthiest 1% of all Americans now controls 43% of all the financial wealth in this country.

According to the Federal Reserve, the richest 1% of all Americans has a greater net worth than the bottom 90% combined.

The fact is that many people in the bottom half of the top 1% wealthiest Americans usually achieved their success after decades of education, hard work, saving and investing as a professional or small business person. A recent article by William Domhoff quotes an investment manager who works with very wealthy clients regarding the top 0.1% :

Unlike those in the lower half of the top 1%, those in the top half and, particularly, top 0.1%, can often borrow for almost nothing, keep profits and production overseas, hold personal assets in tax havens, ride out down markets and economies, and influence legislation in the U.S. They have access to the very best in accounting firms, tax and other attorneys, numerous consultants, private wealth managers, a network of other wealthy and powerful friends, lucrative business opportunities, and many other benefits. Membership in this elite group is likely to come from being involved in some aspect of the financial services or banking industry, real estate development involved with those industries, or government contracting.

Until 1980, the U.S. economic system was reasonably balanced, with manufacturing still the driving force in creating wealth for the middle class. In the three decades since, our political, banking and corporate elite have gutted our industrial base, shipped millions of jobs overseas and have used financial schemes and scams to suck the vast majority of middle class wealth into their grubby little hands. Wall Street has slowly and methodically pillaged the nation’s wealth, hollowing out a once vibrant nation, and their insatiable greed driven appetite drives them to want more.

Consumer Debt

Total consumer debt in the United States at $2.45 trillion is now more than 8 times larger than it was just 30 years ago. The recent leveling off is completely due to hundreds of billions in write-offs by the Wall Street banks. The chart below is a Keynesian dream of government borrowing to create prosperity. The fallacy of Keynesianism is evident for all to see.

According to the Federal Reserve, between 2007 and 2009 household net worth in the United States fell by 25%, or $16.4 trillion.

The Federal Reserve says that median household debt in the United States has risen to $75,600.

Of U.S. households that have credit card debt, the average amount owed on credit cards is $15,800.

The top 10 credit card issuing banks control 80% of the credit card market, with Bank of America, Citicorp, JP Morgan Chase and Wells Fargo accounting for almost 60% of the market.

The average APR on credit card with a balance on it is 13.1%. These same banks are borrowing at 0% from the Federal Reserve.

Penalty fees from credit cards added up to over $21 billion in 2010.

There are 610 million credit cards held by U.S. consumers, with 3.5 credit cards per cardholder.

Americans now owe more than $887 billion on student loans, which is even more than they owe on credit cards.

Real Estate

U.S. home values have fallen an astounding $6.6 trillion since the peak of the real estate market.

National home prices have fallen 31% from their peak in 2005.

Approximately 11 million households, or 23% of all households with a mortgage, are underwater on their mortgage.

Household percent of equity is at 38.6% today, down from 60% in 2006. There are 87 million households in the U.S. Approximately 25 million of these houses have no mortgage, so the 52 million have significantly less than 38.6% equity.

Americans were so sure their houses would appreciate to infinity during boom years of 2005 through 2008 they withdrew over $3 trillion of equity from their homes and spent it like drunken sailors. The hangover will last for decades.

Savings & Retirement

The S&P 500 Index reached 1,100 on March 24, 1998. The S&P 500 Index on October 4, 2011 is 1,100. Wall Street convinced millions of dupes that they needed to buy stocks for the long run. Thirteen years later, the average investor has nothing, while the shysters on Wall Street have reaped hundreds of billions in fees.

The stock market is priced to return 5% over the next decade, while bonds are priced to deliver no more than 2%.

1 out of 3 Americans has no savings at all.

Workers estimate their retirement savings needs at $600,000 (median), but in comparison, less than one-third (30%) have currently saved more than $100,000 in all household retirement accounts.

The average 401k balance at the end of 2010 was $71,500. Aon Hewitt estimates that it will take retirement savings of 15 times your final salary to maintain your current lifestyle. Someone making $50,000 per year would need $750,000.

50% of all the households in the U.S. (57 million households) have a total net worth less than $70,000.

Robert Novy-Marx of the University of Chicago and Joshua D. Rauh of Northwestern’s Kellogg School of Management recently calculated the combined pension liability for all 50 U.S. states. What they found was that the 50 states are collectively facing $5.17 trillion in pension obligations, but they only have $1.94 trillion set aside in state pension funds.

