Weekly Audit: The Global Economic Crisis

By Zach Carter, Media Consortium Blogger

Over the past thirty years, Wall Street has waged a steady war against governments around the globe, convincing policymakers of various ideological stripes that whatever raises profits for bankers and traders will be good for the rest of society. It’s a very simple and appealing portrait of how the world works. Unfortunately, it’s completely wrong.

Profiting from hunger

In an interview with AlterNet’s Terrence McNally, economic luminary Raj Patel explains the connection between widespread global poverty and wild Wall Street profits. Markets are defined by a set of rules—if those rules completely disregard social welfare, then the participants in those markets will ignore them as well. When traders can make a quick buck speculating on the price of rice, they will, even if that speculation drives up the price of a basic necessity and makes people go hungry.

We’ve known this for a long time, but as Patel illustrates, governments have allowed financial bigwigs to rewrite the basic rules of the road so that Wall Street can extract profits from anything—even hunger. That process created several crises in the developing world over the past few decades, and has now ravaged the economies of the United States and Europe. As Patel notes:

By basically gaming the system with regulations — that they authored — which encouraged a certain kind of playing fast and loose with the numbers, it was possible through some creative accounting for huge amounts of systematic risk to be kicked off into the future and ignored. And of course when the catastrophic risk was realized, everyone ran for the hills and started demanding public support.

Financial turmoil in Greece

This political sleight-of-hand is demonstrated by the looming fiscal crisis in Greece. As Richard Parker explains for The Nation, Goldman Sachs colluded with prior Greek administrations to hide the nation’s fiscal situation from both its own citizens and investors (Parker is an adviser to current Greek Prime Minister George Papandreou). Goldman was not interested in fair play—it was interested in making money off of the Greek government in any way it could. If that meant actively sabotaging the market by hiding important information, well, Goldman didn’t care.

First Greece, then …

Now that this budget façade has been stripped away, Goldman and other investors are now profiting from making things very difficult for Greece.  As Matthew Yglesias explains for The American Prospect, the rational, profit-maximizing choices of investors are now actively helping to drive Greece into a default that hurts everyone:

When Greece starts looking shaky, the interest rate it needs to pay on its deficit goes up, which makes the country look even shakier. This cycle can push a vulnerable country into a default situation.

Various Greek administrations clearly bear significant responsibility for the situation. Nobody forced them to get in bed with Goldman Sachs, just as nobody forced U.S. administrations to gut our financial regulatory system. But the problem in Greece is not just a problem for a single Mediterranean nation—there is very real risk that the investor “unease” could spread to Portugal, Ireland, Spain, Italy, and by extension the European Union and the global economy. The bonuses at Goldman Sachs and J.P. Morgan Chase this year were not a sign of renewed strength in the global economy.

Community Security Clubs to the rescue

So if Wall Street can’t save us, what can? Our communities could play a significant role, as Andrée Collier Zaleska explains for Yes! Magazine. Zaleska profiles Common Security Clubs in Portland, Boston and Fort Lauderdale to show how people hit hard by the economic downturn are banding together to make ends meet, and organizing for political action.

“[Jared] Gardner, a busy organizer in Portland, launched four CSCs in his church, two of which were comprised almost entirely of unemployed people. By the time his own group had met five times, they were planning tours of local co-housing projects, organizing to fight locally for progressive taxation, and wondering how to bring the rest of their church into the time bank they had created.”

Markets are supposed to serve human needs, not the other way around. But Wall Street isn’t going to give up its stranglehold on the U.S. political process for nothing. While community-driven efforts are a good start, we need much larger actions and reform to restore balance to the global economy.

This post features links to the best independent, progressive reporting about the economy by members of The Media Consortium. It is free to reprint. Visit the Audit for a complete list of articles on economic issues, or follow us on Twitter. And for the best progressive reporting on critical economy, environment, health care and immigration issues, check out The Mulch, The Pulse and The Diaspora. This is a project of The Media Consortium, a network of leading independent media outlets.

How Bad Is It? Greece, Panic and the Crisis of Confidence

Cross-posted at <a href="http://www.rivertwice.com">River Twice Research</a>.

