sábado, setembro 03, 2011

From Portugal with Love — 1

Raphael Bordallo Pinheiro. "II-A Finança: O Grande Cão" (1900)

Dear Troika,

I feel that I should write to you a weekly post beginning in such friendly way a useful convesation about the country you are trying to help to stabilize its unfortunate economic, financial and political recent evolution. You must know by now that accurate information is not an easy pearl to get! Noise is everywhere. Even for a local dandy like me to know what’s happening is not an easy task. Nevertheless I presume to know by now what are the few decisive barriers we have to cross if we really want to put Portugal in the right path to sustainability and human progress. I assume optimistically that your difficult job may profit from new, independent and above all unexpected insights.

Every Saturday at brunch time I will post a brief memo to you. This first one is about the need of theory before practice. I am actually reading for the second time a marvellous book by Hyman Minsky on the very same and urgent issues that worry most of the macro-economists today, at least in USA and Europe. Big Government he said! Too big right now, many suggest. Can we have “IT” (The Great Depression) again — notwithstanding the huge preponderance of governance in almost all contemporary corners of life?

From Minsky to Yiamouyiannis

How can an exhausted Lender Of Last Resort (Keynes) play the role of an Employer Of Last Resort (Minsky)? Answer: if without some global Debt Forgiveness policy (Yiamouyiannis) it is impossible. On the other hand, fiscal adjustment as the only way to socialize debt cannot solve real issues. It is actually a very dangerous step to try at present pandemic sovereign debt crisis, either in USA or Europe. Overall OTC derivatives notional value amount to more than ten times world GDP. This monster cannot be socialized!

Why to give away our public companies?

Total amount of expected revenues from forthcoming privatization of Portuguese public companies and utilities will not suffice to pay for TAP and CP debts alone. My country is then supposed not only to offer these public companies, but also to heavily pay for such nonsensical give away of potencially profitable business, public utilities and public services. Why not spin-off some of these companies into reliable (even profitable) entities before taking such a suicidal course of action?

Next week

Future roads (SCUTs) and dams (PNBEPH) will drawn this country down the drain of debt if you do not give it full attention, and if we the people fail to stop these huge scams!

And now some juicy food for thought!

By the way: FHFA Sues 17 Firms to Recover Losses to Fannie Mae and Freddie Mac

Finally, my readings for this weekend:
Stabilizing An Unstable Economy (1986, 2008)
Hyman P. Minsky

Although stabilization policy operates upon profits, the humane objective of stabilization policy is to achieve a close approximation to full employment. The guarantee of particular jobs is not an aim of policy; just as with profits, the aggregate—not the participants—is the objective.

The current strategy seeks to achieve full employment by way of subsidizing demand. The instruments are financing conditions, fiscal inducements to invest, government contracts, transfer payments, and taxes. This policy strategy now leads to chronic inflation and periodic investment booms that culminate in financial crises and serious instability. The policy problem is to develop a strategy for full employment that does not lead to instability, inflation, and unemployment.

The main instrument of such a policy is the creation of an infinitely elastic demand for labor at a floor or minimum wage that does not depend upon long— and short-run profit expectations of business. Since only government can divorce the offering of employment from the profitability of hiring workers, the infinitely elastic demand for labor must be created by government.

A government employment policy strategy should be designed to yield outputs that adavnce well-being, even though the outputs may not be readily marketable. Because the employment programs are to be permanent, operating at a base level during good times and expanding during recession, the tasks to be performed will require continuous review and development.

“Endgame: When Debt is Fraud, Debt Forgiveness is the Last and Only Remedy”
by Zeus Yiamouyiannis, Ph.D., copyright 2011. (in Of Two Minds, September 1, 2011)

Finally serious economists are considering a position I have been maintaining and writing about since the 2008 financial meltdown. Whatever its name —erasure, repudiation, abolishment, cancellation, jubilee— debt forgiveness, will have to eventually emerge forefront in global efforts to solve an ongoing systemic financial crisis.


Debt grows exponentially indefinitely, growth (income and otherwise) cannot. This leads to a widening condition where the fruits of productive “growth” devoted to interest payments increase until those fruits are entirely consumed. [...] Once this happens, stores of wealth (hard assets) begin to be cannibalized to make up for the difference. You see this in Greece with its sale of public assets to private companies, and in middle-class America where people are liquidating retirement accounts to pay for their cost of living.

This problem is compounded by a private Federal Reserve that lends money into circulation at interest, and then allows the multiplication of this consumer debt-money liability through fractional reserve banking. The money in circulation today could pay only a small fraction of the total private and public debt. That fact alone is evidence of a kind of systemic fraud. “If you just work hard enough, save, and make sensible decisions, you can get out of debt” could only physically work for a bare fraction of the population, given the money-to-debt ratio. The rest would have to simply default to clear the boards.

This is why debt forgiveness makes not only moral but rational, mathematical sense. Finances require balancing to be coherent. There must be some way to redress systemic imbalance. One has to be able to “zero the scales” to get an accurate weight of value and to re-establish healthy value creation.


...subtle debt extortion creates a system of never-ending debt-slavery for a vast majority of the population. When this “manageable” slavery is aggravated by a desire to use hardship to extort ever greater assets from the overburdened at ever cheaper prices (what Naomi Klein calls “disaster capitalism”), by open and unapologetic widespread fraud, and by the unjust offloading of risk and liability to taxpayers who had nothing to do with poor decisions of private banks, then the systemic abuse is revealed in the daily lives of citizens.

Debt creates scarcity, which stimulates fear, which drives manic competition, which favors opportunism, collusion, and concentrations of power, which translates to abuse, which results in a collapse of legitimacy for the economic system. Overreach causes a breaking point, and we are getting close to it. Will the response be warfare, taxpayer revolt, political upheaval, mass default, debt forgiveness, something other, some combination? I have predicted pockets of violence would be mixed with some softer combination of taxpayer revolt, mass default, political upheaval, and debt forgiveness, along with a return to community exchange to meet basic needs.

Last update: 2011-09-04 10:56

Sem comentários: