"THE sharemarket fell sharply today after ratings agencies weighed in on last week's European Union summit." (That's the Australian sharemarket, by the way.)
Perhaps it's not so interesting, because the market will then go up again, the next time a recovery plan is announced, and then it will go down again the next time there's some bad news, and so on for a long time yet. What I thought I would remark upon here, is the political character of the ratings agencies. Ratings agencies are always based in some country or other. If the opinions of a ratings agency for a country or a bloc become too inconvenient, then surely that country or bloc will eventually produce a ratings agency of their own, with friendlier opinions. The Dagong Agency from China already has a mild notoriety for an early downgrade of the American credit rating. (I know nothing about Dagong's actual history or objectivity.) For all I know, the history of international finance already exhibits obvious examples of ratings agencies (or related entities) which are really sockpuppets for a political or geopolitical faction. But it will surely be a trend going forwards.
Monday, December 12, 2011
Sunday, December 4, 2011
Further thoughts on Europe
Right now, Greece and Italy are like failed companies, that have had new management forced on them by their creditors. But the difference between a company and a country is that in a country, you live there, it's your life, not just your job. Are Greeks and Italians really content to have their countries run from Brussels, or from Berlin-Paris-London, or wherever the hell the center of EU power is located?
Now of course there is ample precedent for regime change enforced by a country's creditors. There has been lots of this in the contemporary era, mediated by the IMF and the World Bank; probably it occurred in more than a few satellite states of the Soviet Union; to say nothing of the hundreds of empires that history records. It's just remarkable to see it happening to developed countries.
Now of course there is ample precedent for regime change enforced by a country's creditors. There has been lots of this in the contemporary era, mediated by the IMF and the World Bank; probably it occurred in more than a few satellite states of the Soviet Union; to say nothing of the hundreds of empires that history records. It's just remarkable to see it happening to developed countries.
Sunday, November 27, 2011
Financial crisis as technocratic opportunity
The Piping Shrike is a blog which analyses Australian politics. But today it has something to say about where the financial crisis really came from, and why it's replacing hollowed-out party politics with open technocratic rule.
Saturday, November 26, 2011
Wednesday, November 16, 2011
Saturday, November 12, 2011
Italy
Italy's new prime minister will be an ex "European Commissioner" rather than an ex-banker, but otherwise the story is similar: the internal political process in the indebted country has failed, and the new leader belongs to a supranational ruling class. Only it seems that I had misidentified the ruling elite: it's not the financial class, it's the Euro-technocratic class.
Normally, party politics provides the public face of democracy, and the civil service stays out of sight. But now we see the traditional politicians displaced from power, in favor of open technocratic rule. Furthermore, the agenda that the new governments serve is coming from outside - they will be implementing "austerity" and "reforms" demanded by "the European Union".
It has been suggested that Greece's quandary was largely due to the currency union. If they still had their own currency, the drachma, they could have devalued. I think that what we are seeing now is the further, political consequence of this impotence. These countries are not only without their own currencies, they are no longer in charge of their own political destinies.
In the previous post, I promised to say something about Papandreou's short-lived idea of a referendum, and about the Irish presidential debate. The Irish debate achieved notoriety because the leading candidate was brought low by a single satirical "tweet" that was brought up by the debate moderator. But what caught my eye was a failed attempt by the last-place candidate to bring up Ireland's debt deal with the EU and the IMF. There are calls for a referendum in Ireland too, though so far this idea doesn't have any powerful backers.
Normally, party politics provides the public face of democracy, and the civil service stays out of sight. But now we see the traditional politicians displaced from power, in favor of open technocratic rule. Furthermore, the agenda that the new governments serve is coming from outside - they will be implementing "austerity" and "reforms" demanded by "the European Union".
It has been suggested that Greece's quandary was largely due to the currency union. If they still had their own currency, the drachma, they could have devalued. I think that what we are seeing now is the further, political consequence of this impotence. These countries are not only without their own currencies, they are no longer in charge of their own political destinies.
In the previous post, I promised to say something about Papandreou's short-lived idea of a referendum, and about the Irish presidential debate. The Irish debate achieved notoriety because the leading candidate was brought low by a single satirical "tweet" that was brought up by the debate moderator. But what caught my eye was a failed attempt by the last-place candidate to bring up Ireland's debt deal with the EU and the IMF. There are calls for a referendum in Ireland too, though so far this idea doesn't have any powerful backers.
Monday, November 7, 2011
Greece
There is something to be said for (occasionally) publicly airing opinions that are more intuitive than reasoned. It's a way to test the "intuitions" behind the opinion. Subsequent events will provide negative or positive feedback, and you'll know whether to trust or distrust those feelings.
