Archive for the ‘bail-in’ Category

The SwanSwoon of our Era

March 21, 2020

In her recent article at Social Europe,  Indian economist Jayeti Ghosh  accurately identifies a major consequence of our worldwide collective anti-COVID restrictions:

  “Supply chains are being disrupted, factories are being closed, entire regions are being locked down and a growing number of workers are struggling to secure their livelihoods. “

  https://www.socialeurope.eu/the-covid-19-debt-deluge

Her statement does indeed identify the crux of our economic problem right now, and the global complexity does unleash trouble on a very large, international scale.

You might say this COVID-crash is the “Crash of ’29” of our era.

Some compare this tsunami to the crash of ’08, or the blah-blah of ’87 (whatever that was.)  But it seems to me this thing is unwinding as an event historically more far-reaching than those two economic downfalls. This Covid thing can be compared to  what happened in 1929.

The Crash of ’29 exposed the vulnerability of a newly-Industrialized USA. This present Covid-crash exposes the vulnerability of a newly-Internetted World.

Ms. Ghosh is correct in her observation when she writes:

  “Today’s financial fragility far predates the Covid-19 ‘black swan’.”

The black swan represents the unlikely possibility that something like this could happen . . . . even though it did.

It seems to me the immensity of our present global Covid co-morbidity is indeed directly related to our newfound world connectivity in trade, travel and talk. The black swan in the background represents this unprecedented development in world history.

Swans

In that same technocratic network to which Ms. Ghosh contributes, Social Europe, Karin Pettersson posts her insightful analysis of our Covid conundrum, which includes this accurate assessment:

   “Already however, we know this: this type of disease cannot be efficiently fought at an individual level, but only as a society. It requires preparation, co-ordination, planning and the ability to make rapid decisions and scale up efforts. A strong state.

But nor is government enough. The situation demands personal responsibility, a sense of duty, concern for one’s neighbour. “

     https://www.socialeurope.eu/the-corona-crisis-will-define-our-era

What she writes there is so true. I agree.

Karin goes on to pose  a question that is surely the crux of the problem for millions of earth-inhabiting workers:

   “Yet what will you do if you simply cannot afford to stay at home?”

And I’m thinking . . . because of this widespread affordability problem, the response of governments and corporations in the days ahead should reflect benevolence, not authoritarian oppression. At least I hope it will.

Karin Pettersson also presents this profound thought:  

   “I wonder if young people might come to think that authoritarian China dealt with the crisis better than the US—the land of the free.”

We shall witness, in the days ahead, how this dilemma is dealt with between China, USA, and all the other nations of this planet.

Karin’s bright insight becomes dimmed, however, when she criticizes, in the same article cited above, Vice President Mike Pence’s public act of leading scientists in prayer.

She is displeased that Pence, a former Indiana governor, had cut funding for HIV-virus research and prevention, back in the day. . .

I can understand Ms. Petterssen’s emphatic let’s fix this humanism. It is quite the de rigeur among technocrat intelligencia who would like to run the world, because they could certainly do a more equitable and better job than all those corporate 1%ers whose rabid profit-taking shenanigans have now made such a mess of things.

 Yes, Virginia, the news is bad. Read ’em and weep. . . but act, benevolently. That also  goes for all you 1%ers out there who think you’re in charge of things.

But I also like to remember, and take seriously, a statement that I heard, many years ago, from a fellow who was then what I now am, an ole geezer.

  “What we need now is some damn prayer!”

So Let’s all work together harmoniously to get these problems solved. And remember that a little help from the OneWhoIs could only render our burdens a little easier to bear.

Glass half-Full

Austerity or Stimulus?

February 25, 2017

Well this is an improvement.

When I was still a gleam in my daddy’s eye, Germany fought a world-sized war against France. But now, in 2017, all the obsolete ideology that then fueled both fanaticisms–fascist v. communist–has withered down into a battle of ideas.

Fiscal ideas, like whether budgets should be balanced, or put on hold until things get better.

From a Peace vs. War standpoint, I’d say that delicate balancing act is an improvement, wouldn’t you? Budgets and Economic Plans are, theoretically, much more manageable than tanked-up military campaigns.

Now Germany and France– those two nation-state heavyweights whose fiscal priorities set the course for the rest of Europe–they are getting along just fine now. They expend financial energies trying to keep the whole of Europe humming along on all cylinders. Budget deficits that drag down Euro economies are generated mostly in the lackadaisical southern  economies–Greece, Italy and Spain.

But those two mid-continent economic heavyweights–France and Germany, function as fiscal opposites, polarizing European values and budget priorities in opposite directions. They are two very different countries; and yet Germany and France are not as opposite as they used to be. A lot has changed since they finally made peace back in 1945.

At the time of that last Great War, early 1940’s, Germany was suffering through the death-throes of a dying monarchy. What was left of the Kaiser’s authoritative legacy had been lethally manipulated into a world-class death regime by a demonic tyrant who wore an odd, obnoxious little mustache on his flat German face.

France up to that time was still stumbling through a sort of awkwardly adolescent stage, having booted their kings and queens out back in the early stages of the industrial revolution, and then replacing, in stages, the ancient monarchy with a struggling new Republic.

