Category Archives: banking

Off With His Head — A Nation Profoundly Better Off Under Obama Rejected His Leadership At The Election Polls

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In America last night, the election outcomes were not much of a surprise. Republicans did not so much as win, and Democrats did not so much as lose — though certainly it feels that way. No, instead, the election was a referendum on failed presidential leadership.

Though in almost every measurable way the American people are profoundly better off today than they were before President Obama took office, the American people soundly repudiated him yesterday in the election. Why?

Failure To Lead

The President never actually led the nation to feel hope during economic recovery, never made the people feel secure in a threatening world, never guided them confidently through the most major change in health care coverage, and finally never offered reassurance from a menacing and deadly virus seeping its way into the country. In other words, the voters lashed out against failed executive leadership.

As was so correctly said by a member of the Republican National Committee in an op-ed to businesspersons, “At the national level, disgusted and angry voters vented in a very direct way on President Barack Obama, taking their concerns to the ballot box… Contrary to a Republican self-proclaimed resurgence at the national level, the 2014 midterm elections were not as much validations of a Republican national agenda as repudiation” of President Obama’s leadership, or lack thereof.

On a night when Republicans were expected to do well, they did. Or, to be more accurate, on a night when Democrats were expected to do poorly, they did – losing in places they never expected to lose (like Iowa and Colorado) and slipping further and further behind in state capitols and legislatures around the country (including governorships in traditionally dark blue states like Maryland and Massachusetts).

Yet, across the nation progressive ballot initiatives passed easily, such as minimum wage increases, transportation tax initiatives, prison reform and decriminalization, marijuana legalization, and conservation programs, to name only a few.

Make no mistake, this election was transformed into a referendum on President Obama, and was not a movement against progressive causes or policies.

Notwithstanding the results, the Republican brand at the national level remains tarnished, and sustaining a governing majority for longer than a single election cycle will be a challenge unless changes continue to happen within the Republican Party itself, a moderation and appeal to reasonableness.

Significant Progress Obscured By Failed Leadership

Failed leadership does not mean “failed administration.” The sad aspect of the election reality and the disillusionment of the electorate is that so much has been accomplished by the Obama Administration and, yet, went unappreciated.

People have many perceptions of how the US economy or the country as a whole is doing in recent years. Depending on your political views, you may think the country is doing exceptionally well or on the verge of collapse. Even those knowing the nation has done very well in the last six years remained untethered and insecure due to the cold void created by a lack of reassuring communication and guiding leadership from the President.

Listed below are 14 objective facts, without interjecting any opinion, about the state of America under the leadership of President Obama. Each statement is followed up with a link to a source where you can verify these facts for yourself.

1. We’ve now had 63 straight months of economic expansion.
That’s right, for 63 consecutive months the US economy has gotten progressively better. That includes 54 consecutive months of private sector job growth. Forbes magazine, no fan of President Obama, crunched the numbers and demonstrated how the economic recovery under President Obama has been better in just about every measurable way than the recovery under President Reagan.

http://www.forbes.com/sites/adamhartung/2014/09/05/obama-outperforms-reagan-on-jobs-growth-and-investing/

2. We are currently enjoying the longest period of private sector job creation in American history.
Again, this statistic comes from the Forbes Magazine article listed above. In fact, we have now had 54 straight months of private sector job creation. That is the longest period of job creation since the Department of Labor has been keeping statistics. See the link below.

http://www.washingtonpost.com/blogs/fact-checker/wp/2014/09/15/obamas-claim-that-businesses-are-in-the-longest-uninterrupted-stretch-of-job-creation/

3. Unemployment has dropped from 10.1% in October of 2009 to 5.9% and projected to reach 5.4% by summer of 2015.
Not only has the unemployment rate dropped significantly, but since the recession ended, our economy as added over ten million new jobs. You can refer to the Forbes article above or check this article on PoliticsUSA.

