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This whole story is so full of 'ifs'. Not least is the fact that DS-K has yet to be convicted on anything. Whatever happened to the presumption of innocence?

I think we need to separate two issues here. What you write about DS-K and his role in the IMF is something with which I entirely agree. The potential change of leadership at the IMF has consequences for Europe if only because the next leader is unlikely to be European. There is a chance that the vacuum, despite the PR efforts of of IMF to assuage these fears, will derail discussions over where we go from here about Greece, renegotiation with Ireland and terms for Portugal.

On the other hand, if DS-K is a sexual predator, he should be called to account. I simply fail to see any direct connection between the two save for one thing - the timing. The most pro-Washington presidency one has seen in Paris for decades and the most credible potential candidate of the French centre left to unseat him? Am I alone in thinking that this stinks?

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Paul,

You were statesman like on NN.

Not many of our politicos can claim that, especially (Green Shoots) Vadera tonight!

She gave a pretty good impersonation of state(person)ship though.

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Bet you never imagined your last post before the imposition of huxley would be on the first quasi socialist head of the imf getting arrested for sex offences in ny.

either dsk is rather less clever than his position implies or he is too clever for the liking of some.

which it is time will tell.

Anyone

Define 'bailout' in view of this:



"some commentators[who?] have noted that because the total CDS exposure of a bank is not public knowledge, the fear that one could face large losses or possibly even default themselves was a contributing factor to the massive decrease in lending liquidity during September/October 2008"

"It is widely accepted that naked CDS are not used for hedging but for speculation. A bill was distributed in U.S. Congress that would give a public authority the power to limit the use of CDS other than for hedging purposes, but the bill did not become law."

HOW SOON WE FORGET

NewYork - 9/11 - 'with us or the Terrorists' - Iraq - Coalition of 'Willing' - NON!

Excellent article Paul. :-) A bit of supplementary material here:

Fuel for the conspiracy theorists. Right wing plot playing on DSK's known predilections for female company? Austerity does not work and the Greeks need it like a heat wave. PASOK politicians will have plenty of time to spend with their families if they go down the Merkel road again. EU OK for Germany as long as it keeps winning!

I'll be interested in your descriptions of the roles of the IMF, World Bank & WTO in today's world.

Is an IMF organisation needed because of the uneven development of capitalism?
Because external imbalances often have mirrored government imbalances?

And their historical role breaking down barriers to capital - privatising & allowing international capital to take-over?

Happier times. And endings.

Oh will someone bring me a one handed economist !

The greeks gave us rationale , but baptised it with an invisible hand. The Germans killed that idea and lusted after total power. The French ended up contemplating the contents of their underwear ( and confessing their sin). So maybe the new IMF supremo should be Danish - able to conceive of the either/or but only with a sense of humour ?

It appears to me, but I am no expert, that the squillions spent on QE in the Euro-zone, UK and US has done absolutely nothing to drive these economies out of recession.

It has made a lot of banks and bankers extremely rich. It has allowed speculators to ramp up prices of just about anything, making themselves rich also.

Other than that, I can't see what good it has done.

I know this is a simplistic view of things, and some will claim that we would now be much worse off without QE, but I just can't see it.

Can you imagine if all that QE money had gone into state of the art road & rail links, new airports, quality housing, expanding healthcare to be more socially inclusive, etc.

The fact that the politicians keep bailing out each other's countries, scrambling around for more billions per bank just shows to me that all they did was to put the inevitable global collapse off for a few years.

Big inflation. Let's raise rates then the bailout before finally falling into the arms of the new IMF head - Gordon Brown!

One other thing, in light of today's inflation figures how much longer is Mervyn King going to be allowed to talk his nonsense that there is no inflation, or that what inflation there is, is out of his control?

It seems that politicians and journalists naively believe everything he says on this matter - why isn't he challenged more forcibly on this?

The price of oil is going down but the price at the pumps is staying the same - is this not because of a weak Pound due to record, and supposedly emergency, low interest rates.

These emergency low interest rates have been in place for 2 years and several months - and counting.

#14

The money thrown into the system doesn't resolve the crisis, it just buys time.
From that perspective it has been successful.
Without the world would already be in a deep depression.

But this money isn't real value.
In a sense it's monopoly money that has push/held up asset prices.
Just printing money doesn't by itself increase production.

We are now in a position where monetary values far exceed the underlying fundamentals.
Asset prices will crash again, but this time governments are bust & the printing of money will just debase the currencies.

#17

What you are saying is, I assume, that the QE money has merely forced up the price of 'things' - oil, wheat, metals, - and in the UK kept up house prices.

So now we are in a situation where the above are simply way over-valued, propped up by the QE money but at the same time driving inflation through global economies?

The result being that people increasingly cannot afford to eat, buy fuel and, in the case of UK house prices, are unable to even consider buying a home. The result being the worst kind of stagflation which has long-term social repercussions both inside nations and between nations.

I was just talking to a friend of mine about a 20-something journalist at a South Wales Radio Station.

This young lad was on 14K a year - from which he had to buy and run a car as the job requires him to be a car owner. Between the car costs and his rental costs the young man basically had no money left each month to buy clothes or to eat.

In the past year people have noticed his clothes becoming worn, his body becoming thinner - not leaner, but thinner.

He has now this week quit his job and gone on the dole as, on the dole, he will be able to eat and clothe himself.

I wonder if the Paxmans and the Marrs of this world have any idea what is going on at the bottom of their own professional, or if they could even relate to it now? It makes you wonder whether journalism is becoming the profession that only the children of the well-off can pursue.

So I went and had a look at junior IT jobs advertised in Wales. I noted several 'Helpdesk' roles advertised for 12K a year. Just 12 thousand pounds.

What I am trying to say, to bring this back to the inflation figures out today, is that when the likes of Mervyn King stand in front of News cameras proclaiming that there is no real inflation, or that he cannot do anything about it, just stop and think of all those people trying to work and live on less than 15K a year.

tawse57 - two groups are getting a free ride:

state pension beneficiaries
home owners

Neither are based on fundamentals and they can't fight gravity forever. If you haven't got kids go work abroad. If you do then have a long think about how you might relocate.

Young people are getting a really raw deal out of this. Leave all the boomers behind and let them go to dinner parties with empty plates as they sit, starving, still talking about how their house has gone up.

#19

I think your arguement is a little simplistic Ben. Not all homeowners are from the boomer generation, far from it. Many young people have worked and saved incredibly hard for years and have just managed to become home owners in the last few years. Not sure what's free about their ride........?

A housing price collapse may be inevitable but I don't think it will help the situation, probably just make it deeper and darker, for lots of different people.

Agree that unfortunately some young people will be caught up in this mess. I do feel very sorry for them. They will probably walk away from the debt as the negative equity will be so high, but will still loose their deposit.

It's a shame but I think the moral of the story has to be: if there is a massive ponzi scheme that makes zero sense then do not join in. Ideally ordinary people would not have to think about stuff like this but as Merv King and GB only thought of their own skin the responsibility has been handed down from "on high".

Whilst we are at it we'd best all sit down and think about what one pound really means, how we can retire for 30 years (during which we have expensive NHS treatment), what happens if house prices rise forever above inflation and if we can run a trade deficit forever. Again ideally the adults would have thought about this but abdicated their responsibility.

Not all home owners are not getting a free ride, if their home is just somewhere where they live. BUT those who bought say 20 years ago, and now sell and downsize, will make gain money created by others' debt. That is the way the system works at the moment. This is a by-product of the banks creating money to extract the maximum possible "rent" out of the economy as a whole.

tawse57 and DVR. The question, to which I don't know the answer, is "is there more money now in the economy than in 2008?" Remember, most money is created out of nothing by the banks. (This has been true ever since the invention of paper money - even under the gold standard.) The financial crisis destroyed so much of this that there wasn't enough for the economy to function. While society continues to treat its medium of exchange as a commodity, and allows banks to manipulate the supply for their own purposes, we will continue to have financial crises.

What no tax havens?

The core economic and financial issue upon us is not about:

Left v. Right
West v. East
Captitalism v. Socialism
Old v. Young
Savers v. Borrowers
Big Gvt v. small Gvt

It is all about the murky world of international finance and "The Men who Stole the World":

#22

There is roughly the same amount of broad money in circulation now compared with 2008, if not more. It is this "liquidity" which drives the wheels of international finance. The ebbing and flowing of twice annual world GDP in just one trading day enables the "handlers" to take a cut. Simple as that.

Only now, the enormous glut of "private credit" creation is being converted bit by bit into public debt, whether as Government owed debt (manifesting as deficits), or monetary debt (manifesting as inflation).

It is debt monetisation on a monumental scale. Right under our very noses.

Privatised profits and socialised losses.

I always thought it was Gordon Brown who saved the world and now we are being told it was D S-K. I suppose the deal was that Gordon got the credit whilst the other fellow got the girl.