So, in this spirit, let me describe my intuitive response to the headline from Reuters that "Ex-central banker front-runner to become Greek PM". I emphasize that I'm responding just to the headline, not to the article.
My first thought is that this is about the supranational financial class placing one of its own in charge of Greece. My second thought is that this is about the supranational financial class using major media (in this case, Reuters) to create the image that their man is the front-runner, with the hope and expectation that this image will become reality.
I will also want to tie this back to the short-lived idea of a referendum in Greece, and to something I saw in the recent final Irish presidential debate; but first, let me clarify my references, above, to the "supranational financial class".
I am not claiming that there is an identifiable banking illuminati who rule the world. There are multiple centers of power, and what happens in politics and political economy is the result of negotiations among those multiple centers of power, as well as the interaction between top-down power and the daily stream of contingencies, emergencies, and administrative demands which emerge to challenge those who hold any form of power at any time.
So when I say that the supranational financial class does this or that, I don't want to be read as attributing agency to that class, in the way that one would attribute agency to an individual or even to a committee. The conception is more of a class of people who are both the ruling class and the most favored class in the core of the cold-war "West" (North America, European Union, Japan), a class who, for all their factional differences, have a common political interest. Paradoxically, this "common political interest" is that finance should remain non-political - I am thinking above all of that very contemporary institution, the "independent central bank", but also of economic technocracy, belief in free trade and deregulation as political norms to be extended to the whole world via the WTO and the IMF, and so forth.
Before I proceed with the simultaneous elaboration and critique of these ideas, I might express another thought, which is that it may simply be a mistake to pay too much attention to these headline events, unless you are materially affected. What I have in mind here is the thesis that the "BRIC" countries are the world's new center of economic gravity, and specifically that they are now an independent force in political economy as well. Everyone has noticed that China does not really fit the western model of how economies are supposed to work, and it seems to herald a new era of pragmatic economic statism, in which new and returned powers (I mean states) feel free to exert sovereignty over the economy within their borders, whether or not their methods conform to the western playbook, and also to make deals (with each other, with the old powers, with lesser players) for the purpose of strategic political gain, not just economic gain.
From this perspective, one should simply not pay very much attention to what is happening in Europe and America; it is just the inevitable arrival of Japanese "stagnation" in the other countries of the former economic core, and its political manifestation will be a lot of meaningless churn. Of course the appearance of an "ex-banker" as "front-runner" to be the next leader of Greece represents an attempt by the transnational system that has ruled the West for over 60 years to preserve the system in Greece, the country at greatest "risk" of putting politics back into political economy, and rediscovering that, in principle, the state has final say over these matters within its borders. It may succeed, it may not succeed; Greece may stay in the EU, Greece may leave the EU; but meanwhile, far more important things are happening elsewhere; that would be the BRIC-centric philosophy.
So, in this spirit, let me describe my intuitive response to the headline from Reuters that "Ex-central banker front-runner to become Greek PM". I emphasize that I'm responding just to the headline, not to the article.
My first thought is that this is about the supranational financial class placing one of its own in charge of Greece. My second thought is that this is about the supranational financial class using major media (in this case, Reuters) to create the image that their man is the front-runner, with the hope and expectation that this image will become reality.
I will also want to tie this back to the short-lived idea of a referendum in Greece, and to something I saw in the recent final Irish presidential debate; but first, let me clarify my references, above, to the "supranational financial class".
I am not claiming that there is an identifiable banking illuminati who rule the world. There are multiple centers of power, and what happens in politics and political economy is the result of negotiations among those multiple centers of power, as well as the interaction between top-down power and the daily stream of contingencies, emergencies, and administrative demands which emerge to challenge those who hold any form of power at any time.
So when I say that the supranational financial class does this or that, I don't want to be read as attributing agency to that class, in the way that one would attribute agency to an individual or even to a committee. The conception is more of a class of people who are both the ruling class and the most favored class in the core of the cold-war "West" (North America, European Union, Japan), a class who, for all their factional differences, have a common political interest. Paradoxically, this "common political interest" is that finance should remain non-political - I am thinking above all of that very contemporary institution, the "independent central bank", but also of economic technocracy, belief in free trade and deregulation as political norms to be extended to the whole world via the WTO and the IMF, and so forth.
Before I proceed with the simultaneous elaboration and critique of these ideas, I might express another thought, which is that it may simply be a mistake to pay too much attention to these headline events, unless you are materially affected. What I have in mind here is the thesis that the "BRIC" countries are the world's new center of economic gravity, and specifically that they are now an independent force in political economy as well. Everyone has noticed that China does not really fit the western model of how economies are supposed to work, and it seems to herald a new era of pragmatic economic statism, in which new and returned powers (I mean states) feel free to exert sovereignty over the economy within their borders, whether or not their methods conform to the western playbook, and also to make deals (with each other, with the old powers, with lesser players) for the purpose of strategic political gain, not just economic gain.
