IMF admits that the West is stuck in near depression
If you strip away the political correctness, Chapter Three of the IMF's World Economic Outlook more or less condemns Southern Europe to death by slow suffocation and leaves little doubt that fiscal tightening will trap North Europe, Britain and America in slump for a long time.
By Ambrose Evans-Pritchard
Published: 8:00PM BST 03 Oct 2010
Spain, trapped in EMU at overvalued exchange rates, had a general strike last week
The IMF report – "Will It Hurt? Macroeconomic Effects of Fiscal Consolidation" – implicitly argues that austerity will do more damage than so far admitted.
Normally, tightening of 1pc of GDP in one country leads to a 0.5pc loss of growth after two years. It is another story when half the globe is in trouble and tightening in lockstep. Lost growth would be double if interest rates are already zero, and if everybody cuts spending at once.
"Not all countries can reduce the value of their currency and increase net exports at the same time," it said. Nobel economist Joe Stiglitz goes further, warning that damn may break altogether in parts of Europe, setting off a "death spiral". more
Financial system the 'achilles heel' of global recovery, warns IMF
• International Monetary Fund says governments may not be able to withdraw support for banks in the near term
• IMF calls for rethink in how credit ratings are used to assess government debt
guardian.co.uk, Tuesday 5 October 2010 15.26 BST
Uncertainty in the global finance system is the "achilles heel" of economic recovery, the International Monetary Fund warned today as it admitted turmoil in the European sovereign debt markets has set back the prospects for global stability.
In its half-yearly health check of the financial system, the IMF admitted that governments may not be able to withdraw their life-support for the banks as quickly as they hoped and called for a re-think in the way ratings agencies are used to assess the creditworthiness of government debt.
The Washington-based fund assessed the impact of rating downgrades on government debt – a situation that has been highlighted during downgrades of debt issues by Greece, Spain and Ireland – and said that when ratings fall below investment grade there can be "cliff effects" in the price of the debt.
The IMF suggested that regulators remove the use of ratings if they are likely to cause such "cliff effects" and also demand more disclosure from ratings agencies, which are paid for their ratings by the entity being assessed in what is known as an "issuer pay" model.
Since its last assessment of the estimated losses to the banking sectorfrom the crisis, the IMF has shaved the total loss from $2.3tn (£1.5tn) to $2.2tn but warned that $4tn of bank debt needs to be rolled over in the next 24 months to enable the banks to keep financing themselves.
"Exits from extraordinary financial system support, including the removal of government guarantees of bank debt, will have to be carefully sequenced and planned," the IMF said.
"With the situation still fragile, some of the public support that has been given to banks in recent years will have to be continued. Planned exit strategies from unconventional monetary and financial policies may need to be delayed until the situation is more robust," it added. moreAh yes. Now THAT is the IMF we have grown to hate over the years. No matter how devastating to the real economy, the IMF want the governments of the world to take care of their clients, the banksters, FIRST!
Money Is Power
A Inside View of the IMF's Massive Global Influence
By Klaus Brinkbäumer and Ullrich Fichtner
'The Money Is The Medicine'
These are important times for humanity. The crisis has forced everyone to see many things from a new perspective. Now the IMF is preparing for its annual meeting on Oct. 8. Can it live up to expectations, and can it police the new global economic order and keep global banks in check?
"You have to imagine the IMF as a doctor," says Dominique Strauss-Kahn, the 61-year-old director of the International Monetary Fund. "The money is the medicine. But the countries -- the patients -- have to change their habits if they want to recover. It doesn't work any other way." He smiles benevolently as he says these things, his eyes disappearing behind small cushions of wrinkled skin.
The IMF, says Strauss-Kahn, warned the world about the collapse and about the American real estate bubble and its consequences, but "politicians don't want to hear bad news." And when the crisis arrived in the fall of 2008, as predicted, it took the old world -- Europe, which always takes six months to make a decision -- too long to react.
That was the time when the world was laying the foundation for a new order. moreThe LAST organization one would want to organize a "new order." Why? Let's ask Dr. Hudson what he thinks might happen to global living standards for everyone who has to work to survive.
European Neoliberals Raise Ante in War on Labor; Fateful Struggle Will Set Course for a Generation
"A Financial Coup d'Etat"
By MICHAEL HUDSON
Most of the press has described Europe’s labor demonstrations and strikes on Wednesday in terms of the familiar exercise by transport employees irritating travelers with work slowdowns, and large throngs letting off steam by setting fires. But the story goes much deeper than merely a reaction against unemployment and economic recession. At issue are proposals to drastically change the laws and structure of how European society will function for the next generation. If the anti-labor forces succeed, they will break up Europe, destroy the internal market, and render that continent a backwater. This is how serious the financial coup d’etat has become. And it is going to get much worse – quickly. As John Monks, head of the European Trade Union Confederation, put it: “This is the start of the fight, not the end.”
Spain has received most of the attention, thanks to its ten-million strong turnout – reportedly half the entire labor force. Holding its first general strike since 2002, Spanish labor protested against its socialist government using the bank crisis (stemming from bad real estate loans and negative mortgage equity, not high labor costs) as an opportunity to change the laws to enable companies and government bodies to fire workers at will, and to scale back their pensions and public social spending in order to pay the banks more. Portugal is doing the same, and it looks like Ireland will follow suit – all this in the countries whose banks have been the most irresponsible lenders. The bankers are demanding that they rebuild their loan reserves at labor’s expense, just as in President Obama’s program here in the United States but without the sanctimonious pretenses.
The problem is Europe-wide and indeed centered in the European Union capital in Brussels, where fifty to a hundred thousand workers gathered to protest the proposed transformation of social rules. Yet on the same day, the European Commission (EC) outlined a full-fledged war against labor. It is the most anti-labor campaign since the 1930s – even more extreme than the Third World austerity plans imposed by the IMF and World Bank in times past.
The EC is using the mortgage banking crisis – and the needless prohibition against central banks monetizing public budget deficits – as an opportunity to fine governments and even drive them bankrupt if they do not agree roll back salaries. Governments are told to borrow at interest from the banks, rather than raising revenue by taxing them as they did for half a century following the end of World War II. Governments unable to raise the money to pay the interest must close down their social programs. And if this shrinks the economy – and hence, government tax revenues – even more, the government must reduce social spending yet further.
From Brussels to Latvia, neoliberal planners have expressed the hope that lower public-sector salaries will spread to the private sector. The aim is to roll back wage levels by 30 per cent or more, to depression levels, on the pretense that this will “leave more surplus” available to pay in debt service. It will do no such thing, of course. It is a purely vicious attempt to reverse Europe’s Progressive Era social democratic reforms achieved over the past century. Europe is to be turned into a banana republic by taxing labor – not finance, insurance or real estate (FIRE). Governments are to impose heavier employment and sales taxes while cutting back pensions and other public spending.
“Join the fight against labor, or we will destroy you,” the EC is telling governments. This requires dictatorship, and the European Central Bank (ECB) has taken over this power from elected government. Its “independence” from political control is celebrated as the “hallmark of democracy” by today’s new financial oligarchy. This deceptive newspeak evokes Plato’s view that oligarchy is simply the political stage following democracy. The new power elite’s next step in this eternal political triangle is to make itself hereditary – by abolishing estate taxes, for starters – so as to turn itself into an aristocracy.
It is a very old game indeed. So it is time to put aside the economics of Adam Smith, John Stuart Mill and the Progressive Era, to forget Marx and even Keynes. Europe is ushering in an era of totalitarian neoliberal rule. This is what Wednesday’s strikes and demonstrations were about. Europe’s class war is back in business – with a vengeance! more