The Greek debt crisis finally spilled over in full force to U.S. markets, aided and abetted by extreme statements emanating from such esteemed and prominent voices as Muhammed El-Erian of the large bond investor Pimco, who warned that Greece could be just the beginning of sovereign debt catastrophes. In the space of minutes, the major U.S. indices plunged more than 10%, fueled by the same programmatic electronic trades that were part of the battering in late 2008 into 2009. And then in the space of 15 minutes, they recovered, without – it’s fair to say – much human decision-making during that interval (and if an individual even tried trading during those 30 minutes, they would have found it difficult or impossible, as web sites such as schwab.com were completely overwhelmed with traffic).


There's more...

Heritage Foundation, Economic Freedom, and Greece P

 

(Note: I strongly encourage you to click the image links on this post when reading; they're essential to understanding what I'm saying.)

What country cut government spending the most in 2011?

Most people would generally agree that the answer is Greece. Smack in the middle of a debt crisis, Greece’s government has been forced to take an axe to government spending. Month after month has been marked by budget cut after budget cut.

The Heritage Foundation is a conservative think tank which publishes a ranking of economic freedom according to each country. These rankings are based on conservative economic values, such as low government spending. According to the Heritage Foundation, the less your government spends, the more economically free your country is.

So, after three years of cutting government spending to the bone, how’s Greece doing on the Heritage Foundation’s ranking of economic freedom?

Pretty Poorly.

In fact, the Heritage Foundation states that Greece has recorded the “largest score decline in the 2012 Index.” Why is this? Well:

Greece’s economic freedom score is 55.4, making its economy the 119th freest in the 2012 Index. Its score is 4.9 points lower than last year, reflecting declines in six of the 10 economic freedoms with particularly acute problems in labor freedom, monetary freedom, and the control of government spending.

This pattern is not only limited to Greece. The four other Eurozone countries in trouble (Ireland, Italy, Portugal, and Spain) have all been slashing their budgets to the bone. Austerity and cuts in government spending have been the main preoccupation of their governments and will continue to be for probably all of next year.

Unfortunately, all of these countries have also suffered corresponding declines in the Heritage Foundation’s rank of economic freedom. Here is Ireland:

Here is Ireland.

Italy:

Portugal:

And Spain:

Why has this happened?

Well, the answer is kind of ironic. Here’s what the Heritage Foundation says:

Ireland’s economic freedom score is 76.9, making its economy the 9th freest in the 2012 Index. Its score has decreased by 1.8 points from last year, reflecting poorer management of government spending and reduced monetary freedom.

Italy’s economic freedom score is 58.8, making its economy the 92nd freest in the 2012 Index. Its overall score is 1.5 points lower than last year, with significant declines in freedom from corruption and the control of government spending.

Portugal’s economic freedom score is 63.0, making its economy the 68th freest in the 2012 Index. Its score is 1.0 point worse than last year, mainly due to deterioration in the management of government spending, labor freedom, and fiscal freedom.

Spain’s economic freedom score is 69.1, making its economy the 36th freest in the 2012 Index. Its score is 1.1 points lower than last year, with a significant deterioration in the management of government spending overwhelming a modest gain in business freedom.

After cutting government spending by enormous amounts, the scores of these five European countries have gotten worse…because they can’t control government spending.

Indeed, the vast majority of the decline in economic freedom of Italy, Ireland, Portugal, and Spain occurs due to lower scores on government spending. Here’s a table that specifically shows how much worse their scores on government spending have gotten since 2011:

Score Changes Since 2011 CountryGovernment Spending Greece -18.1 Ireland -16.7 Italy -9.2 Portugal -10.7 Spain -12.2

It’s pretty undeniable that these countries have been cutting government spending. And yet their scores on the control of government spending keep on getting worse. What gives?

Well, it has to do with the way that Heritage Foundation measures government spending. Specifically it uses government spending as a percentage of GDP; as a government spends more relative to GDP, its score gets exponentially worse.

What’s happening with these five European countries is that while they have indeed cut government spending, their economies have fallen into recession (coincidence?). So government spending, while numerically less, ends up composing a larger percentage of their GDP (which is declining even faster than spending).

