Iceland proves the nation state is alive and well

On May 27, 2016, Statistics Iceland (the national statistical agency) released the news – Iceland economy to grow by 4.3% in 2016. The nation is enjoying strong household consumption and investment growth and tourism is driving export growth. Inflation is low and the exchange rate, which depreciated sharply during the crisis, is stable, if not steadily appreciating again. Compare that to the Eurozone Member States, which are in varying states of moribund. We also learned this week that the Icelandic government has increased the intensity of its capital controls and is forcing speculative capital to behave itself. For those who think the state is dead, particularly those on the Left who promote grand (delusional) schemes of a Pan Europe Democracy as the only way of taking on the powers of corporations, Iceland proves that neo-liberalism has to work through the legislative capacities of sovereign states. Corporations do not have armies (usually). They have to manipulate the legislative process in their favour. The currency-issuing state is still supreme – globalisation or not – and the Right know that. The Left have been duped into believing otherwise. That is what has to change before progress is made in restoring some decency to the policy making process around the world.

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ECB’s expanded asset purchase programme – more smoke and mirrors

On January 25, 2015, the press release heading read – ECB announces expanded asset purchase programme. The ECB had decided to ramp up its quantitative easing (QE) program by adding “the purchase of sovereign bonds to its existing private sector asset purchase programmes in order to address the risks of a too prolonged period of low inflation”. We now have sufficient data to assess what has been going on under this program, and specifically under the public sector purchase programme (PSPP) components (one of three parts to the overall policy initiative). The conclusion is that the scheme has had very little impact on growth and inflation – which is no surprise. However, the pattern of purchases makes it clear that the ECB and the relevant National Central Banks (NCBs) have been engaged in a fiscal operation which has provided extensive debt relief to all Member States other than Greece. This is a demonstration of the European institutions once again engaging in smoke and mirrors (pretending to be operating within the ambit of the Treaties but openly doing the opposite) and behaving belligerently towards one nation (Greece) to ensure it stays subjugated.

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The Weekend Quiz – May 28-29, 2016 – answers and discussion

Here are the answers with discussion for this Weekend’s quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of Modern Monetary Theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

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Austerity is killing off the hopes of our youth

Sometimes, it is almost as if I have to pinch myself to establish that what I am reading is not a dream. A few reports lately have had that effect, not the least being the latest IMF report – Debt Sustainability Analysis (DSA) for Greece, which is forecasting unemployment will remain above 10 per cent for several decades to come. The latest Eurostat data on gross labour flows also paints a dire picture for a nation that has been deliberately ruined by neo-liberal ideology. And, the latest Eurobarometer studying Europe’s youth in 2016 tells us clearly how the next generation of adults feel about all this – they feel marginalised from social and economic life. The Troika and its corporate pals are doing a great job killing off the prospects for Europe’s children and their grandchildren, and further on – their grandchildren’s children. People in a few hundred years will reflect back on this period of history as being a dark age where power hungry maniacs dominated the people before the latter revolted and mayhem ensued.

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The US government view of the 1976 sterling crisis

This blog continues the discussion of the British currency crisis in 1976. Today we discuss the way the US government was constructing the crisis. They had previously seen Europe in terms of military and political threats and had clearly developed a range of interventions in Europe (NATO, military bases etc) in response to their fear of Communism. But, it was clear that the US began to believe that the on-going financial turmoil that accompanied the OPEC oil shocks at a time when the world was trying to adjust to the collapse of the Bretton Woods system (and the Smithsonian agreement reprise), was undermining what they called their “assumptions of political stability” and increasing, in their paranoiac minds, the threat of the spread of communism. They considered that the IMF would have to be ‘steered’ to take a larger role in this period of turmoil to restore financial stability – a precondition for political stability (in their eyes). And if they couldn’t directly order the IMF to act in the perceived interests of the US government, then they would do it informally – through “‘conversations’ rather than meetings”. It is a very interesting period because the US clearly wanted to use the IMF to influence “the future shape of the political economy of Great Britain”. The ‘crisis’ was, in effect, manufactured to give those ambitions ‘ground cover’. At least, that is one plausible perspective of what happened in 1976.

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Greek bailout money goes to banks and corporations – who would have thought?

Earlier this week (May 23, 2016), the Greek public opinion polling agency – Public Issue – published its latest Political Barometer (No. 156) which reported on – Attitudes towards the European Union and the Euro. As at May 2015, the majority of Greeks polled did not believe that the EU has a future and a rising proportion now believe things would be better off in 1-2 years if Greece exited the euro and introduced its own currency (32 per cent as opposed to 18 per cent 6 months ago). Things are shifting. I also wonder what the next polls will say when the Greek people learn of the latest research that shows where all the Greek bailout money has gone? It is an appalling story really.

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Australia is caught in a cyclical malaise – there is nothing ‘new normal’ about it

There was another article in the financial media this weekend running the hypothesis that the stagnant economic conditions that Australia has found itself in is a “new normal”. This is now a repeating theme. I disagree with it. It ignores some basic realities and is ideologically loaded towards an austerity interpretation of the world. The article in the Fairfax press (May 21, 2016) – Low pay growth, price rises and the new normal – claims that the “central question in macro-economics today” is whether we are “waiting … for the economy to get back to normal, or has the economy shifted to a “new normal?”. I would pose the question differently. Waiting implies that we think it is just a matter of time before the ‘market’ does its work and restores normality. Moreover, Australia like most of the rest of the world remains locked in the aftermath of what we call a ‘balance sheet’ recession. As I explained to various audiences in Spain during my recent visit, this type of event is unusual (atypical or abnormal) and requires a quite different policy response to a normal V-shaped recession where private investment spending falls, governments stimulate, confidence returns and growth gets back fairly quickly on its trend path. The losses might be large but the recession and aftermath are short. A balance sheet recession requires elevated levels of fiscal deficits being maintained for many years to support growth as non-government sector spending remains below the norm while it reduces its debt levels (via increased saving). The problem in Australia, like elsewhere, is that governments have been hectored by neo-liberal ideologues to prematurely withdraw or reduce the fiscal support and growth has stalled. A range of problems then follow.

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The Weekend Quiz – May 21-22, 2016 – answers and discussion

Here are the answers with discussion for yesterday’s quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of modern monetary theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

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