@24 - Interesting Hawkeye. That means that a proportion of the money existing in private bank accounts, originated in bad mortgages loans which have been converted to government debt, instead of being killed by bankruptcy. But the people taking them out will still have been repossessed. And property prices overall are falling in real terms.

Thirty months into the disaster and it is not good reading. When the banks were at risk it was right for government to step into the breach because government is there to protect the citizen from arbitrary powers. But the other leg of the intervention has not taken place; namely the submission of the banks to extensive and fundamental reform. This is allowing the banks to socialise their losses whilst privatising their profits. This is a swindle of monumental magnitude.

25. At 17:48pm 17th May 2011, stanilic wrote:
I always thought it was Gordon Brown who saved the world...
----------------------------------------------------------

He may not think so any more...

#18

A good post connecting the theory to what this means in practice for human beings.

The advantage of understanding the theory - how does capitalism works? why is it prone to crisis? where does profit come from? - is that you see that it is capitalism that is doing this to people.

This will continue as profits (real not artifically supported) are under pressure.
In particular the price of energy is adversely affect profit rates.
As energy prices increase (more socially necessary labour time required) this increases the cost of constant capital relative to variable capital (wages).
This is what is known as the organic composition of capital.
All things being equal, as it increases so the rate of profit falls.

For much of the post war period these increases in the composition of capital were more than compensated by increases in productivity (i.e. the rate of exploitation).
Which really means that the means of subsistence given to the workers required less labour time (as a % of the working day) & so more could be taken as profit.
As the price of energy increases this actually reverses the gains in productivity as an increasing % of the working day is now required to provide the means of subsistence.
As the rate of exploitation falls so too does the rate of profit.
Hence profits are under pressure.
The response, since the late 1970's has been an attack on worker's living standards, which has now intensified since the recession.

Unless capitalism can harness cheap energy, e.g. cold fusion, or another planet earth suddenly materializes, the system is doomed.
Rosa Luxemburg could see this 100 years ago when she spoke about socialism or barbarism.

The difficulty is people think socialism is tax & spend.
This is just trying to smooth the injustice.
Capitalism can no longer afford this 'social democrat' model.
But of course when we look at alternatives we don't want Stalinism/Maoism - one-party state which claims to know what's best.

Hence socialism from below.
For some the Trotskyist model.
For others the council communist model.
But the result is the community control the means of production through direct democarcy.

The bottom line is for all tho

28 Kit
Nice link. We will know that when he makes his `I am a sinner' speech. A problem for a Calvinist methinks?

Kit @ 28

It seems to these cynical eyes that GB's comments were more for the IMF board. However, his comments seem right though. It's funny how politicians when not in government come out with the right things to say.

doesn't that take the biscuit! You arrange bailouts for everyone else and can't get one for yourself....bloody typical!

18

A good post connecting the theory to what this means in practice for human beings.

The advantage of understanding the theory (how does capitalism works, why is it prone to crisis, where does profit come from) is that you see that it is capitalism that is doing this to people.

This will continue as profits (real not artifically supported) are under pressure.
In particular the price of energy is adversely affect profit rates.
As energy prices increase (more socially necessary labour time required) this increases the cost of constant capital relative to variable capital (wages).
This is what is known as the organic composition of capital.
All things being equal, as it increases so the rate of profit falls.

For much of the post war period these increases in the composition of capital were more than compensated by increases in productivity (i.e. the rate of exploitation).
Which really means that the means of subsistence given to the workers required less labour time (as a percentage of the working day) & so more could be taken as profit.
As the price of energy increases this actually reverses the gains in productivity as an increasing percentage of the working day is now required to provide the means of subsistence.
As the rate of exploitation falls so too does the rate of profit.
Hence profits are under pressure.
The response, since the late 1970's has been an attack on worker's living standards, which has now intensified since the recession.

Unless capitalism can harness cheap energy, e.g. cold fusion, or another planet earth suddenly materializes, the system is doomed.
Rosa Luxemburg could see this 100 years ago when she spoke about socialism or barbarism.

The difficulty is people think socialism is tax & spend.
This is just trying to smooth the injustice.
Capitalism can no longer afford this 'social democrat' model.
But of course when we look at alternatives we don't want Stalinism/Maoism, i.e. one-party state which claims to know what's best.

Hence socialism from below.
For some the Trotskyist model.
For others the council communist model.
But the result is the community control the means of production through direct democarcy.

