Deadlier Than Putin's Missiles. The IMF Pays Ukraine a Visit.

The International Monetary Fund has worked its magic on Ukraine.  The carrot is about $17-billion in bailout funding.  The stick is the market price of natural gas. Soon the democracy-loving Ukrainians will see their gas bills soar nearly threefold.


While Kiev will have to help poorer families pay for pricier gas, the cost of that assistance pales in comparison with what artificially cheap local gas cost the government. The IMFestimated in 2012 that cheap gas cost Ukraine about 5 percent of its prewar GDP per year.

Bringing gas tariffs back to something resembling market prices will also curb energy consumption and provide more incentive for Ukraine to produce its own natural gas. Together, that promises to further reduce Ukraine’s reliance on imported Russian gas, potentially removing one of the sharpest arrows in Moscow’s geopolitical quiver.

Ukrainian gas consumption has fallen from 108 billion cubic meters (bcm) per year in 1993 to about 42 bcm today, thanks in part to a dismal economy in the 1990s and the phaseout of Soviet-era heavy industry. With the reform package, Ukraine could further trim the amount of gas it needs to import from Russia, which last year fell to the lowest level in 15 years.

What's unclear is how Ukraine's already wobbly economy will handle the energy shock.  Josh Cohen, an ex-US State Department staffer who handled economic reform projects in the former Soviet Union thinks the IMF medicine Poroshenko has swallowed will be toxic for Ukraine.

We have seen this story before. During the 1990s, when I worked at the U.S. Agency for International Development (USAID) in the office charged with managing economic reform projects in the former Soviet Union, I observed that the type of austerity now being required of Ukraine was the standard prescription for countries in economic crisis. The leading Washington financial institutions, such as the IMF, World Bank, and U.S. Treasury Department, were passing out this one-size-fits-all solution. And it almost never worked.

Russia was the classic case. In the midst of the political shock caused by the breakup of the Soviet Union, neoliberal reformers supported by the West instituted a policy of so-called "shock therapy" involving an end to price controls and large cuts in government spending and subsidies. The result was a plunge in Russia’s GDP and inflation rates averaging 20 percent per month. As the poverty rate climbed to a full 55 percent of the population, there was a widespread political backlash against austerity led by Russian Vice President Alexander Rutskoy, who termed the reforms "genocide" and led a failed attempt to overthrow President Boris Yeltsin in 1993.

...Kiev’s decision to implement similarly painful austerity measures during its own political turmoil is doomed to fail in the same way, leading to even more instability and crisis in a country that has had more than its share of both over the past year.

...Reforms that reduce corruption and cut government spending and subsidies are necessary if Ukraine is ever going to come close to reaching its economic potential. However, with a collapsing economy and an ongoing war, Kiev needs a semblance of stability far more than shock therapy.

Ukraine is currently in economic free-fall. After estimating that the economy would shrink 5 percent in 2014, the IMF now predicts a 6.5 percent drop in the country’s GDP, while some analysts think it could be as high as 10 percent.

...Despite the economic crisis, the IMF’s loan requires Kiev to enact a series of policy changes, all of which will accelerate the collapse of the economy and decrease the purchasing power of ordinary Ukrainians.

The IMF demands that Ukraine make immediate cutbacks to reduce the fiscal deficit. To meet this requirement, Kiev has already enacted a series of laws raising excise and property taxes, reduced social income support expenditures for retirees and public employees, frozen Ukraine’s minimum wage, and cut public-sector wages.

Another target is the energy sector. Ukraine is required to increase natural gas and heating tariffs for consumers by 56 percent and 40 percent in 2014, respectively, and by 20 to 40 percent annually from 2015 to 2017. At the same time, as gas prices increase sharply, gas subsidies to end users will be completely ended over the next two years.

...This overall combination of increased taxes and energy costs, decreased wages and social expenditures, and growing inflation is more akin to a Kevorkian prescription for Ukraine’s economy then a recipe for a return to economic growth. Given that a USAID-funded opinion survey released in April found that a majority of Ukrainians already oppose higher energy tariffs and prices, the political consequences of austerity could be explosive.

The West could help Ukraine through this economic crisis. As a recent Bloomberg editorial noted, "In Ukraine, the IMF will in essence be trying an economic solution to a geopolitical problem." Indeed, Kiev’s decision to implement austerity in the middle of a bitter civil war is foolhardy for both financial and political reasons: Wars cost money — lots of it — and unsurprisingly, Poroshenko has already announced $3 billion in additional defense spending for this year. Given that the second tranche of the IMF’s loan is $1.4 billion, the ongoing costs of the war make it extremely unlikely that Ukraine will be able to meet the IMF’s fiscal and financial targets.

But the political problems with shock therapy for Ukraine are even greater. The austerity program will further alienate the very citizens of Donbass, the restive eastern region currently hosting the worst fighting. If the country will ever be put back together, the people of the east must feel that Kiev takes their concerns into account. Unfortunately, by implementing austerity when industrial output has as of July declined by 29 percent year-on-year in Donetsk and a whopping 56 percent in Luhansk, the government in Kiev provides just the opposite message to the east.

Oh boy, another failed state to add to our ever growing list of interventions - Kosovo, Libya, Afghanistan and now Ukraine.  Perhaps we should put our plans on shipping them weapons on hold until we get assurances they won't just sell them to Putin's side for pocket money.

They'll Nip This in the Bud

It's enough to give an oligarch chest pain.  Barely a month in power, popular support for the left-wing, anti-austerity government in Greece is soaring.  Syrzia won the January polls with 36% of the votes.  A few weeks later and there's no sign of buyers' remorse.  Instead the party's support has climbed to almost 48%. Not bad for a movement that came out of nowhere just three years ago.

It's not so much the Greek government digging in its heels on debt repayment and austerity demands that will be infuriating the Euro bankers.  It's the attitude of the Greek people that they'll find unnerving.

On the street, optimism has returned. People worn down by gruelling austerity, on the back of unprecedented recession, are smiling. Government officials have taken to walking through central Athens, instead of ducking into chauffeur-driven cars to avoid protesters. Last week, finance minister Yanis Varoufakis – a maverick to many of his counterparts – was mobbed by appreciative voters as he ambled across Syntagma square.

“They’ve given us our voice back,” said Dimitris Stathokostopoulos, a prominent entrepreneur. “For the first time there’s a feeling that we have a government that is defending our interests. Germany needs to calm down. Austerity hasn’t worked. Wherever it has been applied it has spawned poverty, unemployment, absolute catastrophe.”

If there's one thing the ECB and IMF realize it's that this sort of thing can be contagious.  It can spread.  In other countries those populations are also feeling "worn down by austerity" and saddled with governments that are not defending their interests.

It's already taking hold in Spain.  Italy, Ireland, France and even Britain could be susceptible.  I expect the conservative lenders won't sit by idle.  They need the Greek people back in harness to austerity or, before long, everyone will be kicking over the traces.  Optimism, left unchecked, can be a very, very dangerous thing.

Weak Economy? 'They' Wouldn't Have It Any Other Way.

Take it from Joe.  Nobel laureate economist Joe Stiglitz to be precise.

The near-global stagnation witnessed in 2014 is man-made. It is the result of politics and policies in several major economies -- politics and policies that choked off demand. In the absence of demand, investment and jobs will fail to materialize. It is that simple.

Nowhere is this clearer than in the Eurozone, which has officially adopted a policy of austerity -- cuts in government spending that augment weaknesses in private spending. The Eurozone's structure is partly to blame for impeding adjustment to the shock generated by the crisis; in the absence of a banking union, it was no surprise that money fled the hardest hit countries, weakening their financial systems and constraining lending and investment.

In Japan, one of the three "arrows" of Prime Minister Shinzo Abe's program for economic revival was launched in the wrong direction. The fall in GDP that followed the increase in the consumption tax in April provided further evidence in support of Keynesian economics -- as if there was not enough already.

...For the past six years, the West has believed that monetary policy can save the day. The crisis led to huge budget deficits and rising debt, and the need for de-leveraging, the thinking goes, means that fiscal policy must be shunted aside.

The problem is that low interest rates will not motivate firms to invest if there is no demand for their products. Nor will low rates inspire individuals to borrow to consume if they are anxious about their future (which they should be). What monetary policy can do is create asset-price bubbles. It might even prop up the price of government bonds in Europe, thereby forestalling a sovereign-debt crisis. But it is important to be clear: the likelihood that loose monetary policies will restore global prosperity is nil.

This brings us back to politics and policies. Demand is what the world needs most. The private sector -- even with the generous support of monetary authorities -- will not supply it. But fiscal policy can. We have an ample choice of public investments that would yield high returns -- far higher than the real cost of capital -- and that would strengthen the balance sheets of the countries undertaking them.

The big problem facing the world in 2015 is not economic. We know how to escape our current malaise. The problem is our stupid politics.

In other words, just like that other great economic plague, inequality, is the bastard child of our political elite, so too is the global stagnation besetting every nation's economy.  It's the waste product of neoliberal ideology in practice.  If only a change of government would free Canada of that curse.

IMF Calls on Cameron Tories to Change Course

Britain's Conservative Cameron government are the High Priests of bone-crushing austerity.   David Cameron and his gaggle of privileged Saville Row suiters are not interested in sparing the lash when it comes to Britain's weak and vulnerable.   Meanwhile, Steve Harper looks on with fawning admiration at everything he wishes he could be.

Yet Cameron has now run afoul of that bastion of radical socialism, the International Monetary Fund.  The IMF is crying "enough already" and pleading with Cameron to reverse course if only to boost the British economy.

It said the £10bn-worth of spending cuts and taxes planned for the coming year would be a "drag on growth" and urged the government to do more to stimulate the economy.

The fund's deputy managing director David Lipton said Britain should bring forward investment on infrastructure and defer some near-term spending cuts to kickstart the economy.

"In a range of policy areas, the government should be more supportive of growth. What is important now is not to make a mistake today and presume that all will be well with the economy some years from now. I think it's important to get started on infrastructure projects that will support the economy." He said that would allow the government to push back some of the cuts and bring forward more supportive measures.

The UK could suffer higher unemployment and lose economic capacity permanently if it ignores the fund's advice, he warned.

Cameron's Austerity Wins Britain a Credit Downgrade

It's not like Britain's Conservatives weren't warned their austerity platform would bludgeon their nation's economy.  Still, David Cameron didn't have to boast that keeping Britain's AAA credit rating intact would by the real test of his economic and political credibility.

Oopsie.

Britain's credit rating has now been dropped from AAA to Aa1 by the ratings agency, Moody's.   And the Tories, predictably, have vowed to stay the course since that seems to be working so well.

Chancellor George Osborne said the government would continue taking "tough measures" to deal with the deficit.

Mr Osborne said the decision was "a stark reminder of the debt problems facing our country" and did not mean the government should change course.

Will the Country that Gave the World Democracy, Lose Its Own?

The prime minister of Greece warns his country is on the verge of becoming the next Wiemar Republic.   Antonis Samaras is appealing for funds to fend off the outright collapse of Greek society.

"Greek democracy stands before what is perhaps its greatest challenge," Samaras told the German business daily Handelsblatt in an interview published hours before the announcement in Berlin that Angela Merkel will fly to Athens next week for the first time since the outbreak of the crisis.

Resorting to highly unusual language for a man who weighs his words carefully, the 61-year-old politician evoked the rise of the neo-Nazi Golden Dawn party to highlight the threat that Greece faces, explaining that society "is threatened by growing unemployment, as happened to Germany at the end of the Weimar Republic".

"Citizens know that this government is Greece's last chance," said Samaras.