http://www.politicususa.com/2014/09/05/jobs-report.html

4. The stock market continues to set new records since President Obama has been in office.
Since early 2009 there has been a steady trend in stock market growth. The Dow Jones Industrial averages reached an all-time high of 17,098 in August, 2014. Since most Americans have 401K retirement investments in the stock market, this stock market growth benefits millions of middle class Americans.

http://www.macrotrends.net/1358/dow-jones-industrial-average-last-10-years

5. The Federal budget deficit is shrinking. It’s been reduced by two-thirds since 2009.
The $1.4 trillion federal budget deficit that Obama inherited in 2009 was in a large part due to the high rate of unemployment. When millions of people were put out of work in 2008 and 2009, it resulted in far less income taxes and less economic activity to generate federal revenue. As ten million people have been put back to work, there have been billions more tax dollars generated. As a result, the deficit has been shrinking each year. The 2014 deficit is projected to be around $500 billion, the smallest deficit since 2007 and roughly 1/3 of what it was in 2009.
http://www.usgovernmentspending.com/federal_deficit_chart.html

6. Under President Obama, spending has increased only 1.4% annually, the lowest rate since Eisenhower was president.
You may have heard critics say that President Obama is spending money wildly and running up our debt. According to this article from Forbes, Obama has increased spending by 1.4% annually, far less than President Reagan (8.7%) or George W. Bush (8.1%). In fact, Obama has increased spending less than any president since Eisenhower.

http://www.forbes.com/sites/rickungar/2012/05/24/who-is-the-smallest-government-spender-since-eisenhower-would-you-believe-its-barack-obama/

7. For 95% of American taxpayers, income taxes are lower now than just about any time in the previous 50 years.
After President Obama took office, thousands of Tea Party members all over the country held rallies protesting Obama’s tax increases. At that time, President Obama had actually passed several tax cuts to stimulate the economy. Most of the Tea Partiers who were protesting had only seen their taxes decrease under Obama. Yet polls indicated that most Tea Party members wrongly believed their taxes had gone up.

In fact, the only people whose income taxes have gone up during Obama’s presidency are those making $400,000 per year or more. That’s less than 2% of the population. Today, for the vast majority of people, tax rates are exactly where they were when Obama first took office or lower. The article below from the Center on Budget and Policy Priorities explains this in greater detail.

http://www.cbpp.org/cms/?fa=view&id=3151

8. Our dependence on foreign oil has shrunk due to record domestic oil production and improved fuel efficiency standards.
While some people claim that oil production has declined under President Obama, the truth is just the opposite. Oil production has reached record highs. The United States now produces so much oil that we export more oil and gasoline than we import.

http://www.indexmundi.com/g/g.aspx?c=us&v=88

9. Up to 10 million more Americans now have health insurance than before.
Depending on whose numbers you use, between 7 and 10 million Americans acquired health insurance due to the Affordable Care Act. Now that those 7 to 10 million Americans have insurance, the rest of us are no longer on the hook to pay for their health care when they get sick. This saves the American people billions of dollars in the long run.

http://www.nbcnews.com/health/health-care/obamacare-helped-10-million-get-insurance-gallup-finds-n78446

10. The Affordable Care Act has added years to the life of Medicare.
The Medicare trust fund had been on course to run out of money by the end of 2016. But due to cost savings from the Affordable Care Act and lower healthcare expenses, Medicare’s trust fund is now stable until the year 2030 without cutting benefits.

http://online.wsj.com/articles/medicare-social-security-headed-in-different-directions-1406564712

11. Since passage of the Affordable Care Act, we are seeing the slowest rate of increase in healthcare costs since 1960.
Contrary to the predictions from Republicans, health care costs have increased at a much slower pace since the passage of the ACA.

http://www.whitehouse.gov/sites/default/files/docs/healthcostreport_final_noembargo_v2.pdf

12. We currently have fewer soldiers, sailors and airmen in war zones than any time in over 10 years.
With the end of the Iraq war and the steady withdrawal of troops from Afghanistan, we have fewer people in war zones now than any time since 2002.