Every single day more than 10,000 Baby Boomers will reach the age of 65. That is going to keep happening every single day for the next 19 years.

Approximately 3 out of 4 Americans start claiming Social Security benefits the moment they are eligible at age 62. Most are doing this out of necessity.

35% of Americans already over the age of 65 rely almost entirely on Social Security payments alone.

Foreign Trade

The U.S. trade deficit is now running at approximately $600 billion per year. It is clear that with the shift from a manufacturing based saving society in the 1960s and 1970s to a Wall Street finance based, debt driven consumption society from 1980 onward has led to massive trade deficits.

The gutting of the American middle class can again be traced back to 1980 when manufacturing employment peaked at 19.5 million. Once corporate CEOs embraced “globalization” in the late 1990s and realized they could reap obscene profits and compensation packages by utilizing slave labor in China to do American manufacturing jobs at 10% of the cost, the jobs disappeared. There are less than 12 million manufacturing jobs in the U.S. today, replaced by jobs at Wal-Mart and McDonalds.

The U.S. imports 9.5 million barrels per day of oil, more than 50% of our daily consumption. At an average price of $90 for 2011, we are sending $300 billion per year to countries that hate us and despise our way of life.


The U.S consumes 22% of the world’s oil output despite having only 4.5% of the world’s population.

The U.S. has less than 3% of the world’s proven oil reserves.

The Department of Energy was created in 1977 with the mission to reduce our dependence on foreign oil. The country has not built a new oil refinery or nuclear power plant since 1980.

In 1980 the U.S. imported 37% of our oil consumption. We now import 51% of our oil consumption.

In 1980 the price of a gallon was $0.58 per gallon ($1.90 adjusted for inflation). Today, the price of a gallon of gasoline is $3.40.

The DOE employs 16,000 workers & 100,000 contract workers, and operates on a mere $27 billion per year. Ironically, the DOE spends $300 million per year for energy in its 9,000 buildings around the country.

Despite being created to create a comprehensive energy policy, the DOE has no plan or strategy to address peak cheap oil. The impact on U.S. society from declining world oil supply will be devastating to the U.S. economy within the next five years.

Foreign Interventionism

America’s two wars of choice in the Middle East have cost $1.3 trillion in direct costs, thus far. The long-term costs will total over $3 trillion.

The United States annual military spending is 8 times as large as China and Russia. We spend 73 times as much as the supposed dire threat of Iran. The U.S. accounts for over 44% of worldwide military spending.

In the year 2000, the U.S. spent $359 billion on Defense, including veterans and foreign aid ($17 billion). The 2011 expenditure is $965 billion, with $45 billion in foreign aid. Do the politicians in Washington D.C. recognize the irony of borrowing $45 billion from foreigners and then giving the $45 billion to other foreigners ?

The U.S. operates 11 large carriers, all nuclear powered. In terms of size and striking power, no other country has even one comparable ship. The displacement of the U.S. battle fleet – a proxy for overall fleet capabilities – exceeds, by one recent estimate, at least the next 13 navies combined, of which 11 are our allies or partners.

The U.S. military empire is vast. Officially, more than 190,000 troops and 115,000 civilian employees are massed in approximately 900 military facilities in 46 countries and territories (the unofficial figure is far greater). The US military owns or rents 795,000 acres of land, with 26,000 buildings and structures, valued at $146 billion.

With the collapse of the Soviet Union in the early 1990s, the military industrial complex needed to create a new enemy in order to keep the billions in profits flowing to the arms manufacturers. The War on Terror has been a windfall for the military industrial complex. The American people did not heed President Eisenhower’s warning.

Monetary Policy

The Federal Reserve was created in 1913 with the purpose of stabilizing the country’s financial system, eliminating financial panics, keeping prices steady, and insuring maximum employment. The result has been more instability, depressions, recessions, market crashes, unemployment as high as 25%, and inflation that has reduced the purchasing power of the U.S. dollar by 96% since 1913.

The Consumer Price Index was 10.0 in December 1913 when the Federal Reserve was created. Today, the index stands at 227. Prices have risen 2,270% in the almost 100 years since the Federal Reserve’s inception, or inversely the dollar can buy what it took $.04 to buy in 1913. Somehow, the banking syndicate that has “achieved” this result has convinced the public that inflation is good for them.