IMF Calls Bullshit on Brit Tory Austerity Farce

David Cameron's boneheaded austerity fetish isn't working.   Even the International Monetary Fund, the IMF, says that much is plain.  The Guardian's Jonathan Portes has this take on the IMF report.

A non-technical summary of Thursday's International Monetary Fund report on the UK economy would be that we are up the creek – "recovery has stalled" – and that we should use any available paddle to head as fast as possible in the opposite direction. "Demand support is needed. Additional monetary stimulus … credit easing measures … increased government spending on public investment." Stop pretending we're on track, and throw the kitchen sink at the economy.

 There are, however, two much more interesting parts to the IMF report. The first is its demolition of the government's argument that this pain was necessary and the alternative would have been worse – that, as George Osborne says, without accelerated fiscal consolidation we would have had higher interest rates and maybe even a debt crisis. This is nonsense: low interest rates reflect not economic confidence but its opposite, and the IMF says so: "Bond yields have been driven more by growth expectations than fears of a sovereign crisis."

 But even more important is the IMF's analysis of the consequences of this policy failure: not just low growth now (they estimate fiscal consolidation has so far knocked about 2.5% off output) but permanent economic and social damage. This is primarily because unemployment – especially long-term and youth unemployment – has "scarring" effects; someone who is unemployed now because of recession is more likely to be out of work later in life, even after economic recovery.

...the basic point is spot on. In other words, what the government is offering is not pain today for a better economic future tomorrow. It's pain today for more pain tomorrow. As many of us have long argued, the reason for changing course is not because of the short-term boost to growth, but because of the longer-term impacts.

Could Irish Voters Scuttle Europe's Austerity Madness?

The Irish public may be charting the next round in the battle over European austerity politics.   The coalition government in Dublin reluctantly yielded to overwhelming public pressure demanding a referendum on the latest Eurozone fiscal treaty.

Former Citibank senior international economist Michael Burke writes that angry Europeans are turning on their austerity-minded governments and with good reason.

It is hardly surprising that "austerity" is unpopular. It is nothing other than a transfer of incomes from labour and the poor to capital and the rich. One of the greatest fallacies of the current crisis is that "there is no money left". This is wholly untrue. Companies are sitting on cash mountains all across Europe. And the profit share of national income has risen. This is why stock markets are rising – corporate incomes (profits) are rising.

In some cases, such as Ireland, the total level of profits is rising, even while household incomes are declining and the slump in business investment actually exceeds the total contraction in GDP.

 All recent history suggests that Irish voters will come under intense pressure to vote yes. They will be accused of wrecking the euro if they vote no, and that all sorts of calamities will follow.

But those wrecking the European economy and potentially the euro are the politicians who allow capital to flow freely within the eurozone when it is allocated by bondholders, and refuse to allow the state to reallocate capital on the basis of what is economically rational.

...in return for bailing out Greece's creditors, the troika of EU, ECB and IMF insist only on more austerity, that is, more transfer of incomes from labour to capital. The treaty provides a clampdown on "structural deficits" whose nebulous existence allows unelected technocrats to impose any cuts they can get away with. Of course this will apply to all countries adopting the treaty. In this way, "austerity" will become the norm in the core as well as the periphery.

Yet these policies clearly aren't working and now the talk is of setting Greece loose, having imposed a policy of reparations that harks back to Versailles.

If Irish voters do reject the treaty, they will be performing a great service to the population of Europe. It could mark a turning point in the EU and beyond, pulling the brake on the austerity express before it hits the buffers.

...In Ireland, political circumstances mean there is a possibility of a real political blow against the disastrous and undemocratic policies that have been pursued since the crisis began. A yes vote means the continuation of the nightmare. A no vote would be a blow in favour of all the victims of austerity and for all democrats across Europe.

European Youth Reeling

We're flooded with stories about Greece and the Euro and the European Union leaders and their deals.  Blah, blah, blah.  What these stories almost always overlook are the real victims, Europe's young people.   They are on the verge of truly becoming a "lost generation."