13. There have been zero successful attacks by al Qaeda on US soil since Obama became president.
Despite Dick Cheney’s claim that if voters elect a Democrat as president, we’ll be “hit again and hit hard” by al Qaeda, we have actually been far safer from terrorist attacks on US soil in recent years than we were under the previous president. There have been several unsuccessful attacks against the US under both presidents, but under Obama, al Qaeda has been largely unsuccessful in striking the US on our home soil.

http://en.wikipedia.org/wiki/Timeline_of_al-Qaeda_attacks

14. We now successfully catch and deport more illegal immigrants than ever before.
Despite the publicity from busloads of children who illegally entered the country, the numbers prove that President Obama has deported more illegal immigrants than any other president.

http://www.politifact.com/truth-o-meter/statements/2012/aug/10/american-principles-action/has-barack-obama-deported-more-people-any-other-pr/

Reality Doesn’t Matter When The People Feel No Reassuring Hand Of Leadership

All of the facts stated above can be confirmed through multiple sources, yet most Americans are not consciously aware of all of this positive news; they don’t feel it, either. That’s what happens when the reassuring hand and voice of leadership are absent. Cold and stark reality offer no warmth and comfort to a concerned and disquieted nation.

The numerous achievements of the administration, cited above, resulting from the last six year’s work were an outstanding achievement. But, the people were never helped to feel secure and hopeful along the way. What they know is that they read or hear about this great economic and stock market performance, yet they don’t have much more, if any more, income than they used to have and don’t feel secure or hopeful about future improvement.

There’s an underlying truth or reason for that feeling… because the top 10% has received 98% of the income growth over the recovery (and 95% of 2009-2012 Income Gains Went to Wealthiest 1% — check the Wall Street Journal). That reality didn’t start with Obama. Even when times were good before the crash, “the people” were falling further behind the elites: according to the Congressional Research Service, the nonpartisan policy analysis arm of Congress, “The poorest tax filers (the bottom fifth) saw average after-tax income fall by 6 percent between 1996 and 2006,” the report said. While “the richest 1 percent of tax filers experienced a 74 percent increase in after-tax income.”

All the people know and feel is that they are not as better off compared to the great achievement numbers talked about. And they blamed the man in charge who never got close to them, never led them.

The GOP basically destroyed the country under W. Bush, continue(d) to foster a system that skews wealth and income away from the middle-class (favoring capital gains and interest income over earned income), and then blamed it on the President who sat by almost silently.

The truth is, most other presidents would envy President Obama’s performance record despite the fact that he inherited the worst economic crash since the Great Depression. If only Obama had the reassuring and warm-yet-strong leadership skills of Reagan or Clinton, last night’s election results would have been dramatically different.

But, no other modern President received as cold an introduction to his office as Obama, either. He had to develop thick skin immediately. Perhaps that isolated him from the feelings and concerns of the people as much as it did protect him from the vitriol of those who opposed him, in either case not serving him well in the end.

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Profoundly Better Off Under Obama — An Ungrateful Nation?

Consider, as well, these additional facts forgotten or overlooked by the electorate… An Ungrateful Nation?

  1. Since Obama became president, our economy has gone from losing 800,000 jobs per month to adding 200,000 jobs per month. That’s a net improvement under Obama of about 1 million jobs per month!
  2. Before Obama became president, our financial system was in ruins and millions of people were at risk of losing their life savings. Now, the financial loopholes have been fixed and we are no longer at risk of another financial collapse.
  3. In 5 years under Obama the economy has created twice as many jobs as were created in 8 years under George W. Bush.
  4. President Obama passed credit card reforms that protects consumers from excessive fees, rate hikes, deceptive marketing and unreasonable due dates.
  5. Thanks to “Obamacare”, senior citizens have saved billions of dollars on prescription drugs.
  6. The Affordable Care Act requires insurance companies to spend at least 80% of your premiums on health care. As a result millions of Americans have received refunds from their health insurance companies.
  7. Despite the unprecedented obstructionism and record number of filibusters used by Republicans to kill even the most routine legislation, the fact remains, in almost every measurable way, the American people are profoundly better off today than they were before President Obama took office.