When Richard Nixon closed the gold window in 1971, the last check and balance on politicians and bankers was scrapped. The result has been predictable. The National Debt swelled from $400 billion in 1971 to $14.6 trillion today, a 3,650% increase in 40 years. The GDP grew from $1.13 trillion to $15.0 trillion today, a 1,332% increase in 40 years. Politicians have bought the votes of their constituents by making promises and financial commitments that have made debt slaves out of future unborn generations. Without a restraint on money printing, politicians will always choose to not worry about tomorrow.

The Federal Reserve policies of Alan Greenspan and Ben Bernanke were the single biggest cause of the 2008 financial catastrophe and their current policies have set the country up for the final cataclysmic disintegration of our economic system. By bailing out Wall Street every time they made a high risk bet and lost (1987 Crash, Latin America, S&L Crisis, Asian Crisis, LTCM, Dot Com, 9/11, Housing collapse, Lehman) the Federal Reserve has proven to be a tool for the super rich power elite. By keeping interest rates below where they would be in a free market, the Federal Reserve created the climate for gambling on Wall Street, the home price 3 standard deviation bubble, and the current screwing of senior citizens and savers to boost the profits of Wall Street bankers.

In August 2008 the Federal Reserve balance sheet consisted of $940 billion of mostly U.S. Treasury securities. Today, the Federal Reserve balance sheet totals $2.9 trillion and is filled with toxic mortgage debt shoveled from the insolvent Wall Street banks onto the plate of the American taxpayer. The Federal Reserve balance sheet is leveraged 55 to 1, meaning a 2% loss would wipe out their capital. Lehman Brothers and Bear Stearns were leveraged 30 to 1 when they went belly up.

During the recent financial crisis the Federal Reserve secretly loaned $16 trillion to the biggest banks in the world, including $4 trillion to foreign banks. This goes far beyond the mandate they were given by Congress in 1913. The Fed had no regulatory authority or ability to judge the credit worthiness of these foreign banks, but risked $4 trillion of U.S. taxpayer funds propping them up. With European banks on the verge of bankruptcy, the Federal Reserve risks losing even more money if they become the lender of last resort.

In the 3rd Quarter of 2008 American savers were able to generate $1.4 trillion of interest income on their savings. Much of this interest went to risk adverse senior citizens who depended on this income to make ends meet after two years of no increases in their Social Security payments. Three years later savers are only generating $1 trillion of interest income or 30% less, while their costs for food and energy have risen 5% to 10%. The Federal Reserve instituted a zero interest rate policy in order to enrich their Wall Street masters, while further impoverishing the middle class and senior citizen savers that are the true backbone of the nation. Ben Bernanke has purposely transferred $400 billion from the prudent to the profligate.

When I started to detail the issues facing our country today, I expected to come up with 10 to 20 bullet points of key concerns. As I methodically worked through the categories of challenges facing the American Empire, the total reached 76 bullet points. The facts as presented above paint a picture of impending doom for America. The slogans and vapid “solutions” proposed by political candidates and entrenched Washington politicians do not even scratch the surface of what would need to be done to save this country from economic collapse. Many of these problems took decades to create and are not solvable in a reasonable time frame. With the country still delusion, overleveraged, and underemployed, it seems like the existing economic and social structure will need to be blown up to restore hope in this country.

“A building is a symbol, as is the act of destroying it. Symbols are given power by people. A symbol, in and of itself is powerless, but with enough people behind it, blowing up a building can change the world.” – V in V for Vendetta

Look In the Mirror

After accepting the fact that the economic situation as presented above is beyond repair, two questions come to mind :

How did we get in this predicament ?

How do we get out of this predicament ?

The difficulty with trying to explain how we got here is that people want simple answers and a bad guy to blame. People want to blame the rich or blame the poor or blame the phantom ruling elite or blame the other political party. They prefer to blame someone else, rather than looking in the mirror. It took a century of bad decisions, delusional thinking, unparalleled hubris, greed, sloth and willful ignorance to place the country on the precipice of ruin. The American people are responsible for the situation they find themselves in today. We elected the politicians that passed the laws, created the agencies, borrowed the money, and spent the country into oblivion. The truth is human beings are flawed creatures. We are prone to greed, laziness, seeking power, worrying about what others think about us, delusional thinking, herd mentality, shallowness, and cognitive dissonance. All of these human weaknesses have contributed to our current dilemma.