A report in The Guardian reveals staggering levels of youth unemployment - 28% among Italians 16-24; Spain 51%, Greece 43%.  In the Great Depression, America's unemployment rate briefly spiked at 25%.   Worse yet, some sectors of the European economy aren't expected to recover for at least a decade.

The article reports an exodus of Europe's "best and brightest" young people similar to what befell Ireland after its collapse.

As subpar Euro leaders like Britain's Cameron remain fixated on austerity campaigns that can only worsen conditions for their youth the question becomes for how long they can possibly suppress widespread unrest and what awaits their countries when that dam breaks.

Looney Lefties Call for End to Austerity

Lefties - as in the International Monetary Fund, the World Bank and the World Trade Organization - have joined in a warning to western governments of the economic and social risks they're inviting through austerity budgeting.


"Expressing concern about the weakness of economic activity and rising unemployment, the IMF's Christine Lagarde, the World Bank's Robert Zoellick and the WTO's Pascal Lamy joined the heads of eight other multilateral and regional institutions in calling for policies to create jobs, tackle inequality and green the global economy.

"The world faces significant and urgent challenges that weigh heavily on prospects for future growth and on the cohesion of our societies," said the statement by the global issues group of the World Economic Forum. It was published ahead of the forum's annual meeting in Davos next week, amid concerns that 2012 will see the global economy flirt with recession as a result of the eurozone crisis.

"Our shared objective is the strengthening of growth, employment and the quality of life in every part of the world," said the statement. 
"But entering 2012, we worry about: decelerating global growth and rising uncertainty; high unemployment, especially youth unemployment, with all its negative economic and social consequences; potential resort to inward-looking protectionist policies."

In addition to Lagarde, Zoellick and Lamy, the signatories were Mark Carney of the Financial Stability Board, Margaret Chan of the World Health Organization, Angel Gurría of the Organisation for Economic Co-operation and Development, Donald Kaberuka of the African Development Bank, Haruhiko Kuroda of the Asian Development Bank, Luis Alberto Moreno of the Inter-American Development Bank, Josette Sheeran of the United Nations World Food Programme, and Juan Somavia of the International Labour Organisation. The forum said it was the first time the heads of the world's major institutions had come together in such a way.

If the first decade of this century has demonstrated anything, surely it must be that what passes for national leadership today is all but deaf to warnings such as this.   For example, despite supposed-economist Harper's self-serving claim that no one saw the collapse of 2008 coming, there were plenty of voices sounding the alarm years in advance - people with names like Roubini, Krugman, Stiglitz.   The only thing that kept Harper from heeding their clear warnings was his ego, his fundamentalist belief that he is the smartest guy in every room.

When They Preach Austerity, They're Just Screwin' With You

Western leaders weren't listening in 2006 and 2007 when genuine "thinking" economists like Krugman and Stiglitz were warning that their house of cards was about to collapse.   Even self-proclaimed economists like Harper ignored them and later said no one could see the collapse of 2008 coming.  No one who couldn't be bothered to listen.

And they're not listening now - on either side of the Atlantic.  Genuine economists are warning this is no time for austerity crackdowns.  You don't go the austerity route, they warn, until your economy is back on its feet.  Premature cutbacks will only worsen the situation.

Now, it seems, the Euros are coming to realize these guys are right - austerity doesn't pay off.

"...suddenly, as investors’ fears mount that many euro area nations are about to tip into recession, even countries like creditworthy France are finding it much more expensive to borrow money in the open market. And with that development comes a dawning realization: that austerity, rather than making it easier for them to pay down their higher debts, could make it harder — and more expensive."


Ireland should have been the miners' canary.   The Irish government slashed spending and benefits and all it got for it was even higher costs on government bonds.    Austerity measures both undermined economic activity and increased the government's cost of borrowing.  Brilliant, eh?

When Privilege Becomes Indefensible

Lately there has been a spate of reports about the rich flocking to high end shops and indulging in the sort of luxuries reminiscent of the days before the Great Recession.   Even as the working classes struggle to make ends meet and lines blur between the merely poor and the outright destitute, the richest of the rich seem oblivious and bent on flaunting their good fortune.   Let them eat cake, indeed.