From this perspective, one should simply not pay very much attention to what is happening in Europe and America; it is just the inevitable arrival of Japanese "stagnation" in the other countries of the former economic core, and its political manifestation will be a lot of meaningless churn. Of course the appearance of an "ex-banker" as "front-runner" to be the next leader of Greece represents an attempt by the transnational system that has ruled the West for over 60 years to preserve the system in Greece, the country at greatest "risk" of putting politics back into political economy, and rediscovering that, in principle, the state has final say over these matters within its borders. It may succeed, it may not succeed; Greece may stay in the EU, Greece may leave the EU; but meanwhile, far more important things are happening elsewhere; that would be the BRIC-centric philosophy.
Thursday, October 27, 2011
SPIV vs SAFE
I read Zero Hedge every day. Therefore, when I saw a newspaper story beginning
The article also says
A global credit crisis was averted yesterdaymy first thought was, "No, it wasn't averted". (Unless "averting a crisis" now means "delaying a crisis".)
The article also says
a rescue package for Greece and the euro common currency that is likely to involve China and other developing countries helping to prop up the European economyAs various Chinese commentators have remarked, it would be absurd for a country with the per capita income of China to bail out a country with the per capita income of Greece. So either it's not going to happen (after all, it's just "likely" to happen, which could mean that it's not going to happen but it's politically convenient to pretend that it might), or China will get some concrete return on its contribution, like majority ownership of Western civilization.
Monday, August 29, 2011
Nuances
MARK COLVIN: Steve Keen is this the beginning of another global financial crisis?
STEVE KEEN: It's the continuation of the last one. I mean Chris is quite right to say that there are catalysts and there are causes, and he's identified a couple of important catalysts as to why it happened now.
But the real cause is what's happening with private debt. This is being ignored in all the ballyhoo over the level of government debt in America right now but this is always been a crisis caused by private debt, which fuelled the biggest stock-market bubble in history, beginning back around 1994, and going right to 2000.
...
STEVE KEEN: (laughs) Well in terms of the level of debt we're in, if you go back to the beginning of the post-war period in America, America's private debt to GDP ratio was 45 per cent. It peaked out in 2009 at 300 per cent, so more than six times as much debt compared to income as when the Second World War ended.
And that's now turned around, you've fallen from 300 per cent of GDP as the private debt level to 260 per cent, which is a pretty huge fall, but it still leaves America with more debt than it had at the absolute peak of the Great Depression.
MARK COLVIN: Doesn't Professor Rogoff give a tipping point of 90 per cent?
STEVE KEEN: He's talking about government debt.
MARK COLVIN: Right ok.
STEVE KEEN: I'm talking about private debt.
MARK COLVIN: So where are we on that?
STEVE KEEN: Government debt we're hitting about the 100 per cent level again.
MARK COLVIN: So they're 10 per cent over his tipping point?
STEVE KEEN: But it wouldn't matter if it wasn't for the level of private debt. The American government began with a higher debt to GDP ratio than 100 per cent after the Second World War, but the private sector was at, you know, a trivial level of debt, frankly, for America's debt-carrying capacity. So it was quite possible for the private sector to boom, and with the booming private sector the government to gradually reduce its debt level by running surpluses.
(ABC)
STEVE KEEN: It's the continuation of the last one. I mean Chris is quite right to say that there are catalysts and there are causes, and he's identified a couple of important catalysts as to why it happened now.
But the real cause is what's happening with private debt. This is being ignored in all the ballyhoo over the level of government debt in America right now but this is always been a crisis caused by private debt, which fuelled the biggest stock-market bubble in history, beginning back around 1994, and going right to 2000.
...
STEVE KEEN: (laughs) Well in terms of the level of debt we're in, if you go back to the beginning of the post-war period in America, America's private debt to GDP ratio was 45 per cent. It peaked out in 2009 at 300 per cent, so more than six times as much debt compared to income as when the Second World War ended.
And that's now turned around, you've fallen from 300 per cent of GDP as the private debt level to 260 per cent, which is a pretty huge fall, but it still leaves America with more debt than it had at the absolute peak of the Great Depression.
MARK COLVIN: Doesn't Professor Rogoff give a tipping point of 90 per cent?
STEVE KEEN: He's talking about government debt.
MARK COLVIN: Right ok.
STEVE KEEN: I'm talking about private debt.
MARK COLVIN: So where are we on that?
STEVE KEEN: Government debt we're hitting about the 100 per cent level again.
MARK COLVIN: So they're 10 per cent over his tipping point?