Until the twentieth century the United States generally kept their nose out of foreign conflicts, only getting involved in small regional conflicts. The country experienced tremendous growth during the 1800s and early 1900s with virtually no inflation and no central bank. The country experienced this remarkable expansion with no personal or corporate income tax. The nation also benefitted tremendously from the discovery of oil in Titusville, PA in 1859, as oil fueled the industrial revolution in the U.S. The election of Woodrow Wilson in 1912 marked a dramatic turning point in U.S. history. Within one year the country had a personal income tax and a central bank. As with most things created by politicians, they seemed harmless at first. The tax rate for 99% of Americans was 1%. The central bank was given a limited mandate to keep our banking system stable. Within a century we have a 60,000 page Federal tax code and a myriad of taxes at the Federal, State and local level. The Federal Reserve has more power and control over our lives than any entity on earth.

Giving politicians the ability to tax its citizens and print money allowed them to do things and make commitments that would have been impossible prior to 1913. After being re-elected in 1916 on a platform of keeping the country out of World War I, Wilson committed the country to that war. By 1919 the tax rate was already at 4% for most Americans and the Federal Reserve was printing money to finance the war, generating inflation of 16% per year between 1917 and 1920. Thus began a century of foreign interventionism and debt financed social welfare programs. The Federal Reserve created the easy monetary conditions of the 1920s which brought about the boom and bust of the 1929 stock market collapse. This precipitated the Great Depression and the conditions that led to the rise of fascism and World War II. The tinkering by politicians with our monetary system created more problems, which politicians attempted to solve by passing new laws and creating new programs and agencies. Without an unlimited supply of taxes and money printed by the Federal Reserve, politicians would have been constrained.

The somewhat logical reaction to the Great Depression by Franklin Delano Roosevelt was to create make work programs, housing agencies and social welfare programs to keep the citizens from revolting. He did this through the creation of debt, doubling the National Debt from $22 billion in 1932 to $44 billion by 1940. This is when the entitlement mindset took root. The creation of OASDI (Old Age, Survivors, and Disability Insurance) in 1935 was not supposed to be a retirement plan. People didn’t retire in 1935. It was created to make sure widows and orphans did not starve to death during the Great Depression. Again, the rate was only 1% at the outset. The age at which you were eligible to receive assistance was 65, four years greater than the average life expectancy of 61 years old. It was created as an insurance program and has morphed into a glorified retirement plan that convinced millions of Americans they didn’t need to save for their own retirement. It is $17.5 trillion in the hole because life expectancy is now 79 years old, politicians expanded coverage and refused to level with the American public for fear of losing elections.

The psychology of entitlement has grown over the decades as politicians made promises with borrowed money. They created Social Security, Medicaid, and Medicare to provide pension and healthcare to all senior citizens. They created Fannie Mae, Freddie Mac and Section 8 housing because everyone deserved to own a home. They created unemployment compensation, SNAP, and SSDI to sustain the disabled and down on their luck. Veterans are entitled to benefits as a result of their military service. These entitlements have become ingrained in our society. Charles Hugh Smith captured the essence of our entitlement mindset in a recent article :

“The entitlement mindset is thus firmly established in the American psyche. If we experience bad luck and/or the negative consequences of poor choices, we have been trained to expect the government at some level to alleviate our suffering, cut us a check or otherwise address our difficulties. The poisonous problem with the entitlement mindset is intrinsic to human nature : once we “deserve” something, then our minds fill with resentment and greed, and we focus obsessively on creating multiple rationalizations for why we deserve our fair share.”

The ability to tax and print trillions of dollars has enabled politicians to convince Americans they don’t need to save for their own retirement, they don’t need to worry about the cost of their healthcare, they don’t need to educate themselves, and they don’t need to help their neighbors because the government will do it for them. Once the entitlement mindset became ingrained in our society, self reliance, the ability to adapt to adverse circumstances, charitable acts, and taking responsibility for your own health and welfare rapidly declined among the populace. Government programs have been sold to the American people as acts of compassion for the less fortunate. Instead they have become a bureaucratic nightmare, creating dependence and a permanent underclass with no incentive, ability or desire to raise themselves up.

