Wednesday Night #1544

The Economy

Fine art, credit cards, shares, and all money-related articles and documents have no inherent value;  their value is determined only by the degree to which the public desires to  possess and trade them.  Copied and original pieces of fine art vary incredibly in value only in the knowledge that the original had been executed by a renowned personage.  Counterfeit bills, though they might be artfully executed, are unacceptable.
In order to accept and internalize the current world financial situation, one must the recognize  the disconnect between currency and value, a fair barometer of which, namely the Stock Market, has abruptly lost much of its lustre; On Monday of this week, the market dropped considerably in price (if not, perhaps, in value) and on Tuesday, not one stock had achieved a fifty-two week high, indicating an oversold condition, the most important, falling below their twenty-one day moving average, the utilities and gold constituting the small market segment that softened the appearance of the severity of the downward move.  In brief, we have entered a bear market with only a small upturn possible in January.  Volatility appears to have depressed the entire economy despite the ease with which it could be solved by increasing spending in the short but not the long term.

There is evidence of growing social unrest in many parts of the world.  Many believe that the occupation of Wall Street will continue to grow.  The Greek population bears the brunt of the burden of belt tightening as Germany’s aid constitutes bailing the banks who lend to Greece, as opposed to bailing out Greece.  When one examines the U.S. situation,  it appears to be more critical but less worrisome than that of Greece or Italy.

Greece and the EU
Austerity measures in Greece have resulted in a seven percent decrease in its G.D.P.  The Greek situation pales in comparison with the debt and default by individual States of the U.S. and the debt load of the federal government, the principal difference being the structure (federation) of the United States and that (association) of the European Union.  The per capita debt  of California exceeds that of Greece.  Austerity and squeezing the little people is not the solution.  Indeed, a preferable solution would be default and restructuring.  Some banks have undoubtedly already discounted the debt and would welcome a default.  Europe can manage a Greek default but the unpredictable effect on Portugal, Spain and Italy would be of some concern.  The inevitable shift to a politically united Euro Zone would facilitate the issuance of Eurobonds, a rational approach to the current predictable chaotic situation.  Greek state assets are being administered very inefficiently, a potentially correctible situation.  Although probably currently unthinkable, privatizing state-owned assets could very well provide a solution for Greece.
The surplus of goods constitutes the insurance against inflation but the euro is significantly overvalued; if it were brought to par with the U.S. dollar, much of the European financial crisis would be eliminated or significantly minimized. The transformation of the Eurozone into a true federation is ultimately inevitable. [Editor’s note: Europe Tries to Stave Off a Reckoning is highly relevant]

The U.S.
As for the United States, doing nothing is not a solution.  What is needed is for the Federal Reserve to keep interest rates very low even as the economy picks up over a period of time.   The problems appear to be mortgages and lack of money.  Low interest rates have had an adverse effect on insurance companies, entailing additional problems.  The Government of the U.S. could socialize consumer debt.  Nothing would be more effective in fixing the mortgage problem.  The growing gap between the wealthy and the poor is the latent problem on the road to civil war if it continues unabated.  The solution lies in doing what needs to be done, that is, to make the changes to help the less affluent members of society.  The wars and civil uprisings in the Middle East are unsettling and the rapidity and ease of communication should be considered by those in government as valid signs of the mood of the electorate. [See Robert Scheer: What Do They Want? Justice and Al Jazeera’s Understanding Wall Street’s ‘Occupation’ which notes “At the time of this writing, people in about 70 other US cities are taking over, or planning to take over, areas in their nearest financial centres, and camping, marching, and making collective decisions about how to make the best use of their momentum, using Occupy Wall Street’s model as an example. Solidarity actions are have taken place or been planned in the United Kingdom, Germany, Australia and Bosnia.”]

Canada
The Conservative Party of Canada is the ruling party with an apparently unlimited mandate thanks to the philosophical differences between the Liberal and New Democratic parties, which pale in comparison with their similarities.  Although the philosophy of both parties lies left of center, differences focus mostly in the areas of trade unions and the gap between business and socialism, as well as their approach to the question of Québec nationalism.  However, on reflection, the differences between the two parties are no greater than those between the former Progressive Conservative and Reform parties, who rose phoenix-like from the ashes of their former life and whose current reign appears to have the potential of exceeding that of the more venerated Queen Victoria if the left of center political parties continue to philosophically maximize their differences and minimize their similarities.

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The Prologue

The economies of the U.S. and European Community remain at the top of our list. Of course, analyses, opinions,  panaceas – sometimes even solutions – offered by everyone from Left to Right (presumably in certain parts of the world that would be from Right to Left ).
Bank Credit Analyst suggests certain actions that the Fed can take to stimulate the economy beyond the measures that have already been taken. These include raising the inflation target, taxing excess reserves, and purchasing corporate debt, equities, real estate or foreign currency. However, most of these “nuclear options” would entail substantial risks for both the economy and the Fed’s reputation. How palatable would this be to the political powers?