Still, said the Nation… Off with his head!

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U.S. Employment: Back To The Start… Finally!

The United States economy has finally recovered all the jobs lost during the Great Recession!

The feat took 51 months from the depth of job loses to do so… but finally.

The Great Recession was characterized by the most massive job losses and the longest time to recover those jobs since the Depression.

Let’s all be thankful (even those who don’t recognize that they should be thankful) that “Tea Partier” economics did not prevail during the recovery, or we would be suffering through Europe’s current fate, where a reliance upon conservative-austerity financial and monetary policies still mire the great EU in misery and stagnation plus 10-26% unemployment rates.

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The economy has added 9.4 million private sector jobs since employment bottomed in February 2010 (8.8 million total jobs added when including all the public sector layoffs).

There are 617 thousand more private sector jobs now than when the recession started in 2007, and total employment is now 98 thousand above the pre-recession peak.

Raise your glass in a toast to stimulus spending and expansionary monetary policy! Keynes, where ya’ at, buddy?


American Middle-Class Now Second Class — Take Two

It’s nice to have successful friends of diverse opinion. When a couple of them are capitalists in the truest sense of the word — i.e., they increase their wealth and incomes by moving their funds around the globe chasing rates of return and potential asset value — are sought after for their investment advise, and have their own financial and economic publications, they also get to disagree with you in the open. In response to “American Middle-Class Now Second-Class To Canada — It Didn’t Have To Be This Way,” I was treated to two alternate views of why I am wrong on specific points.

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BENEFITS “RE-COUPLE” THE DECOUPLED PAY & PRODUCTIVITY

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First, one such individual referenced a couple of British economic analysts who had addressed the observation I pointed out in my article when writing:

They show that when you add in benefits to pay and use the same measure of inflation for both pay and productivity, the disconnect between worker pay and productivity goes away, both in the US and Britain.

Their conclusion? “Middle-class stagnation and the ‘decoupling’ of pay and productivity are illusions. Yes, the U.S. economy is in the doldrums, thanks to a variety of factors… But by any sensible measure, most Americans are today better paid and more prosperous than in the past.”

Yes, but this is only a sleight-of-hand trick that these partisans pontificate to advance their own agenda, not because it is meaningfully accurate — it is just technically accurate.

Notably, using the “same measure of inflation for both pay and productivity” is a non-starter as that is not how productivity increases over time, nor is this how it’s measured in real terms. It’s just a mathematical trick to reduce or deflate actual productivity growth to bring it closer in line with stagnant incomes. Monetary inflation and production productivity are not connected in this fashion and doing so is disingenuous.

Truth is that what used to not show up on workers’ ledgers now shows up on their ledgers, and truth is that the component now has less value in real terms than it did prior to reassignment to the workers’ ledgers. The analysts also conflate wealth and incomes inappropriately.

What we are both referencing is the change from defined benefits for workers to defined contributions.

For example, as average life spans increased, the financial pressures exerted on organizational pension systems grew overwhelming and a shift occurred across the private and public sectors from traditional pension programs where one received a defined amount per year after retirement for the balance of their lives to one predicated upon 401k and IRA programs and the like where one received a defined contribution from their organization with no guarantee of what that looked like at retirement.

Several things occurred in this transition. What used to show up as an asset of the organizational pension now was moved to the ledger of the worker as an asset in the form of 401k’s etc. But, that move did not make the worker wealthier in reality nor improve their incomes — both are simply mechanisms through which retirement incomes derived. It just changed where things resided accounting-wise and controlled organizations’ costs.

All things equal, the worker is no better off and no worse… as long as the final retirement income remains unchanged. But all things are not equal, and final incomes are not guaranteed, thus we see today retirees not having the same incomes as those previously based upon traditional retirement pensions. So, there is a net loss of income to the worker overall, even while it appears their wealth increased.

