mfioretti: debt*

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  1. Altro che crisi dei migranti e il crack di quattro banchette corrotte di provincia. Nessuno ne parla, l’argomento è tabù per Matteo Renzi e soprattutto per il ministro Padoan e il suo staff al Mef: oggi l’Italia rappresenta il massimo rischio sistemico globale. In che senso? Per via del suo colossale debito pubblico. Della questione si occupa stranamente Il Sole 24 Ore in un recente articolo di Dino Pesole (Strategie politiche per favorire la crescita). Ma dalla cortina di silenzio, dovrebbe venire fuori invece un urlo: “Facciamo qualcosa, prima che sia troppo tardi”. Nel nostro Paese ogni persona nasce «con un debito di oltre 36mila euro sulle spalle». Non virtuali, reali. Debiti che ammazzano la crescita. Dalla micro alla macroeconomia, fa paura constatare come nonostante gli innumerevoli sforzi di risanamento tentati, il nostro Paese resta esposto a rischi enormi.

    renzi padoan 675

    Con un debito pubblico di oltre 2mila miliardi, il più alto nei 28 paesi dell’Unione Europea, l’Italia è la nazione che più minaccia l’economia e i mercati mondiali, secondo il Fondo Monetario Internazionale che nel giugno 2015 ha pubblicato un report ignorato dai media ma divulgato nel dettaglio nel libro Rimetti a noi i nostri debiti. Il Fmi segue un criterio matematico, stante il quale il governo Renzi deve intervenire adesso, in modo radicale, per ridurre o ristrutturare il debito pubblico italiano, in un’operazione concordata con le autorità Ue. E di fronte alla domanda se sia preferibile imporre (ancora?) misure di austerità “made in Germany” oppure far conto sui bassi tassi d’interesse e provare a investire in programmi infrastrutturali aumentando la spesa pubblica, Il Sole 24 Ore risponde così: dipende dallo «spazio fiscale» di cui il governo dispone. L’Italia ne ha? Anticipiamo la risposta: no. In alternativa ci sono due possibili strategie (ambedue rivoluzionarie: scuoterebbero alle fondamenta l’Europa se Renzi le perseguisse – o anche l’opposizione come il M5S): far affluire direttamente «ai cittadini invece che alle banche commerciali» la liquidità che la Bce sta iniettando attraverso il Quantitative easing (che Draghi ha deciso di estendere fino a marzo 2017), puntando sul visionario progetto di un “QE per la gente“. E lanciare una sorta di «Giubileo del debito che permetta a tutti di ripartire da zero, concedendo respiro all’economia»
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  2. my core prediction for 2016 is that all the things that got worse in 2015 will keep on getting worse over the year to come. The ongoing depletion of fossil fuels and other nonrenewable resources will keep squeezing the global economy, as the real (i.e., nonfinancial) costs of resource extraction eat up more and more of the world’s total economic output, and this will drive drastic swings in the price of energy and commodities—currently those are still headed down, but they’ll soar again in a few years as demand destruction completes its work. The empty words in Paris a few weeks ago will do nothing to slow the rate at which greenhouse gases are dumped into the atmosphere, raising the economic and human cost of climate-related disasters above 2015’s ghastly totals—and once again, the hard fact that leaving carbon in the ground means giving up the lifestyles that depend on digging it up and burning it is not something that more than a few people will be willing to face.

    Healthy companies in a normal economy usually have P/E ratios between 10 and 20; that is, their total stock value is between ten and twenty times their annual earnings. Care to guess what the P/E ratio is for Amazon as of last Friday’s close? A jawdropping 985.

    At that, Amazon is in better shape than some other big-name tech firms these days, as it actually has earnings. Twitter, for example, has never gotten around to making a profit at all, and so its P/E ratio is its current absurd stock value divided by zero. Valuations this detached from reality haven’t been seen since immediately before the “Tech Wreck” of 2000, and the reason is exactly the same: vast amounts of easy money have flooded into the tech sector, and that torrent of cash has propped up an assortment of schemes and scams that make no economic sense at all. Sooner or later, as a function of the same hard math that brings every bubble to an end, Tech Wreck II is going to hit, vast amounts of money are going to evaporate, and a lot of currently famous tech companies are going to go the way of

    my best guess at this point is that photovoltaic (PV) solar energy is going to be the next big energy bubble.

