What if the threat of debt is political, not fiscal?

Arsenal Bolt: Quick updates on the news stories we’re following.


“The Effort to Divert Class War Into Generational War: Lessons On Economics You Won’t Get from Jeff Bezos” – Center for Economic and Policy Research, Dean Baker on Friday:

Lesson Three: Our Children Will Only be Hurt by the Debt Because the Washington Post and Other Elite Types Will Use it As An Excuse to Cut Necessary Spending

Okay twenty somethings, how do you know about our massive debt? Yeah, it’s more than $18 trillion, can you feel it?

You surely can’t feel it from its economic impact. Interest rates in the economy are at their lowest level in more than half a century. Thirty year mortgage rates are hovering near four percent. They were generally in the six percent range back at the end of the 1990s when we were running budget surpluses and making plans to pay off the debt. Interest rates on car loans, student loan debt, and credit card debt are correspondingly lower today.

How about the raging inflation caused by the debt? Well, the Federal Reserve Board has been working hard to raise the inflation rate back towards its 2.0 percent target.

What about the enormous amount of money that has to be diverted from other spending to meet the interest burden? Current interest costs, net of payments from the Federal Reserve Board, come to less than one percent of GDP. By comparison, the interest burden was more than three percent of GDP in the early 1990s. (That’s what lower interest rates will do.) If a twenty something claims that they can feel the economic impact of the debt, it is time for some serious drug testing.

Now there is clearly a political impact. The Washington Post, and other Very Serious People, has hyped the debt endlessly. They have raised fears over the debt to prevent spending that would both help boost the economy back to full employment and meet our needs in areas like education, infrastructure, research and development, and addressing global warming. The damage done by the Very Serious People’s scare stories about the deficit is in fact a very big deal. But it is a bit over the top to blame this one on the older generation as an age group, even if most of the Very Serious People gang is older.


July 15, 2015 – Arsenal For Democracy 134

Posted by Bill on behalf of the team.


Topics: Supreme Court rulings on marriage equality and Obamacare, order on Texas abortion clinics law; Puerto Rico and Greece debt crises. People: Bill, Kelley, and Nate. Produced: July 13th, 2015.

Discussion Points:

– U.S. Supreme Court: What are the implications of major rulings and orders on marriage equality, Obamacare, and reproductive freedom?
– Debt Crises: What’s next for Puerto Rico and Greece?

Episode 134 (47 min):
AFD 134

Related Links

AFD by Kelley: “The Supreme Court Order You May Have Missed”
AFD by Bill: “Marriage Equality Day”
AFD by Bill: “A Sinking Feeling in Puerto Rico”
AFD Posts about Greece


RSS Feed: Arsenal for Democracy Feedburner
iTunes Store Link: “Arsenal for Democracy by Bill Humphrey”

And don’t forget to check out The Digitized Ramblings of an 8-Bit Animal, the video blog of our announcer, Justin.


The Greek crisis matters for us in the United States too, not just Europeans.

For all the high-minded rhetoric of the European integration project as an effort to bridge together the peoples of Europe in liberal democratic union, the events of the past week have conclusively ripped off the mask and revealed the underlying reality that it has been little more than a neoliberal economic project the whole time. And a poorly designed one at that. But we now can all see that the preservation of investment banking interests will be placed above all other values and principles whenever they come into conflict. This isn’t just rule by corporations — it’s rule by lenders.

The Greek “crisis” — manufactured by the European Central Bank, the IMF, and the German government — is a financial public execution of an entire developed country to make an example of them for all others.

In my more than 30 years writing about politics and economics, I have never before witnessed such an episode of sustained, self-righteous, ruinous and dissembling incompetence — and I’m not talking about Alexis Tsipras and Syriza. As the damage mounts, the effort to rewrite the history of the European Union’s abject failure over Greece is already underway. Pending a fuller postmortem, a little clarity on the immediate issues is in order.
There’s no reason, in law or logic, why a Greek default necessitates an exit from the euro. The European Central Bank pulls this trigger by choosing — choosing, please note — to withhold its services as lender of last resort to the Greek banking system. That is what it did this week. That is what shut the banks and, in short order, will force the Greek authorities to start issuing a parallel currency in the form of IOUs.