Moreover, these 401k programs require more significant worker contributions to obtain the largest matching employer contributions. This reduces the net-net income of a worker and is not reflected in the aggregate numbers used by these analysts. So their view assigns an asset value to workers that is just an accounting move and inappropriately shows increased wealth while also not including the decreased net-net incomes from the move.

Finally, the “benefits” to which they refer are inclusive of health benefits. As we all know, these costs have increased dramatically over the decades. This alone adds an illusory increased benefit to workers when, in fact, they, too, are paying larger premiums for that health benefit, and worker costs are up dramatically more in deductibles, co-pays, and out-of-pocket maximums… Thus, all contributing to reduced net-net incomes — not the improved financial standing these analysts would have us believe.

The “benefit” appears more significant because of cost inflation yet the worker is no better off and receives the same basic benefit of health care provision they received when the “benefit” appeared at lower cost. Now the worker is made poorer on a net basis by the increased direct costs from the benefit’s cost-sharing mechanism. Moreover, just because the benefit cost grew larger on the employer’s ledger does not mean the income of the worker increased accordingly or that the benefit had more “income value.”

Oy vey!

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“TIME COSTS” OF APPLIANCES HEALS ALL WOUNDS

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Second, another individual posited that my position ignores the relative increase in incomes and wealth of workers because improved productivity and globalized production have reduced the “time costs” of attaining and maintaining a middle-class lifestyle. The writer maintains that costs of clothing, major appliances, cars etc. (the lifestyle asset cost of middle-class life) cost less today in terms of how many hours one must work to attain them… and the middle-class person is better off today.

Therefore, if it cost 3000 hours to purchase a standard car back in the 1960’s and now costs 1200 hours to purchase today’s standard car, then the real incomes of average middle-class persons have increased relative to the past. His point is that while this situation may not show up on balance sheets cost-adjusted for inflation, it is a very real phenomenon that means the middle-class is larger and more robust than we believe it to be.

Thus was written:

Bottom Line: The comparison of the “time cost” of appliances over time above confirms what Aparna finds in her analysis – average (and low-income) Americans are much better off today than they were 20, 30, 40 or 50 years ago, thanks in large part to the significant reductions in the cost of common household appliances like refrigerators, washers and dryers, and TVs. The reasons for the significant reductions in the cost of appliances include innovation, technology improvements, supply chain efficiencies, increases in productivity and other market-driven efficiencies that drive prices lower and lower year by year, measured in what is most important: our time, and the amount of labor it takes to earn the money to purchase household appliances and other goods and services. As much as we hear about declines in median income, economic stagnation, the disappearance of the middle class, falling real wages, increasing income inequality, the data tell a much different story: The rich are getting richer and the poor are getting richer.

“The poor are getting richer” — Argh!

To be certain, technology has improved such that the “standard” has shifted and provided a lifestyle unimaginable or unattainable in the past; i.e., today, nearly all persons of age have a personal cell phone and internet access (hence access to instant communications); access to music proliferates on numerous mobile devises (not just families able to afford large stereo systems, or further back, their own music chambers); and the list goes on.

As they say, though, all things are relative. And, thus, to say that one has access to “absolutely” more of something now, or to something that never previously existed, or to say that it takes less working time to purchase a particular staple item of the middle-class lifestyle is not to say that they have access to more or better… relative to what their predecessors had relative to their own time. Standards change.

The average middle-class lifestyle requires more and different inputs than that same lifestyle from 1940. It’s not just a car, a refrigerator, and a radio. It is also a middle-class lifestyle relative to itself over time and those levels above it and below in any given year. As society evolves one would hope that the absolute standard improves (i.e., having only 1940 middle-class assets or household items today may mean you are “poor” today and not [or no longer] middle-class), and that is reality.

The middle-class standard and what it costs to maintain that standard have moved upward. This is called progress and something that we should desire for society. The lifestyle of today’s middle-class may appear to have obtained things impossible for the middle-class in times past, but that same cultural standard is relative to its position of the other classes.