    Solar PV is a good deal less environmentally benign than its promoters like to claim—like so many so-called “green” technologies, the environmental damage it causes happens mostly in the trajectory from mining the raw materials to manufacture and deployment, not in day-to-day operation—and the economics of grid-tied solar power are so dubious that in practice, grid-tied PV is a subsidy dumpster rather than a serious energy source. Nonetheless, I expect to see such points brushed aside, airily or angrily as the case may be, as the solar lobby and its wholly-owned subsidiaries in the green movement make an all-out push to sell solar PV as the next big thing.
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  3. Because of the differing underlying cause compared to prior low-price cycles, we should expect oil prices to fall, perhaps to $20 per barrel or below, without much of a price recovery. We are now encountering the feared “Peak Oil,” because much of the cheap oil has already been extracted. Peak Oil doesn’t behave the way most people expected, though. The economy is a networked system, with high oil prices adversely affecting both wages and economic growth. Because of this, the symptoms of Peak Oil are the opposite of what most people have imagined: they are falling demand and prices below the cost of production.

    If low prices don’t rise sufficiently, they can cut off oil production quite quickly–more quickly than high prices. The strategy of selling assets at depressed prices to new operators will have limited success, because much higher prices are needed to allow new operators to be successful.

    Perhaps the most serious near-term problem from continued low prices is the likelihood of rising debt defaults. These debt defaults can be expected to have a very adverse impact on banks, pension plans, and insurance companies.
    Tags: , , , by M. Fioretti (2016-01-04)
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  4. The euro zone is to benefit German industrial output.

    ECB turned off the money supply to Greece to force Greece to its knees. Once there was unconditional surrender, a choice between suicide or execution, ECB turned back on the money supply to Greek banks. The money that was lent, flowed back out to pay off international creditors, a point Germans should note when they keep referring to bailing out Greece.

    The Fourth Reich showed they would happily destroy a country if that country did not give in to its demands. They forced onto Greece, not only a surrender, but an unconditional surrender, part of which is rape and pillage of the country, enclosure of the commons, sell off of Greek assets on the cheap. But at least we all now know what the Fourth Reich is capable of, Its brutality was exposed for all the world to see. At least Podemos in Spain now know exactly what they are dealing with.

    It was meant to set an example to Podemos, do not dare oppose the Fourth Reich this too will be your fate.

    But it has had had the opposite effect, for pro-democracy activists across Europe to double their efforts to defeat the Fourth Reich.

    What we have learnt, we have to work from the grass roots upwards. Syriza has grass roots support that most parties would die for, the NO vote showed that. But it was not enough. We have to restructure society from the bottom up.

    Greece may have lost a battle, but not the war, the fight continues.

    John Cassidy, writing in The New Yorker:

    Syriza’s surrender wasn’t necessarily an ignominious one. As Lenin commented of the failed 1905 revolution in Russia, it was a retreat for a new attack, which ultimately proved successful. “I’m not going to sugarcoat this and pass it off as a success story,” Tsipras said to parliament on Wednesday, prior to the vote, acknowledging that the spending cuts and tax increases contained in the agreement would deal another blow to the Greek economy. However, that wasn’t the full story, Tsipras insisted. “We have left a heritage of dignity and democracy to Europe,” he said. “This fight will bear fruit.”

    The euro zone is to benefit German industrial output.

    The problem Greece has is many idle hands, work that needs doing, and no money to connect the two. What connects the two is money.

    In the Great Depression there was no money, in US banks were closed, because they were bust.

    They created scrips, alternative currencies, across Europe and in the States. They were successful, incredibly successful. The reason they do not exist today is because they were too successful, the Central Banks closed them down.

    In 1931, a German coal mine operator decided to open his closed mine by paying his workers in wara. It was backed by coal. Because it was backed by coal, which everyone could use, local merchants and wholesalers were persuaded to accept it. The mining town flourished, and within the year at least a thousand stores across Germany were accepting wara, and banks began accepting wara-denominated deposits. Feeling threatened, the German government tried to have the wara declared illegal by the courts; when that failed, it simply banned it by emergency decree.

    The following year, the depressed town of Wörgl, Austria, issued its own stamp scrip inspired by the success of the wara. The Wörgl currency was by all accounts a huge success. Roads were paved, bridges built, and back taxes were paid. The unemployment rate plummeted and the economy thrived, attracting the attention of nearby towns. Mayors and officials from all over the world began to visit Wörgl until, as in Germany, the central government abolished the Wörgl currency and the town slipped back into depression.
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  5. We have pointed out that these loans often target rural populations who were not previously in debt: they represent the long arm of capitalism reaching into remote rural areas, encouraging a shift away from dependence on the land and the local community, towards competition in a resource-depleting global economy.

    It has not been easy to oppose micro-credit: many well-intentioned grassroots activists have bought into the idea that giving ‘Third World’ women a loan would eradicate poverty and reduce population. This thinking was promoted with missionary zeal, and spread rapidly across the world. In trying to counter it, we have often felt like heretics. (One of the most difficult moments was when I was asked to debate Muhammad Yunus, the founder of the Grameen Bank, at the height of his popularity, on BBC radio.)

