Category Taxes

Paper Promises: Money, Debt and the new World Order

Phillip Coggan:

The world is drowning in debt. Greece is on the verge of default. In Britain, the coalition government is pushing through an austerity programme in the face of economic weakness. The US government almost shut down in August because of a dispute over the size of government debt.

Our latest crisis may seem to have started in 2007, with the collapse of the American housing market. But as Philip Coggan shows in this new book, Paper Promises: Money, Debt and the new World Order which he will talk about in this lecture, the crisis is part of an age-old battle between creditors and borrowers. And that battle has been fought over the nature of money. Creditors always want sound money to ensure that they are paid back in full; borrowers want easy money to reduce the burden of repaying their debts. Money was once linked to gold, a commodity in limited supply; now central banks can create it with the click of a computer mouse.

Time and again, this cycle has resulted in financial and economic crises. In the 1930s, countries abandoned the gold standard in the face of the Great Depression. In the 1970s, they abandoned the system of fixed exchange rates and ushered in a period of paper money. The results have been a long series of asset bubbles, from dotcom stocks to housing, and the elevation of the financial sector to economic dominance.

Re-Evaluating Germany’s Blind Faith in the Sun

Alexander Neubacher:

The costs of subsidizing solar electricity have exceeded the 100-billion-euro mark in Germany, but poor results are jeopardizing the country’s transition to renewable energy. The government is struggling to come up with a new concept to promote the inefficient technology in the future.

The Baedeker travel guide is now available in an environmentally-friendly version. The 200-page book, entitled “Germany – Discover Renewable Energy,” lists the sights of the solar age: the solar café in Kirchzarten, the solar golf course in Bad Saulgau, the light tower in Solingen and the “Alster Sun” in Hamburg, possibly the largest solar boat in the world.



The only thing that’s missing at the moment is sunshine. For weeks now, the 1.1 million solar power systems in Germany have generated almost no electricity. The days are short, the weather is bad and the sky is overcast.


As is so often the case in winter, all solar panels more or less stopped generating electricity at the same time. To avert power shortages, Germany currently has to import large amounts of electricity generated at nuclear power plants in France and the Czech Republic. To offset the temporary loss of solar power, grid operator Tennet resorted to an emergency backup plan, powering up an old oil-fired plant in the Austrian city of Graz.

Infrastructure Spending

Michael Pettis:

In the paper Flyvbjerg looks at infrastructure projects in a number of countries (not in China, though, because he needed decent data) and shows how the benefits of these projects are systematically overstated and the costs systematically understated. More important, he shows how these terrible results are simply the expected outcomes of the way infrastructure projects are typically designed and implemented.



It is not a very happy paper in general, but I am pretty sure that many people who read it probably had a thought similar to mine: if infrastructure spending can be so seriously mismanaged in relatively transparent systems with greater political accountability, what might happen in a country with a huge infrastructure boom stretching over decades, much less transparency, and very little political accountability? Isn’t the potential for waste vast?

Dems’ SOPA support risky in 2012

Ryan Rainey:

The technology industry might be crucial for the economy of Wisconsin’s second-largest city, but our congressional delegation has been reluctant to heavily contribute to the debate about SOPA and PIPA. It took until Wednesday’s online “blackout,” in which The Badger Herald participated, for Madison’s own Democratic Rep. Tammy Baldwin to release a statement announcing she would not support the legislation.

Last Tuesday, Baldwin’s press representative said she had “some reservations” about the legislation. Baldwin still was staying unusually quiet about the issue.

Baldwin has rightfully earned her title as one of the most effective progressive voices in the House of Representatives. However, her reluctance to be one of the major progressive voices to come out early against SOPA and PIPA exposes several important aspects of her position in Congress, her campaign for Senate and the disappointing representation of Congress’ Democratic caucus.

Ever since her first Congressional victory in the 1990s, Baldwin has essentially been a shoo-in to win Wisconsin’s 2nd Congressional District. Still, she needs donations to keep her biannual campaigns afloat, and she predictably receives large donations from trade unions and equal rights advocacy groups.

A brief scan of the history of donations to Baldwin’s campaign committee might explain her reluctance to oppose SOPA immediately. In 2010, the National Cable and Telecommunications Association donated $10,000 to Baldwin’s campaign, tying it with three other unions as the top donor to the Baldwin campaign. Unsurprisingly, the NCTA is one of the many organizations affiliated with the entertainment industry that supports SOPA.

Peter Schneider Madison Talk

ACG 5 Peter Schneider – The American Council on Germany, Keynote Speaker, “Reinventing the Industrial Heartland” from Tracy Will on Vimeo.

I enjoyed Schneider’s October talk. Here’s his Wikipedia entry, and website.

Is There Life After Debt?

Sudden Debt:

Fact: The debt crisis is global – and, yes, this includes the so-called creditor nations, such as China. After all, in our fiat currency world it takes a debit in order to create a credit.