Poor Greece. It cuts government spending to the bone for three years, falls into a depression that will be remembered for one hundred years, only to default on its debt anyways. And worst of all, its score on the conservative Heritage Foundation’s economic freedom ranking falls more than any other country because – wait for it – Greece has failed to control government spending adequately.

 

 

Heritage Foundation, Economic Freedom, and Greece P

 

By: inoljt, http://mypolitikal.com/

(Note: I strongly encourage you to click the image links on this post when reading; they're essential to understanding what I'm saying.)

What country cut government spending the most in 2011?

Most people would generally agree that the answer is Greece. Smack in the middle of a debt crisis, Greece’s government has been forced to take an axe to government spending. Month after month has been marked by budget cut after budget cut.

The Heritage Foundation is a conservative think tank which publishes a ranking of economic freedom according to each country. These rankings are based on conservative economic values, such as low government spending. According to the Heritage Foundation, the less your government spends, the more economically free your country is.

So, after three years of cutting government spending to the bone, how’s Greece doing on the Heritage Foundation’s ranking of economic freedom?

Pretty Poorly.

In fact, the Heritage Foundation states that Greece has recorded the “largest score decline in the 2012 Index.” Why is this? Well:

Greece’s economic freedom score is 55.4, making its economy the 119th freest in the 2012 Index. Its score is 4.9 points lower than last year, reflecting declines in six of the 10 economic freedoms with particularly acute problems in labor freedom, monetary freedom, and the control of government spending.

This pattern is not only limited to Greece. The four other Eurozone countries in trouble (Ireland, Italy, Portugal, and Spain) have all been slashing their budgets to the bone. Austerity and cuts in government spending have been the main preoccupation of their governments and will continue to be for probably all of next year.

Unfortunately, all of these countries have also suffered corresponding declines in the Heritage Foundation’s rank of economic freedom. Here is Ireland:

Here is Ireland.

Italy.

Portugal.

And Spain.

Why has this happened?

Well, the answer is kind of ironic. Here’s what the Heritage Foundation says:

Ireland’s economic freedom score is 76.9, making its economy the 9th freest in the 2012 Index. Its score has decreased by 1.8 points from last year, reflecting poorer management of government spending and reduced monetary freedom.

Italy’s economic freedom score is 58.8, making its economy the 92nd freest in the 2012 Index. Its overall score is 1.5 points lower than last year, with significant declines in freedom from corruption and the control of government spending.

Portugal’s economic freedom score is 63.0, making its economy the 68th freest in the 2012 Index. Its score is 1.0 point worse than last year, mainly due to deterioration in the management of government spending, labor freedom, and fiscal freedom.

Spain’s economic freedom score is 69.1, making its economy the 36th freest in the 2012 Index. Its score is 1.1 points lower than last year, with a significant deterioration in the management of government spending overwhelming a modest gain in business freedom.

After cutting government spending by enormous amounts, the scores of these five European countries have gotten worse…because they can’t control government spending.

Indeed, the vast majority of the decline in economic freedom of Italy, Ireland, Portugal, and Spain occurs due to lower scores on government spending. Here’s a table that specifically shows how much worse their scores on government spending have gotten since 2011:

Score Changes Since 2011 CountryGovernment Spending Greece -18.1 Ireland -16.7 Italy -9.2 Portugal -10.7 Spain -12.2

It’s pretty undeniable that these countries have been cutting government spending. And yet their scores on the control of government spending keep on getting worse. What gives?

Well, it has to do with the way that Heritage Foundation measures government spending. Specifically it uses government spending as a percentage of GDP; as a government spends more relative to GDP, its score gets exponentially worse.

What’s happening with these five European countries is that while they have indeed cut government spending, their economies have fallen into recession (coincidence?). So government spending, while numerically less, ends up composing a larger percentage of their GDP (which is declining even faster than spending).

Poor Greece. It cuts government spending to the bone for three years, falls into a depression that will be remembered for one hundred years, only to default on its debt anyways. And worst of all, its score on the conservative Heritage Foundation’s economic freedom ranking falls more than any other country because – wait for it – Greece has failed to control government spending adequately.

 

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