Human weakness and failings have also led to an over-class that have done far more damage to the country than those in society dependent on the state for their subsistence. The best description of this country at this point in history is a Warfare-Welfare-Corporatocracy. Since World War II the undue influence of the military industrial complex has led to almost constant conflict and foreign interventionism on a grand scale never matched in world history. President Eisenhower’s warning went unheeded :

“In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military industrial complex. The potential for the disastrous rise of misplaced power exists and will persist. We must never let the weight of this combination endanger our liberties or democratic processes. We should take nothing for granted. Only an alert and knowledgeable citizenry can compel the proper meshing of the huge industrial and military machinery of defense with our peaceful methods and goals, so that security and liberty may prosper together.”

The people of this country have traded liberty and freedom for the appearance of safety and security by allowing the corporate military establishment and their bought political cronies to use fear and phantom threats to convince the non-critical thinking masses to beg for protection. The Cold War was replaced by the War on Terror, while the truth is that we keep our troops in the Middle East to protect “our” oil under “their” sand. Attempting to maintain an empire through troops garrisoned in countries across the globe, patrolling the seas with our navies, buying the “friendship” of dictators, and saber rattling or invading countries we don’t like is a folly that has brought down many empires before ours.

The most decisive factor in the disastrous financial predicament we are experiencing today is the tsunami of Wall Street greed and avarice that was unleashed upon the nation starting in 1971 with Nixon closing the gold window and allowing the Federal Reserve to “manage” the currency with no hindrances like gold to keep them from going too far. Prior to the 1980’s Wall Street investment banks were partnerships. If a partner took an extreme risk he would endanger the personal assets of all the partners. This insured prudent lending practices. Once they became corporations the risk was passed to shareholders and as we’ve recently found out – taxpayers, while bank executives could reap obscene compensation by taking world shattering risks. The repeal of the Glass Steagall Act in 1999 and the obstruction in regulating the derivatives market by Alan Greenspan and Larry Summers created the playing field that allowed Wall Street go on a drunken rampage, pushing the worldwide financial system to the point of collapse in 2008.

What Happens Next ?

“I felt like I could see everything that happened, and everything that is going to happen. It was like a perfect pattern, laid out in front of me. And I realized we’re all part of it, and all trapped by it. With so much chaos, someone will do something stupid. And when they do, things will turn nasty.” – Inspector Finch – V for Vendetta

Gains and Losses in 2007-2009, Average CEO Pay vs. Average Worker Pay

The chart above explains why anger and rage are beginning to bubble to the surface in cities across the country. It is clear there are no simple explanations or one answer to why the country is facing such calamitous circumstances. Essentially, human failings that have existed for all eternity have conspired to drain the vitality, risk taking, self reliance, personal responsibility and common sense from a once great nation. We know the uneducated, unmotivated lower classes, after decades of being kept down through our entitlement system, are unable and unwilling to do anything about their situation, as long as the entitlements keep flowing. It is the richest .01% that has accumulated the wealth, power and undue influence over the management of country. Either through inheritance, intelligence, connections, hard work, or luck, a few hundred thousand individuals out of 310 million people control the system. Immense wealth in the hands of the few has created a system where the few control the media, politicians, banking system, and mega-corporations that dominate our economy. Their human weaknesses include being egomaniacal power hungry materialistic greedy men who will stop at nothing to retain and increase their vast wealth. They have succeeded beyond their wildest dreams in pillaging the wealth of the middle class. But, they’ve gone too far.

They’ve manipulated the tax code in their favor. They make up most of the Senate, House and Judiciary. They own the mainstream media outlets. They are the masters of the universe on Wall Street. They run the mega-corporations that have shipped American jobs overseas. They pay millions to have the laws and regulations written for their benefit. They created the social welfare system, the public education system, and the healthcare system that keeps a vast swath of the population impoverished, ignorant and dependent upon the mutant organism that enriches the few. They’ve convinced the bulk of non-critical thinking Americans that the government can create jobs and make their lives safe and secure. This is the point where critical thinking Americans need to honestly answer a few questions to decide what happens next.