If investors made stupid loans to Greece, these lenders – not the Greek people – should suffer for it. A startling lack of due diligence strikes again.

And just as with the subprime mortgage crisis, the lenders are considered “too big to fail” (but not too big to regulate before the bubble bursts). Instead of bailing out the ordinary people who truly got screwed over by the irresponsible lending and the ensuing crash, the banks are the ones who get bailed out. In this case, Greece keeps receiving “bailouts” that are actually earmarked exclusively for repaying debt obligations to lenders (some of which are by now merely the quasi-governmental institutions holding debt they purchased from irresponsible banks in earlier bank bailout rounds).

We’ve seen this kind of thing happen countless times throughout world history. Lenders pretend to assume risk and then wield tremendous political influence to ensure that they never actually face serious consequences when that risk blows up in their faces. That way, investment recipients (including citizens) always lose, while the investor class is guaranteed a payday, before anyone else finds relief.

Greece’s default, day one

National democracy at its Athenian birthplace crashes head-long into the distant technocracy of the wider European project.

On Tuesday night, Greece became the first developed economy to default on an IMF loan (though not its other obligations). The IMF loan was itself a bailout to repay other loans, including those the EU failed to stop years ago:

In a sense, like so many American homeowners before the end of 2007, Greece was given subprime loans it couldn’t possibly repay. Regulators and monetary authorities failed to perform due diligence ahead of the accession of Greece to the eurozone and then ignored the escalating danger as long as the rest of the global and European economy was doing fine. They only stepped in after the house of cards collapsed and then demanded round after round of budget cuts and other measures that hurt average Greeks who had nothing to do with the bad debt decisions that the rest of the Eurozone should have stepped in to prevent years earlier.

Greece now heads into a referendum (full story➚) on the bailout conditions offered by European leaders.

Here are a couple reactions since the referendum was announced and default became very likely.


“Joseph Stiglitz: how I would vote in the Greek referendum”:

I can think of no depression, ever, that has been so deliberate and had such catastrophic consequences: Greece’s rate of youth unemployment, for example, now exceeds 60%.

It is startling that the troika has refused to accept responsibility for any of this or admit how bad its forecasts and models have been. But what is even more surprising is that Europe’s leaders have not even learned. The troika is still demanding that Greece achieve a primary budget surplus (excluding interest payments) of 3.5% of GDP by 2018.
In January, Greece’s citizens voted for a government committed to ending austerity. If the government were simply fulfilling its campaign promises, it would already have rejected the proposal. But it wanted to give Greeks a chance to weigh in on this issue, so critical for their country’s future wellbeing.

That concern for popular legitimacy is incompatible with the politics of the eurozone, which was never a very democratic project. Most of its members’ governments did not seek their people’s approval to turn over their monetary sovereignty to the ECB.

Paul Krugman, arguing no to additional austerity; no to the euro:

First, we now know that ever-harsher austerity is a dead end: after five years Greece is in worse shape than ever. Second, much and perhaps most of the feared chaos from Grexit has already happened. With banks closed and capital controls imposed, there’s not that much more damage to be done.

Finally, acceding to the troika’s ultimatum would represent the final abandonment of any pretense of Greek independence. Don’t be taken in by claims that troika officials are just technocrats explaining to the ignorant Greeks what must be done. These supposed technocrats are in fact fantasists who have disregarded everything we know about macroeconomics, and have been wrong every step of the way. This isn’t about analysis, it’s about power — the power of the creditors to pull the plug on the Greek economy, which persists as long as euro exit is considered unthinkable.

So it’s time to put an end to this unthinkability. Otherwise Greece will face endless austerity, and a depression with no hint of an end.