STEVE KEEN: But it wouldn't matter if it wasn't for the level of private debt. The American government began with a higher debt to GDP ratio than 100 per cent after the Second World War, but the private sector was at, you know, a trivial level of debt, frankly, for America's debt-carrying capacity. So it was quite possible for the private sector to boom, and with the booming private sector the government to gradually reduce its debt level by running surpluses.
(ABC)
Thursday, August 11, 2011
US debt levels
When I look at this chart of current US debt levels, they don't actually look so large. Of course the absolute figures are enormous, but the order of magnitude has been more or less the same for over sixty years.
Friday, August 5, 2011
Credit downgrades
I failed to report that Dagong has downgraded the American credit rating! (Oh, and some other ratings agencies are talking about it too.)
Wednesday, July 20, 2011
Monday, June 20, 2011
Meanwhile in Europe
Of course, how can a blog about sovereign default fail to at least mention the fun in Europe? I once predicted that the consequence of the European sovereign debt crisis would be, not the end of the euro, but the end of eurozone expansion. At the time, the end of the euro was an extreme scenario, imagined only by confirmed "Euroskeptics". Now, mainstream commentators are talking about the euro's end. So let me stick to my middle-ground prediction.
Wednesday, June 15, 2011
debt downgrades
A post from Daniel Davies at Crooked Timber inspired the creation of this blog. Now another CT regular, John Quiggin, asks "When will US debt be downgraded? By how much?"
Thursday, May 19, 2011
interim opinion
After a few days to think about it, I see no reason to change the opinion I formed after I first created this blog: In the long run, a US debt default would be no big deal, and not just because it would quickly be fixed up. (I am not talking about a scenario like a political decision by the US to default indefinitely, because that is an idle fantasy. Isolationist or anti-globalist American nationalists may sometimes advocate such scenarios, but they have no access to power.) The real issues are longer-term matters like the global status of the US dollar, the US balance of trade, and so on.
I'm not saying a default will never happen. In fact, a default brought about by a political game of "chicken" would be entirely consistent with the American tendency to produce embarrassing, headline-dominating spectacles which fill the world media for a few weeks or months and then vanish, mostly to be forgotten. And as Geithner said in his letter, such a default would have consequences: it would make borrowing more onerous (more expensive) for the US government. (For those who want the US government to stop borrowing so much, this is not an argument against risking default.) But a US Debt Default would not equal End Of The Economic World or even End Of American Hegemony. It would be just another spectacle, just another signpost, just another milestone on a long eventful journey dominated more by the subliminal trends which escape notice but build up over time, than it is by the passing scenery you can see at any single moment.
I'm not saying a default will never happen. In fact, a default brought about by a political game of "chicken" would be entirely consistent with the American tendency to produce embarrassing, headline-dominating spectacles which fill the world media for a few weeks or months and then vanish, mostly to be forgotten. And as Geithner said in his letter, such a default would have consequences: it would make borrowing more onerous (more expensive) for the US government. (For those who want the US government to stop borrowing so much, this is not an argument against risking default.) But a US Debt Default would not equal End Of The Economic World or even End Of American Hegemony. It would be just another spectacle, just another signpost, just another milestone on a long eventful journey dominated more by the subliminal trends which escape notice but build up over time, than it is by the passing scenery you can see at any single moment.
Saturday, May 14, 2011
the public debt of the United States of America
Hello world. I created this blog because I want to know how likely a US government debt default is, and what the consequences might be.
One spur to the blog's creation was a post by Daniel Drezner mocking the very idea of a default. And yet here is US Treasury Secretary Tim Geithner saying that a default could occur if the US doesn't raise its statutory debt ceiling.
The adversarial nature of US politics makes it very conceivable that the legislators will one day fail to cut a deal in time to avoid hitting the ceiling. So, what happens then - a brief default lasting only a few days, an emergency deal which permits the resumption of interest payments, and then life goes on as before, with no real change? Clearly there must one day come a time when the US starts to reduce its federal debt; let's suppose that we do get to that point without a significant debt-default crisis. How far away is that point in time? For how much longer will the US be willing to increase its debt burden; for how much longer will it be able to borrow on terms that it finds acceptable?
One spur to the blog's creation was a post by Daniel Drezner mocking the very idea of a default. And yet here is US Treasury Secretary Tim Geithner saying that a default could occur if the US doesn't raise its statutory debt ceiling.
The adversarial nature of US politics makes it very conceivable that the legislators will one day fail to cut a deal in time to avoid hitting the ceiling. So, what happens then - a brief default lasting only a few days, an emergency deal which permits the resumption of interest payments, and then life goes on as before, with no real change? Clearly there must one day come a time when the US starts to reduce its federal debt; let's suppose that we do get to that point without a significant debt-default crisis. How far away is that point in time? For how much longer will the US be willing to increase its debt burden; for how much longer will it be able to borrow on terms that it finds acceptable?
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