The bottom line is for

#26 Sasha

Well repossessions would lead to defaults and debt destruction. We're not really seeing a big uplift in this. In fact we're seeing all efforts being made to preserve asset values and avoid credit write-downs (even if it means transfer to sovereign responsibilty). This is due to the fear of Great Depression style debt deflation.

David Malone's article is a good take on this:



See also this guest post, and the comments section:

I think the UK economy will implode within the year.

I was just looking at a chart of rising rental prices in London - staggering.

I am hearing of more and more of my friends on 50K PLUS salaries - once fantastic wages - leaving London because 50K is no longer enough to live in London. I am being told by people earning 70K and 80K that they are only about £900 better off after tax than when they were earning 45K.

Couples I know who earn 50K each can now afford to live in London - just - as long as they never have children. How the millions who earn less than 20K survive in London is beyond me.

They are quitting their jobs and moving out en masse.

The people I know tell me it is better to earn 30K in the regions than 70K in London.

Madness.

Combine that with the complete refusal of the UK housing market to crash to anything like a reasonable multiple of salary, either in London or without, and I think that the UK is squaring up for a complete collapse. For goodness sake, in my part of the World, South Wales, asking prices are now tens of thousands above the so-called 2007 boom selling prices. It is just nuts.

It is as if London is becoming a city for the super-rich of the World driving out British people to the regions, and in turn, eventually, driving the British people out of being able to afford to live in their own country.

I can only see either economic collapse ahead or complete social breakdown, anger and even revolution. I don't say such things lightly.

The UK has simply become unaffordable for many of those born in the UK to live in - this does not bode well.

When it was the poor, the so-called working class - aren't most of us working class - then Governments could dismiss such people. Now it is the so-called middle class who are increasingly unable to afford even the basics.

There is a significant, fundamental change happening right now in the UK, and I doubt that most politicians and most journalists are even aware it is happening.

#35

I doubt it will implode, more likely it will continue on as is. Drugged up to its eyeballs and steadily heamoraging, any potential reaction blunted by a fog of anasthesia such that no one will notice the actual moment when it expires, only historians to come will draw some arbitory line to determine that point.

HALF AN HOUR OF BIN LADEN TABLOIDIA WITH FALSE COLOUR AND MUSACK

Edgy it wasn't. As the aging Nuremberg prosecutor said - a lot of fuss for a dead man. And STILL the ³ÉÈËÂÛ̳ behaves as if the 9/11 charade is unchallenged. Might Crick do an anonymised poll to see if ANYONE in the NewsyNighty wonderland knows (for starters) of 'Building What?'

@tawse57

This is what happens when land becomes invisible. The speculative element is land. Extract all land rent for public benefit and you get oodles of revenue and the land market allocates to best use. If you had to pay for exclusive use of land you wouldn't want to own any more than you could use.

Yes - spot on the old fella from the Nuremberg trials

Listen up NN - see how pointless all your embarrassing pretentious postering is

Hence Paxman trying, disrespectfully, to shut the guy up

(wednesday morning and still on the usable (old) blog software :)

Re: DS-K and his little local difficulty.

The first Air-France flight to Paris leaves at 14:15 (via Boston) so lunch with his daughter could have been pre-arranged. AFAIA he has an open ticket on A-F and can turn up for any flight without pre-booking so it is unlikely that it could be proved he was fleeing rather than just flying.
Did he have any other appointments that afternoon in NY ? The next flight leaves at 16:40 (direct) and his organiser could be revealing. If he did have a previously scheduled appointment then it may be possible that the contact number was on the phone he left behind which might explain the call to the hotel.
The NY Post reported that when DS-K called, the hotel made no mention of any alleged assault and asked for his location so that his phone could be returned, he said he was at JFK and was arrested on the plane two minutes before scheduled takeoff.

If it was a setup then it was very well executed.

If convicted would he turn states evidence to mitigate the sentence ?

What difference will a missing DS-K make to the bailouts ? None.

These things have a life all their own now. The EU proudly announce agreement on bailout conditions for Portugal, a couple of flies in the ointment though, Portugal doesn't have Government that can accept the terms and it requires all 17 EZ countries to agree (including Portugal :), the Portuguese people might elect a Government opposed to both Austerity and Bailouts. (then what ?)

Greece, seeing an opportunity (Go Greece :) can dictate the terms of their second bailout (and renegotiate the terms of the first), what is the EU/IMF going to do, either they capitulate (and soft sell it as pragmatic politics) or they let Greece default (and the Greeks will certainly suggest that would be the case).
If Greece forces a haircut then Portugal will want one too, the Irish won't want to be the only ones paying full whack so out will come the razors there.