If the death rate from cancer devolved back to that from 1960, would it be correct to say that’s acceptable because even then it was better than the survival rate from the 18th century? Of course not. Standards improve, and if the average person in a period can’t maintain their relative position over time in that moving standard, then we have declined as a society. Here is where America rests today. Fewer American families are able to stay in the current standard of the “middle-class.” Moreover, they are not able to stay in the same income percentile on a global basis — reference again this table of percentiles.

Now, in the second decade of the twenty-first century, it requires well more than two earners working to equal the wages of a one-income household of 40 years ago. In fact, wages have plummeted so low that a two-income household is now (on average) 15% poorer than a one-income household of 40 years ago.

With the year 2000 as a base, real wages peaked in 1970 at around $20/hour. The average worker today earns $8.50/hour — more than 57% less than real earnings in 1970. Moreover, as the average wage directly determines society’s standard of living, it may accurately be said that the average standard of living in the U.S. has plummeted by more than half over the last 40 years.

Inflation for the last 40 years has hidden the 57% collapse in the standard of living for the average person. Nonetheless, if you’re fortunate enough to be at or successful enough to have earned a place at the top of the income charts, the situation is significantly reversed in your favor. While average American workers have seen their real wages plummet by 57% over the past 40 years, in just 15 years (1992-2007) the 400 wealthiest Americans saw their incomes rise by 700%.

Now we have the complete picture: real wages crumbling steadily lower year after year, decade after decade for “The 99%,” while earnings skyrocket for “The One Percent.” Is that acceptable? I don’t know… is going back to the cancer death rates of 1960 acceptable to you because that’s still better than it was in 1700?

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1984: The Year Income Equitability Began To Die In The U.S.

Today, I watched a market analyst’s presentation regarding retailer performance this holiday season. What stood out dramatically was the difficulty those retailers were experiencing who cater to middle Americans (GAP, Abercrombie & Fitch, Aeropostale, etc — with the noted exception of “trend” retailers catering to “teen” markets with high style, cheap products: H&M, Forever 21, etc.) while those retailers catering to the upper 5% of society were performing remarkably well.

Why the disparity? How’s that happen? Get used to it… this is your future:

Income Chart

1984 was the year America’s inequality trend began in earnest. 1984 is the year the future for most Americans diminished. 1984 is the year any hope of income equitability died.

So how is it that the U.S. income gap has grown large enough for us to claim the title of worst inequality in the developed world? Here are a few of the many explanations:

1. Tax Cuts For The Rich:

Many of the spikes in the chart correspond with periods when the government slashed taxes on the rich. As the Center for American Progress notes, Ronald Reagan’s early 1980s tax reforms helped to increase income inequality.

The same thing happened in the late 1990s when Bill Clinton passed a tax cut on capital gains, or investment income, which rich people are more likely to have than ordinary Americans. And then it happened again when George W. Bush cut the top marginal tax rates in 2001 and 2003.

Altogether, about 30 percent of the expansion of the after-tax income gap between 1979 and 2007 was due to tax and budget policies becoming less progressive, according to a June analysis from the Economic Policy Institute.

2. Corporate Profits & Executive Pay Soar:

Over the past several years corporate profits — which go in large part to rich investors — have soared to the point where they now make up the highest share of the economy on record. And over the last several decades, CEO pay also skyrocketed. The result: The ratio between CEO and average worker pay ballooned by roughly 1,000 percent since 1950.

3. Workers’ Wages Decoupled From Productivity Growth:

In the 1960s workers and their families used to be able to live above the poverty line on a minimum wage income. But now, that’s no longer the case, according to EPI. In fact, if the minimum wage had kept up with boosts in worker productivity over the past several decades it would be $18.30, according to EPI. That’s more than double the current minimum wage of $7.25.

Part of the reason workers have had a tougher time securing higher wages in recent years is because of a marked decline in unionization. Drops in union membership typically correspond with growth in income inequality, research finds.