Did Social Security make our retirements more secure ? Did the Department of Education make our children smarter ? Did the Department of Energy reduce our dependence on foreign oil ? Would there be more or less than 160,000 structurally deficient bridges in the U.S. without the Department of Transportation ? Does paying unemployment compensation for 99 weeks increase employment or create jobs ? Did Medicare and Medicaid make people healthier and reduce healthcare costs ? Has putting our faith in mega-corporations for health insurance, drugs and job creation benefitted middle class workers ? Has the War on Terror made the average American safer ? Did the War on Drugs reduce the usage and availability of illegal drugs ? Did passing more laws lead to a more law abiding society ? Does incarcerating more criminals in more prisons reduce crime ? Does a 60,000 page IRS tax code result in more taxes being collected ? Has issuing more debt to solve a debt induced crisis resulted in a stronger financial system ? Does the Republican or Democratic parties have your best interests at heart ? Does it matter who is elected President in 2012 ?

There are solutions to the issues facing our country but they all would result in painful choices, tremendous sacrifice, a willingness to rebalance our economy and lives, and the loss of vast stores of wealth by the top .01% richest Americans. The steps needed would be :

A nationalization of the Too Big To Fail banks with the required losses inflicted upon shareholders, bondholders and executives.

Re-institution of mark to market accounting rules requiring companies to truthfully report the losses on their loan portfolios.

The re-institution of Glass-Steagall to insure that no bank could become too big to fail.

Instituting a transparent regulated derivatives market that would insure that no single entity could threaten to crash the worldwide financial system.

Scrapping the existing individual personal income tax and replacing it with a flat, fair and/or consumption tax would take away the power of politicians.

The elimination of all corporate tax breaks so that multi-billion dollar conglomerates could not get away with paying no corporate taxes (GE).

The withdrawal of thousands of U.S. troops from across the globe and a dramatic decrease in military spending would be a voluntary reduction in our empire.

A renegotiation of the social contract with changes in eligibility based on age and financial means is the only way to retain a semblance of a social net to protect those who are truly needy. Otherwise the social welfare system will crash.

The population would need to accept a dramatic decrease in their standard of living as interest rates would need to be raised and saving would need to replace borrowing as our economic mantra.
Acceptance of the impact from peak oil would require a complete restructuring of our suburban sprawl existence with communities forced to become more locally self sufficient.

The political system would need to be overhauled with term limits and the elimination of corporate and special interest control over the election process.

The Federal Reserve would need to be constrained through the re-introduction of gold and/or a basket of hard currencies as a check on their ability to print money.

Sadly, we all know that none of these solutions would ever be willingly implemented by the existing ruling class. Anyone with an ounce of common sense can see the system is crumbling. The .01% went too far and stole too much. An unsustainable system will not be sustained. The debt load is too burdensome. The peasants are growing restless. Young people have occupied Wall Street. They are beginning to occupy other cities. 700 were arrested on the Brooklyn Bridge. Older people are joining the protests. There isn’t a cohesive message coming from the protestors other than the system is rigged in favor of the top .01%. Those who think they are in control are losing their grip. They see their power and wealth slipping away. They’ve had their way for decades and will not willingly submit to a change in the existing social order. Last night Jim Cramer voiced the concerns of the .01% by saying the Occupy Wall Street protests were worrisome. They are worrisome to the moneyed interests. They are a reason for hope to the 99.9%. We are approaching our moment of truth. There is something terribly wrong with this country. A new American Revolution has begun. It is time to stop being afraid and take this country back. What happens next ? The choice is ours.

While the truncheon may be used in lieu of conversation, words will always retain their power. Words offer the means to meaning, and for those who will listen, the enunciation of truth. And the truth is, there is something terribly wrong with this country, isn’t there ? Cruelty and injustice, intolerance and oppression. And where once you had the freedom to object, to think and speak as you saw fit, you now have censors and systems of surveillance coercing your conformity and soliciting your submission. How did this happen ? Who’s to blame ? Well certainly there are those more responsible than others, and they will be held accountable, but again truth be told, if you’re looking for the guilty, you need only look into a mirror. I know why you did it. I know you were afraid. Who wouldn’t be ? War, terror, disease. There were a myriad of problems which conspired to corrupt your reason and rob you of your common sense. Fear got the best of you, and in your panic you turned to….. – V’s speech to the British people in V for Vendetta

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