If three little piggies bolt for the door then the other two (Spain and Italy) + a few eastern ones will also.

EZ fiscal union (and ECB consolidated debt) will be sold as the answer to all the EZ problems.

#Hawkeye_Pierce

I do like , very good analysis and comments.

#duvinrouge

Your #29 was excellent (well worth repeating at #33 :), a really good and straightforward explanation of how we got here. I'm going to print that one out and show it to a few people and try to open some eyes.
(you couldn't have done that in 400 chars)

Paul, commiserations on not getting the Orwell, don't forget that it is not the winning that counts but the taking part :)

Nevermind, there is always next year but I think you are going to have to write another book as the new layout that is being imposed will make your blog postings lose their distinctive style.

#35, #36

It imploded 3 years ago, we're all zombies now, supporting the zombie financial system (ala Dawn of the Dead)

#35 @tawse57

I'm not sure who you talk to who can't survive on 50k in London, what on earth are they spending it all on? I live in London and don't earn anywhere near 50k and still manage to live a reasonable, if not extravagant, life style.

I wonder how many of these people have the latest iPhone, eat out for their lunch every day, have Sky television etc etc.

If I believed everything I read on these pages by now I would have;
sold my home
spent all of the proceeds on tinned food and gold
prepared an underground bunker like the one found in 'the road'
and be waiting for the apocalypse

Perhaps I'm the one who's wrong and I should do all of the above but I think it's more likely there are some over active imaginations out there. (especially those with 9\11 conspiracies bubbling away).

duvinrouge - seen this? "youth rally in Madrid echoes Egypt protests"

/news/world-europe-13437819

@34 Interesting links Hawkeye - still digesting! :-)

Sasha - You're welcome.

Max Keiser has a similar take on this, in his blog today:

"The deflation we see with bond markets blowing up is staged by banks as a way to threaten politicians to do what they want them to do….. On the other side of the ledger the inflation is very real…The inflation is an economic externality whose cost is completely ignored by policy makers. This is a game that benefits the banksters mightily. They use fake debt to scare the public and politicians into deregulating markets (making it easier to stage fake deflation attacks) while they simultaneously collect huge bonuses"

All one needs to understand is this quote from Peter Warburton:

"What we see at present is a battle between the central banks and the collapse of the financial system fought on two fronts. On one front, the central banks preside over the creation of additional liquidity for the financial system in order to hold back the tide of debt defaults that would otherwise occur.
On the other, they incite investment banks and other willing parties to bet against a rise in the prices of gold, oil, base metals, soft commodities or anything else that might be deemed an indicator of inherent value. Their objective is to deprive the independent observer of any reliable benchmark against which to measure the eroding value, not only of the US dollar, but of all fiat currencies."

Source for #48



Those in the know are therefore hedged in case this happens. What about the rest of us?

Fiscal canon fodder, me thinks.

Loved your guest article, Hawkeye.


"Those in the know then will likely acquire land, "

How about:

"It is unlikely that any woodland would obtain planning permission for a residence"
but on the other hand, that might not concern future generations?


Or secure a food supply by share farming:

#45

This is the kind of action we need worldwide alongside a general strike.
The demand should be for democracy - direct democractic control of society.

Then everyone will have the opportunity to belong to a community farm similar to the one in post 50.

People working together to meet our needs not producing profits for the rich.

duvinrouge - are you saying most of us would work on a farm? Who would build or cheap tractors? Who would fund exploratory drilling to find oil for these tractors? Would this be centrally planned by the state? Or voted upon using direct democracy? Are Intel allowed to keep on building cheaper processors?

#52

There's no blueprint as to how things 'should' be.
All I'm saying is capitalism will give way to socialism.
And socialism is the common ownership/control of the means of production.
This requires direct democracy which can take on different shapes.
Central planning is most likely but not by a state but delegates to some kind of people's committee.
Remember socialists want to abolish the state.
The 'state' is the armed rule of one class over others.
In a classless society there's no state.
But there is government.
Intel will be taken over along with all the others.

If ownership of all the firms that exist today were handed to those who worked in them, including the managers, i.e. you cut out the middlemen, the capitalists, what would happen?

#50, hopefully farming land should never be allowed to get planning and should only be kept for food supply. Many farming lands are for grabs and whoever realises the importance is the winner. Imagine a 350 ha farming land is converted into building land, this one for example does harm the future availability for farming.