Monday, April 20, 2009
By Jim Genova
In a sea of red flags emblazoned with the hammer and sickle emblems of Italy's main Communist Parties, thousands gathered in Rome's Piazza Navona on 18 April to proclaim their unity and launch a campaign for elections to the European Parliament to be held 6-7 June 2009. Speaking at the rally, Paolo Ferrero, National Secretary of the Communist Refoundation Party (PRC), proclaimed, "We are defending the workers, unemployed, the vulnerable, and pensioners in order to come out of this [economic] crisis with more social justice." Oliviero Diliberto, National Secretary of the Party of Italian Communists (PdCI), told the enthusiastic crowd that after years of division, the Communist and Anti-Capitalist forces in Italy were united in their struggle for a new Europe, one that fundamentally transforms the political, economic, cultural, and social bases of the European Union. In response, the jubilant gathering broke into chants of "Unity! Unity! Unity!" followed by a spontaneous and raucous singing of the Italian Communist anthem, "Avanti Popolo!" during which shouts of "Bandiera Rossa! (Red Flag!)" wafted through the Piazza.
This was one of the more significant assemblies in recent Italian history, coming in the midst of a profound systemic crisis of global capitalism and in the wake of over tens years of "centrifugal" forces that have split Italy's once-powerful and now revitalized Communist movement. In preparation for Saturday's rally, leaders of the PRC, PdCI, Socialismo 2000, and the United Consumers party proclaimed that this united rally was not a "one-time expediency" for the elections. Rather, all pledged to use this as the beginning of a process of "political revival" based on "coordinated and united action among all the groups." The goal is to "reassemble the dispersed Communist and anti-capitalist forces ... on a strong programmatic basis." For months leading up to the gathering in Rome the leaders of the PRC and PdCI, which split in 1998, have been negotiating for the reunification of Italy's Communist movement. The Communist and Anti-Capitalist List launched on 18 April is the first concrete step in that direction. Ferrero and Diliberto shared the stage, along with Cesare Salvi, National Secretary of Socialismo 2000, and joined the crowd in singing "Avanti Popolo!," after which they they warmly embraced and raised a clenched fist in solidarity with the joyous crowd. The assembled masses in the Piazza responded with roaring shouts in scenes reminiscent of the Popular Front era of the 1930s.
In joint statements issued on 15 and 16 April by the PRC and PdCI, the Communist Parties noted that, "We are confronting a crisis of a systemic character. ... The crises of globalized capitalism." The statements continued, "[This crisis] is a structural product of actual financial-speculative capitalism ... based on the dominant interests of finance capital and the multinational corporations." In concluding their analysis of the crisis, the Communist Parties asserted that the economic collapse resulted from "[p]olicies that promote the accumulation of colossal profits by the big economic and financial groups, the formation of big monopolies and the deterioration of the living standards of workers and peoples." They see the current responses to the crisis by governments and central banks around the world as an effort aimed at the "refounding of capitalism" through "socializ[ing] the losses and that benefit the interests of the big economic and financial groups." However, the statement concludes, "[T]he very essence of capitalism cannot be reformed, regulated, humanized."
The PRC and PdCI joint statements assert that "It is through the workers' and peoples' struggle that one can respond to the situation and open the paths of the necessary change, rejecting that those who most suffer be the ones to pay for the effects of the crisis, and by demanding better living conditions, more democracy, cooperation and peace among peoples." Among their specific demands, the Communist and Anti-Capitalist List calls for "public control of credit and the nationalization of the banks," increasing wages and reducing the workweek, reversing the privatization of basic industry, an immediate end to the wars in Iraq and Afghanistan, reduction of global emissions of harmful gasses, promotion of renewable energy, and combating racism and xenophobia.
Ultimately, the Italian Communist Parties called for making the 21st century the "century of socialism" as the only answer to the systemic crisis of capitalism. The call ends as follows, "A vote for this [Communist and Anti-Capitalist] List is a vote for an alternative Europe: [a Europe] of equality and work, of peace, of social justice and welcoming [toward immigrants], of laws and of liberty." In addition to the two Italian Communist Parties, the French Communist Party, German Communist Party, Communist Party of Spain (and United Left), Portuguese Communist Party, Communist Party of Bohemia and Moravia (Czech Republic), Communist Party of Finland, Greek left coalition, Communist Party of Bulgaria, Workers Party of Cyprus, and Communist Party of Austria have signed on to the declaration for the upcoming European Parliament elections.
Tuesday, April 14, 2009
(SUNDAY TELEGRAPH 12.4.09)
The Irish Central Bank would be a founder member of the "money printing" club, leading the way towards quantitative easing a l'outrance.
Irish bond yields would not be soaring into the stratosphere. The central bank would be crushing the yields with a sledge-hammer, just as the Fed and the Bank of England are crushing yields on US Treasuries and gilts.
It would not be tossing away its low-tax Celtic model to scrape together a few tax farthings - supposedly to stop the budget deficit exploding to 13pc of GDP this year, or 18pc says Barclays Capital. If the tax raises were designed to placate rating agencies, they made no difference. Fitch promptly booted
Depression buffs will note the parallel with Britain's infamous budget in September 1931, when Phillip Snowden cut the dole and child allowance to uphold the deflation orthodoxies of the Gold Standard - though in that case the flinty Pennine rather liked hair-shirts for their own sake.
Though few had any inkling at the time, Snowden's austerity drive would soon push British society over the edge. It set off a mutiny - a Royal Navy mutiny at Invergordon over pay cuts, in turn triggering a run on sterling. The pound was forced off Gold within days. Irish deliverance from EMU will not be so easy.
But what caught my ear was his throw-away comment that prices would fall 4pc, which is to admit that
This is torture for a debtors' economy. You can survive deflation; you can survive debt; but Irving Fisher taught us in his 1933 treatise "Debt Deflation causes of Great Depressions" that the two together will eat you alive.
Don't blame the victim.
It was betrayed again by the European Central Bank, which opened the monetary floodgates early this decade to nurse Germany through a slump, holding rates at 2pc until late 2005, despite flagrant breach of the ECB's own M3 money targets. Fast-growing
He borrowed the plan from
Without that sort of liberation,
Of course, it is not the job of the ECB to set policy for
Simon Johnson, the IMF's former chief economist, said the ECB is pursuing a "ruinous policy" by disregarding the clear and present danger of deflation. "If they wait until deflation is 'fully in the data', it will be too late," he said.
If the ECB continues to serve as the instrument of German tastes, keeping German inflation near zero, then Club Med and
Friday, April 10, 2009
Below for all readers of ' An Unrepentant Communist' are some points relevant to Ireland's current Banking crisis and Finance Minister Lenihan's proposed NAMA "bad bank" scheme which are excerpted from an article by Willem Buiter, Professor of European Political Economy, London School of Economics. The full article, dated yesterday, 8 April, titled "The green shoots are weeds growing through the rubble of the ruins of the global economy", may be found on Professor Buiter's Financial Times blogsite at ft.com/maverecon.
by Willem Buiter
April 8, 2009
The Great Contraction will last a while longer This financial crisis will end. The Great Contraction of the Noughties also will come to an end. But neither the financial crisis nor the contraction of the global real economy are over yet. As regards the financial sector, we are not too far - probably less than a year - from the beginning of the end. The impact of the collapse of real economic activity and of the associated dramatic increase in defaults and insolvencies by non-financial enterprises and households on the loan book of what is left of the banking sector will begin to show up in the banks' financial reports at the end of the summer and in the autumn. By the end of the year - early 2010 at the latest - we will know which banks will survive and which ones are headed for the scrap heap. With the resolution of the current pervasive uncertainty about the true state of the banks' balance sheets and about their off-balance-sheet exposures, normal financial intermediation will be able to resume later in 2010.
Governments everywhere are doing the best they can to delay or prevent the lifting of the veil of uncertainty and disinformation that most banks have cast over their battered balance sheets. The banking establishment and the financial establishment representing the beneficial owners of the institutions exposed to the banks as unsecured creditors - pension funds, insurance companies, other banks, foreign investors including sovereign wealth funds - have captured the key governments, their central banks, their regulators, supervisors and accounting standard setters to a degree never seen before.
I used to believe this state capture took the form of cognitive capture, rather than financial capture. I still believe this to be the case for many, perhaps even most of the policy makers and officials involved, but it is becoming increasingly hard to deny the possibility that the extraordinary reluctance of our governments to force the unsecured creditors (and any remaining non-government shareholders) of the zombie banks to absorb the losses made by these banks, may be due to rather more primal forms of state capture. (emphasis in bold added)
History teaches us that systemic financial crises are protracted affairs. A most interesting paper by Carmen M. Reinhart and Kenneth S. Rogoff, "The Aftermath of Financial Crises", using data on 10 systemic banking crises (the "big five" developed economy crises (Spain 1977, Norway 1987, Finland, 1991, Sweden, 1991, and Japan, 1992), three famous emerging market crises (the 1997-1998 Asian crisis (Hong Kong, Indonesia, Malaysia, the Philippines, and Thailand); Colombia, 1998; and Argentina 2001)), and two earlier crises (Norway 1899 and the United States 1929) reaches the following conclusions (the next paragraph paraphrases Reinhart and Rogoff).
First, asset market collapses are deep and prolonged. Real housing price declines average 35 percent over six years; real equity price declines average 55 percent over a downturn of about 3.5 years. Second, the aftermath of banking crises is associated with large declines in output and employment. The unemployment rate rises an average of 7 percentage points over the down phase of the cycle which lasts on average over four years. Output falls (from peak to trough) an average of over 9 percent, but the duration of the downturn averages around 2 years. . . . . . Conclusion
There are signs that the rate of contraction of real global economic activity may be slowing down. Straws in the wind in China, the UK and the US hint that things may be getting worse at a slower rate. An inflection point for real activity (the second derivative turns positive) is not the same as a turning point (the first derivative turns positive), however. And even if decline were to end, there is no guarantee that whatever growth we get will be enough to keep up with the growth of potential. We could have a growing economy with rising unemployment and growing excess capacity for quite a while.
The reason to fear a U-shaped recovery with a long, flat segment is that the financial system was effectively destroyed even before the Great Contraction started. By the time the negative feedback loops from declining activity to the balance sheet strenght of what's left of the financial sector will have made themselves felt in full, financial intermediation is likely to be severely impaired.
All contractions and recoveries are primarily investment-driven. High-frequency inventory decumulation causes activity to collapse rapidly. Since inventories cannot become negative, there is a strong self-correcting mechanism in an inventory disinvestment cycle. We may be getting to the stage in the UK and the US (possibly also in Japan) that inventories stop falling an begin to build up again.
An end to inventory decumulation is a necessary but not a sufficient condition for sustained economic recovery. That requires fixed investment to pick up. This includes household fixed investment - residential construction, spending on home improvement and purchases of new automobiles and other consumer durables. It also includes public sector capital formation. Given the likely duration of the contraction and the subsequent period of excess capacity, even public sector infrastructure spending subject to long implementation lags is likely to come in handy. A healthy, sustained recovery also requires business fixed investment to pick up.
At the moment, I can see not a single country where business fixed investment is likely to rise anytime soon. When the inventory investment accelerator goes into reverse and starts contributing to demand growth, and when the fiscal stimuli kick in, businesses wanting to invest will need access to external financing, since retained profits are, after a couple of years of declining output, likely to be few and far between. But with the banking system on its uppers and many key financial markets still disfunctional and out of commission, external financing will be scarce and costly. This is why sorting out the banks, or rather sorting out the substantive economic activities of new bank lending and funding, that is, sorting out banking , must be a top priority and a top claimant on scarce public resources.
Until the authorities are ready to draw a clear line between the existing banks in western Europe and the USA, - many or even most of which are surplus to requirements and have become parasitic entities feeding off the tax payer - and the substantive economic activity of bank lending to non-financial enterprises and households, there will not be a robust, sustained recovery. (emphasis in bold added)