Paul Krugman always calls the game wisely. And we are approaching a momentous decision time as a country which prides itself on its founding as a democratic republic.
June 30, 2011 To The Limit By Paul Krugman In about a month, if nothing is done, the federal government will hit its legal debt limit. There will be dire consequences if this limit isn’t raised. At best, we’ll suffer an economic slowdown; at worst we’ll plunge back into the depths of the 2008-9 financial crisis. So is a failure to raise the debt ceiling unthinkable? Not at all. Many commentators remain complacent about the debt ceiling; the very gravity of the consequences if the ceiling isn’t raised, they say, ensures that in the end politicians will do what must be done. But this complacency misses two important facts about the situation: the extremism of the modern G.O.P., and the urgent need for President Obama to draw a line in the sand against further extortion. Let’s talk about how we got here. The federal debt limit is a strange quirk of U.S. budget law: since debt is the consequence of decisions about taxing and spending, and Congress already makes those taxing and spending decisions, why require an additional vote on debt? And traditionally the debt limit has been treated as a minor detail. During the administration of former President George W. Bush — who added more than $4 trillion to the national debt — Congress, with little fanfare, voted to raise the debt ceiling no less than seven times. So the use of the debt ceiling to extort political concessions is something new in American politics. And it seems to have come as a complete surprise to Mr. Obama. Last December, after Mr. Obama agreed to extend the Bush tax cuts — a move that many people, myself included, viewed as in effect a concession to Republican blackmail — Marc Ambinder of The Atlantic asked why the deal hadn’t included a rise in the debt limit, so as to forestall another hostage situation (my words, not Mr. Ambinder’s). The president’s response seemed clueless even then. He asserted that “nobody, Democrat or Republican, is willing to see the full faith and credit of the United States government collapse,” and that he was sure that John Boehner, as speaker of the House, would accept his “responsibilities to govern.” Well, we’ve seen how that worked out. Now, Mr. Obama was right about the dangers of failing to raise the debt limit. In fact, he understated the case, by focusing only on financial confidence. Not that the confidence issue is trivial. Failure to raise the debt limit — which would, among other things, disrupt payments on existing debt — could convince investors that the United States is no longer a serious, responsible country, with nasty consequences. Furthermore, nobody knows what a U.S. default would do to the world financial system, which is built on the presumption that U.S. government debt is the ultimate safe asset. But confidence isn’t the only thing at stake. Failure to raise the debt limit would also force the U.S. government to make drastic, immediate spending cuts, on a scale that would dwarf the austerity currently being imposed on Greece. And don’t believe the nonsense about the benefits of spending cuts that has taken over much of our public discourse: slashing spending at a time when the economy is deeply depressed would destroy hundreds of thousands and quite possibly millions of jobs. So failure to reach a debt deal would have very bad consequences. But here’s the thing: Mr. Obama must be prepared to face those consequences if he wants his presidency to survive. Bear in mind that G.O.P. leaders don’t actually care about the level of debt. Instead, they’re using the threat of a debt crisis to impose an ideological agenda. If you had any doubt about that, last week’s tantrum should have convinced you. Democrats engaged in debt negotiations argued that since we’re supposedly in dire fiscal straits, we should talk about limiting tax breaks for corporate jets and hedge-fund managers as well as slashing aid to the poor and unlucky. And Republicans, in response, walked out of the talks. So what’s really going on is extortion pure and simple. As Mike Konczal of the Roosevelt Institute puts it, the G.O.P. has, in effect, come around with baseball bats and declared, “Nice economy you have here. A real shame if something happened to it.” And the reason Republicans are doing this is because they must believe that it will work: Mr. Obama caved in over tax cuts, and they expect him to cave again. They believe that they have the upper hand, because the public will blame the president for the economic crisis they’re threatening to create. In fact, it’s hard to avoid the suspicion that G.O.P. leaders actually want the economy to perform badly. Republicans believe, in short, that they’ve got Mr. Obama’s number, that he may still live in the White House but that for practical purposes his presidency is already over. It’s time — indeed, long past time — for him to prove them wrong.David Stockman (remember him?) says the banksters want to turn Greece (and us all) into "tax and debt slaves" to the same banksters who knowingly created the bad (lots of it subprime) debt. After all, why should they have to pay a price for their misdeeds? They haven't before. And they own the politicians. I have to admit that the banksters/NeoCons have probably done us a big favor (I guess), in that we're all "small government" people now. But it's to get away from their dominance, not socialized safety net programs like Medicaid, Medicare and Social Security, which every civilization knows safeguards its citizens during bad times.
Thursday, June 30, 2011Anyone remember what Iceland did? It's quite an interesting tale to mull over at this most critical juncture.
Greg Hunter, Bankers vs. PeopleGreg Hunter’s USAWatchdog.com“The entire crisis in Greece (and the rest of the world) all comes down to bankers vs. the people. The bankers made crazy, reckless loans to this tiny country. If you look back to when the loans were first offered, it’s hard to believe the banks did not know what they were doing. Did they not know that most people in Greece did not pay taxes? Did they not know many retired at 50 years old? Did they not know about all the government social programs? After all, Greece has a socialist government for goodness sakes. What is going on in Greece is similar to the subprime loan crisis. Here, people just stopped paying and walked away when the market crashed. In Greece, the bankers want to turn people into debt slaves for a generation to get their money back. Heaven forbid any banker writes off the debt and not take a bonus. David Stockman, who was Director of the Office of Management and Budget in the Reagan Administration, said last week on CNBC that Europeans are going to become tax and debt slaves to continue to pay bankers. The report said, “In Europe, Stockman raged against a dichotomy of tax and debt slavery created by the EU: “They’re attempting to go turn the prudent Europeans of the north into permanent tax slaves in order to bail out the big banks in France and Germany and elsewhere who don’t deserve a bailout,” he said, adding that, “In order to accomplish that, they will attempt to turn the millions of people who live in southern Europe into permanent debt slaves in order to pay the piper from the guarantees coming from the north.” (Click here for the complete CNBC report.) There is no wonder why protests in Greece turned violent yesterday. Tear gas was used by police, vehicles were set on fire and windows were broken. The Greek Parliament has key votes on an austerity plan (entitlement cuts and tax increases) coming up this week. The plan has to pass or the EU will not release any more money. So, on one side, you have the angry protesters, and on the other side, you have the EU (or greedy bankers.) The heat is on! Breitbart.com reported yesterday, “Europe ramped up pressure on the Greek parliament Tuesday to approve drastic austerity measures, warning that it would otherwise face a swift debt default that would rock the world economy. . . . European Union economic affairs commissioner Olli Rehn said Greece was facing a “critical juncture,” and that “both the future of the country and financial stability in Europe are at stake. . . . The only way to avoid immediate default is for Parliament to endorse the revised economic programme.” (Click here for the complete Breitbart.com story.) According to published reports, there is no “plan B” if the austerity plan doesn’t pass. We just may find out if that is true. I’ll bet the EU is putting the pressure on with the talk highlighting calamity and Armageddon if it fails. If it passes, expect there to be uncontrolled riots, and the Greek military to be called in. There are rumors that the Greek military could stage some sort of coup because some military leaders have reportedly said, “We Will Not Be Sold to Foreign Powers.” I do not know if this is true, but the source of the story is Pecangroup.org. (Click here for more from Pecangroup.org.)Don’t be surprised if the austerity votes reject the plan, and don’t be surprised if there really is a “plan B.” If there is no backup plan and the vote fails, then expect all hell to break loose on a global scale.
Iceland Declares Independence from International Banks By Bill Wilson – Iceland is free. And it will remain so, so long as her people wish to remain autonomous of the foreign domination of her would-be masters — in this case, international bankers. On April 9, the fiercely independent people of island-nation defeated a referendum that would have bailed out the UK and the Netherlands who had covered the deposits of British and Dutch investors who had lost funds in Icesave bank in 2008.___________________________
At the time of the bank’s failure, Iceland refused to cover the losses. But the UK and Netherlands nonetheless have demanded that Iceland repay them for the “loan” as a condition for admission into the European Union.
In response, the Icelandic people have told Europe to go pound sand. The final vote was 103,207 to 69,462, or 58.9 percent to 39.7 percent. “Taxpayers should not be responsible for paying the debts of a private institution,” said Sigriur Andersen, a spokeswoman for the Advice group that opposed the bailout.
A similar referendum in 2009 on the issue, although with harsher terms, found 93.2 percent of the Icelandic electorate rejecting a proposal to guarantee the deposits of foreign investors who had funds in the Icelandic bank. The referendum was invoked when President Olafur Ragnur Grimmson vetoed legislation the Althingi, Iceland’s parliament, had passed to pay back the British and Dutch.
Under the terms of the agreement, Iceland would have had to pay £2.35 billion to the UK, and €1.32 billion to the Netherlands by 2046 at a 3 percent interest rate. Its rejection for the second time by Iceland is a testament to its people, who feel they should bear no responsibility for the losses of foreigners endured in the financial crisis.
That opposition to bailouts led to Iceland’s decision to allow the bank to fail in 2008. Not that the taxpayers there could have afforded to. As noted by Bloomberg News, at the time the crisis hit in 2008, “the banks had debts equal to 10 times Iceland’s $12 billion GDP.”
“These were private banks and we didn’t pump money into them in order to keep them going; the state did not shoulder the responsibility of the failed private banks,” Iceland President Olafur Grimsson told Bloomberg Television.
The voters’ rejection came despite threats to isolate Iceland from funding in international financial institutions. Iceland’s national debt has already been downgraded by credit rating agencies, and now those same agencies have promised to do so once again as punishment for defying the will of international bankers.
This is just the latest in the long drama since 2008 of global institutions refusing to take losses in the financial crisis. Threats of a global economic depression and claims of being “too big to fail” have equated to a loaded gun to the heads of representative governments in the U.S. and Europe. Iceland is of particular interest because it did not bail out its banks like Ireland did, or foreign ones like the U.S. did.
If that fervor catches on amongst taxpayers worldwide, as it has in Iceland and with the tea party movement in America, the banks would have something to fear; that is, the inability to draw from limitless amounts of funding from gullible government officials and central banks. It appears that the root cause is government guarantees, whether explicit or implicit, on risk-taking by the banks.
Ultimately, such guarantees are not necessary to maintain full employment or even prop up an economy with growth, they are simply designed to allow these international institutions to overleverage and increase their profit margins in good times — and to avoid catastrophic losses in bad times.
The lesson here is instructive across the pond, but it is a chilling one.
If the U.S. — or any sovereign for that matter — attempts to restructure their debts, or to force private investors to take a haircut on their own foolish gambles, these international institutions have promised the equivalent of economic war in response. However, the alternative is for representative governments to sacrifice their independence to a cadre of faceless bankers who share no allegiance to any nation.
It is the conflict that has already defined the beginning of the 21st Century. The question is whether free peoples will choose to remain free, as Iceland has, or to submit.
Bill Wilson is the President of Americans for Limited Government. You can follow Bill on Twitter at @BillWilsonALG.