What the French did as the 18th-century came to a close was similar to what we Americans did, but different. We had ditched King George III in 1776. The French cut off Louis XVI in 1792. On the other side of the Rhine, the Germans kept their Wilhelm top dog hanging on a thread until the Allies ran him down in 1918.

We Americans did a whole new thing after we rejected the old wineskins of monarchic government back in 1776; we had a lot going for us–a vast, nearly-virgin continent that stretched out for 3000+ miles, with plenty of room to grow,  and to expand our new-found explorations for Life, Liberty and Pursuits of Happiness.

The Europeans–neither the French nor the Germans–did not have all that fruited-plains expansion space like we had. They were cramped up over there in the Old World.

Having wielded a fierce guillotine ruthlessness upon their king and queen, the French tried to spread the wealth all around, ensuring that everybody got a chunk of it. They had wrung a blood-stained liberte from the palaces of privilege in 1789. Over the course of the next century and a half, they generally moved leftward the whole time, toward an egalitarian idea of solidarity.

The Germans have always tended toward authoritarian leadership, which is one reason why Hitler was able to pull off the abominations that he did. But we Allies put that to an end in 1945.

Thank God.

Now in the post-WWII Europe, the Germans have turned out to be pretty good kids on the block, considering all that had happened back in the day. The last 3/4 of a century has seen a remarkable recovery. They went through some serious changes, rebuilding after  losing two wars, and then being divide into two different countries.

Since 1990, when Germany became united again into one country, those krauts have established a pretty impressive record. They now have the strongest, most stable economy in Europe.  One reason it turned out this way is: the Germans have historically been, by necessity, very disciplined, rational people and they know how to get things done.

The French are different from that. You gotta love the French. As the Germans have made the world a better place with their great music (Bach and Beethoven), the French have brightened and lightened our worldly life with their very lively, expressive and impressionistic art, coupled with their unbridled Joie de vivre. And let’s not forget the original architectural piece-de-resistance of the Western World. It was French creativity married to inventive 19th-century industrialism that brought us the Eiffel Tower in 1889.

ParisGargoyl

The French do progress with style and artistry; the Germans get it done with impressive efficiency and precision.

As an American who has geneologic roots in both cultures, this fascinates me.

Their two different attitudes about generating prosperity also encompass, respectively, their approaches to solving money problems.

Or more specifically. . . solving “lack of money” problems.

A new book, Europe and the Battle of Ideas, explains how these two nations, as the two polarizing States of modern Europe, each lead in their own way to set policy, together,  for solving Europe’s financial problems. Their tandem leadership is enhanced by their two very different strategies.

The simplest way to describe their treatments of European deficits is this:

The Germans are into Austerity; the French are into Stimulus.

Or to put it into a classic perspective:

The Germans want to balance the books,  thereby squeezing all governments and banks into economic stability. The French want the assets to get spread around so everybody can have a chunk of it.

How do I know anything about this?

This morning I saw Markus Brunnermeir being interviewed; he is one of the authors of the new book, Europe and the Battle of Ideas.

  https://www.socialeurope.eu/2017/02/europes-future-will-settled-battle-ideas/

In this fascinating, very informative interview, the questions are being posed by Rob Johnson, President of Institute for New Thinking, whatever that is.

Together, these two guys explore the two basic problem-solving approaches to working out Europe’s economic deficiencies. And it just so happens that the two main strategies are related to those two old nationalized culture, described above, between Germany and France.

Sounds simplistic perhaps, but this comparative analysis makes a lot of sense when you hear these two knowledgable men talk about the present condition of economic Europe.

So, rather than try to explain it to you, I’ll simply leave you with this list of characteristics, as identified by. Mr Markus Brunnermeier. The list identifies how each country’s budgetary priorities contributes to a strategy for solving Europe’s fiscal woes.  My oversimplified version of it  looks like this:

France

Germany

1.Stimulus

1.Austerity

2.Liquidity

2.Solvency

3.Solidarity

3.Liability

4.Discretion

4.Rules

5.Bail-out

5.Bail-In

Consider these two lists of national characteristics as two different strategies for solving large-scale economic problems.

Here are a few notes I made while watching Mr. Johnson interview Mr. Brunnermeier:

For French, the problem is always liquidity. Stimulus will flush money out of markets again.

Germans see problems as solvency difficulty. Fix the fundamentals. Don’t throw good money after bad.

French: If you see it as a liquidity problem, just bail them out.

German. If you see it as solvency problem,  Bail in, to avoid future hazards. Bail-in means: Bond holders who essentially gambled with a country or bank and  then reap the gains on upside– they should take losses on downside.

There was a radical shift in attitudes in Europe over the Cyprus bank crisis in spring 2013. Who pays? Who covers the losses?

. . . Bail-in or bail-out?

French fear systemic risk so they tend toward governmental bail-outs.

The Germans, on the other hand, see crisis as an opportunity to address and solve the systemic deficiencies. So penalize  the depositors/ investors; others will learn from that, and you will have bank-runs in other places. Such circumstances provide incentives for institutions and individuals to take responsibility for their own actions and investments.

Just how the Europeans get all this worked out, we shall see in the days ahead. And the working-out may provide some lessons for all of us.

Smoke