There are some now questioning whether the ongoing riots spreading through British cities are more than simple criminality and perhaps are harbingers of  social upheaval, uprisings.   Plenty of governments today wield the lash of austerity yet its sting is felt mainly by those least able to bear it, the most vulnerable - the homeless, the unemployed and the working poor.   Many of these people realize that their government hasn't trimmed the sails for everyone.   A privileged class exists that is, by good fortune, investment strategy and benevolent government, exempt from austerity measures, safely removed from all that.

Britain's Conservative prime minister David Cameron is waging an austerity war and it can be fairly said he's fighting it on the backs of the poorest and weakest.   Yet, when the youth of this economically disenfranchised sector take to the streets to riot, Cameron dismisses it as nothing more than rank criminality.   Two centuries ago the Brits knew how to deal with these types.   They transported them to distant penal colonies, notably Australia.  I'm sure Cameron must yearn for those good old days.

But what of the United States, where "rags'n riches" has achieved a near religious quality?  America's "bought and paid for" Congress, particularly its radical right Republicans, seek to solve their nation's deficit and debt crisis on the backs of the wage earning public while protecting ruinous military spending and morally outrageous tax favouritism for the richest of the rich who now often pay effective tax rates well lower than that of low-income earners.  It is this madness that has seen luxury goods flying off the shelves even as the remnants of America's once vibrant middle class reels.

It does not seem that life for most Americans will get better any time soon.   Life for the few, however, will remain just dandy.  What if enough Americans come to see the entire working class as set upon? What if the American street has its own Marie Antoinette moment?

There is a certain elasticity to inequality.  In stable societies, inequality can expand but will then be brought back down by prudent government policy if by no other means.   But if inequality expands too far and is magnified by imprudent government policy, what then?   Is it unreasonable to expect the disadvantaged to angrily reject a rigged outcome that is engineered by the elite with the connivance of their governments?   Is there a point in modern society where privilege becomes simply indefensible?

Open the Workhouses. Here's Your Cheese

Free cheese.   The Irish government, about to whack its people with some severe austerity measures, has decided to offer the public some delicious cheese - free.  From The Guardian:

Brendan Smith, the agriculture minister, announced a European Union-funded scheme today that will enable the country to tuck into the EU's cheese mountain. Some 53 tonnes of fresh cheddar will be distributed from 15 November with collection centres in towns and cities around the country.

The minister said the scheme was "an important means of contributing towards the well-being of the most deprived citizens in the community".

"I am very conscious that many people find themselves in difficult circumstances at present and I want to commend the work of the many charitable organisations who are working on the frontline to bring what comfort and relief they can," said Smith.

Is the West Fated to Follow Ireland?

The deal is done, maybe. Harper got his way as host of the G8/G20 summits when the member states pledged to halve their deficits by 2013. Let the slashing begin. So, what lies in store for the developed world plunged into this new, collective austerity? Ireland may show what's coming and, according to The New York Times, it's an awful lot of very long-term pain:

"...Nearly two years ago, an economic collapse forced Ireland to cut public spending and raise taxes, the type of austerity measures that financial markets are now pressing on most advanced industrial nations.

...Rather than being rewarded for its actions, though, Ireland is being penalized. Its downturn has certainly been sharper than if the government had spent more to keep people working. Lacking stimulus money, the Irish economy shrank 7.1 percent last year and remains in recession.

Joblessness in this country of 4.5 million is above 13 percent, and the ranks of the long-term unemployed — those out of work for a year or more — have more than doubled, to 5.3 percent. Now, the Irish are being warned of more pain to come.

... Despite its strenuous efforts, Ireland has been thrust into the same ignominious category as Portugal, Italy, Greece and Spain. It now pays a hefty three percentage points more than Germany on its benchmark bonds, in part because investors fear that the austerity program, by retarding growth and so far failing to reduce borrowing, will make it harder for Dublin to pay its bills rather than easier.