Restore Glass-Steagall Act — Restore Sound Banking

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Wealth Inequality In America — Easily Explained

Infographics on the distribution of wealth in America, highlighting both the inequality and the difference between our perception of inequality and the actual numbers.

The reality is often not what we think it is.


Austerity Fail—Europe Requires Fiscal Federalism & Banking Union For Growth & Recovery.

Italy’s recent election outcome—reigning government out and divided government of anti-austerity parties installed with no one strong enough to be Prime Minister—should send a clear message to Europe’s leaders: the austerity policies pursued are being rejected by voters. American Republicans should take heed as they irresponsibly advocate similar U.S. austerity.

The European project of forming a Union was always a top-down endeavor by elites who knew Europe could not prosper in the globalized economy as small independent nation-entities. It is, however, another matter entirely to impose technocrats to run countries, circumventing democratic processes and foisting upon citizens policies that lead to widespread public misery.

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While Europe’s leaders evade the word, the reality is that much of the European Union is in Depression. With this destruction of human capital, Europe’s social fabric is tearing, and its future is being thrown into jeopardy…with willful negligence.

francois_hollande_angela_merkelThe German-imposed diktat is that sick patients must stay the course of blood-letting. Political leaders who suggest otherwise are labeled as irresponsible populists. The reality, though, is that the cure is not working (never did and never will), and there is no hope that it will—that is, without the “cure” (torture) being worse than the disease. Indeed, it will likely take a decade or more to recover the losses incurred in this absurd austerity process.

The simplistic diagnosis of Europe’s woes—that the crisis countries were living beyond their means—is notably at least partly wrong. Spain and Ireland had fiscal surpluses and low debt/GDP ratios before the crisis. Greece was the only real problem, and Europe could have handled it easily.

An alternative set of policies are more likely to work.

  • Europe needs greater fiscal federalism, not just centralized oversight of national budgets. To be sure, it clearly needs far more European-level expenditure, unlike the current minuscule EU budget (whittled down further by austerity advocates).
  • A banking union, too, is needed. But it needs to be a real union, with common deposit insurance and common resolution procedures, as well as common supervision.
  • There will also have to be Eurobonds, or an equivalent instrument.

Without growth, debt burdens will continue to grow. Austerity by itself is an anti-growth strategy. Yet years have gone by, and no growth strategy is on the table, though its components are well known:

  • Policies that address Europe’s internal imbalances and Germany’s huge external surplus, now is on par with China’s.
  • For Germany, this means wage increases and,
  • For Europe’s peripheral economies, industrial policies that promote exports and productivity are required.

What will not work, the prescription imposed by Germany, is internal devaluation—forcing down wages and prices—as this increases the debt burden of households, firms, and governments. Moreover, deflation would fuel even more massive and disruptive distortions in the economy than have been experienced.

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Draghi & Merkel

Europe’s leaders repeatedly vow to do everything necessary to save the euro—witness European Central Bank President Mario Draghi’s promise to do “whatever it takes.”

Yet, the German Diktat prevails as Germany has consistently rejected every policy that would provide a long-term solution. Germans are doing for Europe everything except what is needed.

Finally, after much pleading and begging, the Germans reluctantly accepted the necessity of a banking union that includes common deposit insurance, even while they have deliberately stymied the pace of transition well behind what markets require. How many more european national banking systems will be on Central Bank life-support before a real and proper banking union is established?

Indeed, Europe needs structural reforms—as austerity advocates, Germany’s acolytes, insist. However, it is the structure of the eurozone’s institutional arrangements that need restructuring…now. Failing further to make these necessary reforms, Europe will have to save itself by letting the Euro die…or killing it.

photo-1The EU’s Economic and Monetary Union was a means to a better end, not a bitter end in itself. European electorates appear to be recognizing the truth that, under current arrangements, the euro is undermining the very purposes of prosperity in a globalized economy for which it was created. Europe’s leaders have yet to grasp this ultimate truth.

European citizens may soon give Europe’s leaders a lesson they will not soon forget.

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