We are delighted that Peter Berezin will be with us to discuss the BCA findings. Perhaps, if there is any time left over, he might indulge us with some comments on the latest developments in Russia [The Return of the King: Vladimir Putin is Russia’s once and future president. Note that Spiegel doesn’t at all like these new developments: “It is now clear that Medvedev was never more than a placeholder for his mentor, and his supposed plans to modernize Russia were little more than empty soundbites. Indeed, Medvedev may have damaged the country even more than Putin has.” more ]

Tony Deutsch submits Five Prescriptions to Heal Economy: Laurence Kotlikoff who leads off with the statement that “Desperate times call for creative measures” – he also reallydoes not appear to like Larry Summers.

At a global level, Jeffrey Sachs Globalization’s Government reminds us that “The world’s most successful economies today are in Scandinavia. By using high taxes to finance a high level of government services, these countries have balanced high prosperity with social justice and environmental sustainability.”

Greece: Stratfor’s report Preparing for Greece’s Failure elicited a strong response from Kimon which you will find on the NSoA website under a new rubric “Kimon says” – we will be adding to this frequently in preparation for the introduction of a regular blog.
Guy Stanley, who will also be with us this week, adds to the debate with the following comments:
The Stratfor analysis draws attention to a double bind: Europe can’t “afford” to keep Greece in and can’t afford to expel Greece either. We seem to have come a long way from the tough love of “The Washington Consensus”. Kimon’s analysis questions the first assumption, as do many others, arguing that a single EU fiscal and monetary policy would enable Europe to mount a credible defence against the downward pressure of Euro skeptics. I wonder if there isn’t something quite perverse in all this: Banks are running up reserves in central banks rather than investing them in growth –thus stoking the vicious circles of economic weakness. In addition, they are lending the money these reserves support to investors who are shorting the sovereign debt governments are issuing to fund programs aimed at strengthening the banks and sterilizing the attacks on the Euro and by implication the currencies of supportive governments. In other words, like NATO in Afghanistan, the authorities under attack are financing both sides in this “war”. (The Taliban encourages farmers to grow opium which the West buys and then uses the receipts to blow up NATO troops) Wouldn’t it make sense now to tax the bank reserves, globalize a Tobin tax and tell the banks that they will be reorganized the day after Greece defaults? Can’t remember if it was Hank Paulson or Alan Greenspan that remarked about the financial crisis that “we over-estimated the instincts of financial institutions for self-preservation”. Maybe we should see if they’ve learned anything and if not put a new, better designed, financial system in its place. Or is “The System” now Too Big to Fail?
Note that on Monday Foreign Policy reports Greece likely to miss deficit reduction target

Canada: There appears to be some debate over the appropriateness of the photo-op/meeting between Prime Minister Harper, Finance Minister Jim Flaherty and Bank of Canada’s Mark Carney. Was it simply to allow Flaherty and Carney to brief the PM on the IMF/G20 meetings in Washington (CBC); should we be worried about the blurring of the lines between the Bank of Canada and the Government? Or happy that the Governor is possibly expressing concerns about the direction in which Canada is headed in the face of the economic storm on the horizon (Warren Kinsella) as BMO’s Sherry Cooper warns We’re making same mistakes that led to Great Depression.

Related to the Canadian economy is the new report commissioned by the CIC that calls for Canada to harness its intellectual property resources. Rights and Rents: Why Canada Must Harness its Intellectual Property Resources, argues that Canada is paying a steep price for its short-sighted approach to intellectual property (IP).
Research conducted on behalf of the CIC shows that international buyers are targeting Canada’s IP-rich start-ups. 58% of new Canadian firms were taken over by foreign investors from 2006-10, yet these acquisitions siphoned off more than 66% of the IP developed by such firms (much of that IP subsidized by taxpayers).

Alberta led by a woman? Alison Redford, a former human rights lawyer who has has worked in Bosnia, South Africa and has been an elections official for the UN in Afghanistan, is an attractive new leader with what appears to be a virage towards a Red Tory outlook: e.g. teachers will be put back to work and health care access will be better. More see also What Alison Redford’s Alberta victory means for women in politics

Should journalists be required to reveal their financial interests? George Monbiot suggests that pieces paid for by lobby groups would become apparent if … writers opened a public registry of their interests. “While journalists are not subject to the accountability they demand of others, their powerful position – helping to shape public opinion – is wide open to abuse. Should we be surprised that the public place us somewhere on the narrow spectrum between derivatives traders and sewer rats?” While this may not be a problem in Canada [or is it? – we would be interested to hear your views], it certainly would shake up some U.S. media people.

Finally, as usual, we delight in offering you an off-the-wall item; this time a a service offered by Alabama-based “Holy Smoke” to anyone with fully cremated remains.
“The process of having cremated ash placed in live ammunition begins when you contact us. You tell us what type of hunting or shooting that the decedent practiced and we can help you decide what will best suit your needs.” Helpfully, the site provides the information that 1 Pound of ash is enough to produce 250 shotshells (one case).

Kyle Matthews asks that we remind you of The Montreal Institute for Genocide and Human Rights Studies (MIGS) Conference on Thursday 20 and Friday 21 October
The Role of the Media in Halting Mass Atrocities:
A Conference to Mark the 10th Anniversary of the Responsibility to Protect
Please consult the conference website for the agenda, all program details and to register. Please note that registration fees have been reduced and there is also a possibility to register for one day rather than two.