...The budget went from surpluses in 2006 and 2007 to a staggering deficit of 14.3 percent of gross domestic product last year — worse than Greece. It continues to deteriorate. Drained of cash after an American-style housing boom went bust, Ireland has had to borrow billions; its once ultralow debt could rise to 77 percent of G.D.P. this year.

“Everybody’s feeling quite sick at what happened because things were going so well for Ireland,” said Patrick Honohan, the Irish central bank governor. “But we don’t have the flexibility to do a spending stimulus now. There’s no one who is even arguing for it.”

Mr. Honohan predicts growth could revive to a rate of about 3 percent by 2012. But that may be optimistic: Ireland, as one of the 16 nations in Europe that has adopted the euro as its common currency, is trying to shrink the deficit to 3 percent of G.D.P. by 2014, a commitment that could weaken its hopes for recovery.

Textbook austerity measures have failed Ireland and the markets are punishing the Irish for it. The best and brightest who flocked to Ireland during its halcyon "Celtic Tiger" days are packing their bags and leaving. Investor confidence in the country has plummeted in response to the austerity policy. Where the Irish government gambled that raising taxes and slashing government spending and programmes would restore investor confidence, it has actually backfired and the Irish people will be paying for that failed bet for years to come.

If this is where the West is heading, a "lost decade" perhaps, don't count on the status quo returning when its over. We may not bounce back, not entirely, not ever. When this finally ends the playing field may look much different than it ever has in our lifetimes. New dominant powers may emerge that dissolve the unipolar superpower world, America's, that has brought us all to the edge of this abyss.

It's going to take more than budget cuts to sort this out. If we're really coming back, we're going to have to give up our addictions. FIRE (finance,insurance,real estate) driven economies don't recover very well from recession/depressions. They're uniquely vulnerable to these collapses because they are, after all, mainly pushing paper. A car has a utilitarian value, a piece of paper has but the notional value assigned to it at any given time. Our addiction to notional wealth and bubble economics got the West into this mess and will not help us get out.

We're going to have to give up the culture of consumption inculcated during the Reagan era and return to what made the West both great and economically stable, a culture of production. Maybe that will mean the end or at least reining in of globalization and the reclaiming of trade sovereignty from the multinational corporate sector by the developed world. That will not be without its own pain, at least temporarily, but the long-term benefits more than justify it.

Some Americans in high places have become acutely aware of the fundamental damage that has been inflicted on their nation's economy by the demise of its manufacturing sector and the attendant devastation of America's middle class. What they have found, however, is that manufacturing, once lost through trade deals, won't come back on its own. You don't catch a lot of fish with an empty hook. You have to bait it. The bait has to be access to markets controlled through the exercise of sovereign tariff powers and other domestic supports. The very idea will send shudders through the ranks of globalized, free traders - the rentier class - but we've tried it their way and it has landed us where we are today.

Could Europe Tip the World Into Depression?

First Bush and then Obama fought America's economic meltdown by pouring money into the US economy. Most now believe they succeeded in downgrading a potential depression into a major recession as America begins the decadal challenge of tackling fiscal imbalances.

The European Union also got swept up in what became a global meltdown and, like the US, most European states went the financial "junk shot" route of pumping money into their economies. It wasn't enough, however, to salvage the weaker, more profligate EU members notably Greece (with Spain, Portugal and Ireland still waiting in the wings). Greece couldn't spend its way out of the mess, it simply couldn't raise the money, and so it teetered between being bailed out by the IMF or the European Union. Faced with the havoc an IMF bailout could cause the Euro, the EU reluctantly took on the burden of aiding Athens.

The Greek fiasco sent a shockwave throughout the capitals of Europe and a tide change in attitudes of how to respond to their financial problems. Now, instead of stimulus spending, Britain, Germany and others are reversing course and opting for austerity. Europe seems poised to repeat Japan's lost decade. From The Guardian:

...We're entering a long period of economic stagnation," said Guy Verhofstadt, the former Belgian prime minister who leads the Liberal caucus in the European parliament. "That will be the main problem for years. Europe is the new Japan."
To an extent it is the speed and suddenness of change in their governments' approach, as well as the effects on their pockets and job security, that has most worried Europeans.