The way we got into this mess is well known: the West foolishly (even criminally, if you ask me) gave up its industrial/manufacturing base and the high earned-income jobs it generated, replacing them with services and low value-added jobs. However, it didn’t lower its consuming and spending habits to balance the losses, instead it piled on debt from vendor nations, and constructed Rube Goldberg asset bubble contraptions that attempted to generate “wealth” out of thin air (e.g. real estate, derivative-based bonds, etc.).

History and Evaluation of the Policy Response to the Great Recession: Summers BGP-266M Crisis Economics Syllabus

Larry Summers @ Harvard

Course Overview: This course will examine the American policy response to the recent financial crisis
and associated Great Recession. The objective is to illuminate (i) the changes in macroeconomic thinking necessitated by recent events (ii) the relationship between analytical macroeconomics, finance and policymaking in a political context (iii) lessons of recent experience for public policies directed at preventing crises in the future and responding to them when they come. The lectures will draw on the professional economic literature to the minimum extent necessary to facilitate understanding of the issues involved. The primary focus will be on the process of policy choice and the factors entering into actual policy decisions. Each lecture after the first introductory lecture will cover a different aspect of the policy response to the crisis. Sections will take up relevant analytical economic aspects.

Holders of Sovereign Debt



macromon:

Here’s a great chart just released by the International Monetary Fund. Note that almost half — 47 percent – of the US$14.7 trillion U.S. federal government debt is held by the Federal Reserve and the government itself, such as the Social Security trust fund. Add to that the 22 percent foreign official holdings (mainly central banks) and almost 70 percent of the debt of the U.S. government is held by non-market/non-profit oriented investors. Stunning!

US Treasury Secretary’s Debt Advice to Europe Generates Some Blowback

Joshua Chaffin and Alex Barker in Wroclaw and Kerin Hope in Athens:

However, some eurozone finance ministers hit back at Mr Geithner’s comments, questioning the usefulness of his visit.



“I found it peculiar that even though the Americans have significantly worse fundamental data than the eurozone, that they tell us what we should do and when we make a suggestion … that they say no straight away,” said Maria Fekter, Austria’s finance minister.



Sweden’s Anders Borg said: “we need to make progress, but it’s quite clear the US has a big debt problem and the situation would be better if the US could show a sustainable way forward.”

Amazing.

Taibbi, the SEC & Wall Street

Matt Taibbi:

A whistleblower claims that over the past two decades, the agency has destroyed records of thousands of investigations, whitewashing the files of some of the nation’s worst financial criminals.

Imagine a world in which a man who is repeatedly investigated for a string of serious crimes, but never prosecuted, has his slate wiped clean every time the cops fail to make a case. No more Lifetime channel specials where the murderer is unveiled after police stumble upon past intrigues in some old file – “Hey, chief, didja know this guy had two wives die falling down the stairs?” No more burglary sprees cracked when some sharp cop sees the same name pop up in one too many witness statements. This is a different world, one far friendlier to lawbreakers, where even the suspicion of wrongdoing gets wiped from the record.



That, it now appears, is exactly how the Securities and Exchange Commission has been treating the Wall Street criminals who cratered the global economy a few years back. For the past two decades, according to a whistle-blower at the SEC who recently came forward to Congress, the agency has been systematically destroying records of its preliminary investigations once they are closed. By whitewashing the files of some of the nation’s worst financial criminals, the SEC has kept an entire generation of federal investigators in the dark about past inquiries into insider trading, fraud and market manipulation against companies like Goldman Sachs, Deutsche Bank and AIG. With a few strokes of the keyboard, the evidence gathered during thousands of investigations – “18,000 … including Madoff,” as one high-ranking SEC official put it during a panicked meeting about the destruction – has apparently disappeared forever into the wormhole of history.

Under a deal the SEC worked out with the National Archives and Records Administration, all of the agency’s records – “including case files relating to preliminary investigations” – are supposed to be maintained for at least 25 years. But the SEC, using history-altering practices that for once actually deserve the overused and usually hysterical term “Orwellian,” devised an elaborate and possibly illegal system under which staffers were directed to dispose of the documents from any preliminary inquiry that did not receive approval from senior staff to become a full-blown, formal investigation. Amazingly, the wholesale destruction of the cases – known as MUIs, or “Matters Under Inquiry” – was not something done on the sly, in secret. The enforcement division of the SEC even spelled out the procedure in writing, on the commission’s internal website. “After you have closed a MUI that has not become an investigation,” the site advised staffers, “you should dispose of any documents obtained in connection with the MUI.”


Many of the destroyed files involved companies and individuals who would later play prominent roles in the economic meltdown of 2008. Two MUIs involving con artist Bernie Madoff vanished. So did a 2002 inquiry into financial fraud at Lehman Brothers, as well as a 2005 case of insider trading at the same soon-to-be-bankrupt bank. A 2009 preliminary investigation of insider trading by Goldman Sachs was deleted, along with records for at least three cases involving the infamous hedge fund SAC Capital.