On the other side of the debate there has been some sighs of exasperation, tongue-clucking, and then particularly disturbing responses that are clearly the wrong takeaway from the situation… Read more

Greece’s defense ministry ratchets up rhetoric

Panos-Kammenos-greeceAs part of the anti-austerity coalition deal between the leftist, pro-european reformers of Syriza and the right-wing, euroskeptic Independent Greeks, the latter were given the country’s National Defense portfolio in the government. Unlike Syriza, which at least officially favors cooperation with Europe, the Independent Greeks party under Defense Minister Panos Kammenos (pictured) is openly antagonizing other European Union governments and being far less diplomatic — either as a rogue effort or as the role of “bad cop” outside the negotiations.

The latest ramp-up in “bad cop” talk was Minister Kammenos’s suggestion that the eurozone would disintegrate in the aftermath of a Greek economic implosion or exit, with Italy, Spain, and possibly even Germany being forced to go back on to their own currencies too. (The latter seems pretty unlikely.)

He also recently threatened to release all Middle Eastern refugees in holding in Greece into the rest of the Union with papers to enter Germany — in the midst of a political crisis there over refugees — if Germany fails to ease up on its demands upon Greece, and he reiterated counter-demands that Germany repay Nazi war debts that Greece forgave under Allied pressure in 1953 along with damages from the brutal Nazi occupation and counterinsurgency of Greece during the war. (Justice Minister Nikos Paraskevopoulos, a former academic who is not a member of either party in the governing coalition, also suggested that failure to repay the debts and damages could open German companies in Greece to asset seizure.)

But the most specific and perhaps unexpected demand to emanate from the defense ministry was actually related to defense! The ministry — along, actually, with some German journalists — alleges that its predecessors wasted billions in public funds on buying weapons systems and arms it didn’t need from EU firms that bribed Greek officials to make the purchases, and they want compensation. Reuters reports: Read more

The language of austerity

What happens to the politics of word choice when two dozen languages are spoken in a union?

Below are excerpts from “How do you say ‘austerity’ in German? You don’t” in France24:

In Germany, the crisis rocking the country’s EU partners has produced the ugly term “austerität”, but few use it, least of all Chancellor Angela Merkel. She has made no secret of her distaste for the word, prefering to speak of “sparpolitik” – which translates as “the politics of saving money”, or of spending it “sparingly” – and “sparsamkeit” (frugality). Both terms have positive meanings and refer to very reasonable policies. Conversely, anyone opposing “sparpolitik”, like Greece’s government, is necessarily unreasonable.
“Schuld”, the German word for debt, also means “guilt”. It has a moral quality that doesn’t translate into other European languages. For Keynesian economists, spending one’s way out of crisis, at the risk of temporarily increasing the debt load, is eminently sensible – particularly at a time of low interest rates, as is presently the case in Europe. But to many Germans it is sinful.

The West German debt writeoff

France24 — “Lessons from 1953: The debt write-off behind Germany’s ‘economic miracle'”:

West Germany’s debt at the time was well below the levels seen in Greece today. But German negotiators successfully argued that it would hinder efforts to rebuild the country’s economy – much as Greek governments have in recent years, in vain. Under a crucial term of the London Agreement, repayments of the remaining debt were made conditional on West Germany running a trade surplus. In other words, the German government would only pay back its creditors when it could afford to – and not by borrowing even more money. Reimbursements were also limited to 3% of export earnings. This gave Germany’s creditors an incentive to import German goods so they would later get their money back, thereby laying the foundations of the country’s powerful export sector and fostering its so-called “economic miracle”.
Back in 1953, the money Greece gave up included a loan extorted during the gruesome Nazi occupation of the country, when thousands of resistance fighters and civilians were murdered and hundreds of thousands starved to death. Even before Syriza’s electoral triumph, Greek newspapers were awash with calls for Germany to repay the loan, the exact amount of which is a matter of historical dispute. Estimates range from $24 billion to five times the amount. While few Greeks expect Berlin to pay up, many believe that Germany was let off the hook after the war and should now be more generous in Greece’s hour of need.

See also: A Brief History of the Greek Debt Coverup – Arsenal For Democracy
And: Greece’s Syriza, Germany, and the Gordian Knot – Arsenal For Democracy