Just a few months ago, before they had fully digested the implications of the Greek crisis, Europe's G20 nations remained, for the most part, wedded to Keynesian stimuli (maintaining government spending) as the way to nurture their economies back to growth. Olli Rehn, the European commissioner for economic and monetary affairs, admitted last Monday, at a meeting of EU finance ministers in Luxembourg, that the turnaround had been very abrupt
.
"One can feel the change of tone in the G20 from fiscal stimulus to fiscal exit, and our policies are an example of this," he said.

In [the UK], also, political leaders have changed tack with extraordinary speed as Gordon Brown has ceded control of policy to the Cameron-Clegg coalition. Before the election on 6 May, Brown regularly taunted Cameron, saying he was the only politician in Europe calling for cuts at this stage of the economic cycle. At his spring conference in March, Nick Clegg declared: "We think that merrily slashing now is an act of economic masochism. If anyone had to rely on our support, and we were involved in government, of course we would say no."

Now, citing Greece as the reason why everything has changed, Clegg is fully signed up to the Tory-Lib Dem coalition's initial £6.2bn of cuts for this year and embryonic plans for far worse to come. On Monday, when Cameron warned that the economy was in a far worse state than he had imagined, he felt able to say that he was now part of the international economic mainstream. "Almost every major country in the world is focusing on the need to cut their deficits," the prime minister said.

But to suggest there is international consensus is way wide of the mark. Across the Atlantic there is, in some quarters, dismay that EU governments are now taking action in direct contradiction to the approach that the G20 settled upon at the height of the global economic crisis.

Last week the message from the US Treasury department was clear: too much austerity, too fast, could damage the word's fragile economic recovery.

...The wrong message on deficits", thundered an editorial in the New York Times. The piece went on to point out: "The sudden fierce enthusiasm for fiscal austerity, especially among stronger economies, is likely to backfire, condemning Europe to years of stagnation or worse." The New York Times top columnist, Paul Krugman, who has won a Nobel prize for economics, took the same line. He has been a trenchant critic of a rush to austerity, believing that only government stimulus to boost consumer demand will pull the American – and global – economies out of the mire.

Krugman took to his blog to ram home the point. "The right thing, overwhelmingly, is to do things that will reduce spending and/or raise revenue after the economy has recovered – specifically, wait until after the economy is strong enough that monetary policy can offset the contractionary effects of fiscal austerity. But no: the deficit hawks want their cuts while unemployment rates are still at near-record highs... not because the markets are currently demanding it, not because it will make any noticeable difference to their long-run fiscal prospects, but because we think that the markets might demand it (even though they shouldn't) some time in the future. Utter folly posing as wisdom. Incredible."

And what of Canada? Is Harper going to be our homegrown Angela Merkel, Canada's Swabian Housewife? Harper seems poised to sound the economic "all clear" and treat Canadians to the lash of austerity just like the panicked Europeans. Are we really immune to the global dimensions of what the Euros do? I doubt it. This may not be the time for deficit fighting in Canada. Then again, our "economist in chief" has bungled virtually every call since he slithered into power. Remember that the Prince of Darkness wasted no time slashing government revenues, defunding the government and leaving it vulnerable to global economic upheaval. This same guy didn't even see the meltdown coming until it was right on top of us. This clown prince then responded with a blatantly stupid "Pinata Budget" (supported, of course, by the Conservative-Lites) that squandered rather than invested government stimulus funds ensuring we'll be left with a massive debt and no commensurate returns when it comes time to pay it all back. So why would anyone assume that Wrong-Way Corrigan of 24 Sussex Drive has the remotest clue of how to bring Canada out of this recession? All this jerk knows how to do is drive us straight into the ditch.