    For this reason we’re very happy to see this article by Jason Hickel, a professor of anthropology at the London School of Economics, in the UK Guardian: The microfinance delusion: who really wins? As Hickel says, “microfinance usually makes poverty worse”, because the vast majority of microfinance loans are used to fund the purchase of consumer goods that the borrowers simply can’t afford: “they end up taking out new loans to repay the old ones, wrapping themselves in layers of debt.” Even when used to finance a small business, the most likely outcome is that the new businesses fail, which leads to “vicious cycles of over-indebtedness that drive borrowers even further into poverty.” The only winners are the lenders, many of whom charge exorbitant interest rates. Hickel concludes that “microfinance has become a socially acceptable mechanism for extracting wealth and resources from poor people.”
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  6. They said, in effect: “If you, the IMF, want to be a part of all of this debt restructuring, we want to pay off all the private bond holders so that they don’t lose money. We want to let the speculators gain because that’s our constituency.” But the IMF economists pressured the head of the IMF at that time, Dominique Strauss-Kahn, to write down Greece’s debt.

    The problem is that Strauss-Kahn wanted the IMF to be a player in the European Central Bank and the European Union, the main financial interests. He also wanted to run for the presidency of France, and most of Greece’s debts were owed to French banks. So Strauss-Kahn had to essentially operate in the interest of France, and his own political fortunes rather than what IMF economists recommended. Basically, he agreed to have the Central Bank and IMF lend Greece enough money to pay the bondholders.

    It turned out that the IMF economists were quite right, and Greece couldn’t pay. The result is that the leading economists in the IMF’s European division resigned in anger. They’ve written a series of reports.
    Tags: , , , , , , , by M. Fioretti (2015-07-27)
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  7. Professor Hudson stressed that if the International Monetary Fund (IMF) were to state that the Kremlin's $3 billion loan is not official, "this would rewrite international law and mean that loans from Sovereign Wealth funds of any nation (OPEC, Norway, China, etc.) have no international protection."

    Furthermore, such a move would have shattered the world's debt markets "along New Cold War lines," "with financial warfare replacing military warfare," the economist underscored, adding that the world is not ready for this.

    Ukrainian servicemen deploy a weapon at the beach of the Azov Sea in Shyrokyne, eastern Ukraine
    © AP Photo/ Evgeniy Maloletka
    Donbass on Brink of Major War, Conflict May Escalate Any Time - DPR
    On the other hand, Professor Hudson denounced the decision of Ukraine's Verkhovna Rada to seize Russia's assets in Ukraine as a "radical step" that it is "beyond civil law."

    "If Ukraine did this while still receiving IMF, US and Canadian lending, its creditors could be held as responsible," he remarked.

    Meanwhile, it seems that the Western financial aid to Ukraine still goes into a "black hole," due to the country's high corruption and lack of transparency. It is highly doubtful though that Washington or Brussels will simply print money and lend it to President Petro Poroshenko endlessly.

    "The 'West' is not in the charity business. Its firms do not want to lose money, and the EU Constitution bans the European Central Bank and European taxpayers from financing foreign governments," the economist emphasized.

    In his interview to The Saker, Professor Hudson underscored that the US interventionism and deep involvement in domestic affairs of other countries will eventually do a disservice to Washington.

    "US foreign policy is simply "Do what we say, privatize and sell to US buyers, and permit them to avoid paying taxes by transfer pricing and financialization gimmicks, or we will destroy you like we did Libya, Iraq, Syria et al," the professor pointed out, stressing that such an approach will prompt foreign countries to unify into a resistance and to create a viable alternative to American financial hegemony.
    Tags: , , , , , , by M. Fioretti (2015-06-15)
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  8. “I don’t really feel the weight of the world economy,” he said. “I feel the weight of the Greek people resting on my shoulders. If little Greece, in order to survive, brings down the financial world, it can’t be our fault. It would be as if Delaware brought down the United States economy. That would be the fault of the U.S., not Delaware.”

    Virtually everyone agrees that a default by Greece is the least desirable outcome for both Greece and its creditors — among them Germany and France; the European Central Bank; and the I.M.F. Yet one of Dr. Nash’s critical insights is that there may be many possible outcomes — so-called Nash equilibriums — that produce suboptimal results. A Nash equilibrium exists when each side’s strategy is optimal given what they believe to be the others’ strategy.

    For example, if Germany and other creditors don’t believe Greece’s threat to default, and underestimate the severity of such an outcome, they might see their optimal strategy as remaining firm in their demands for Greek fiscal austerity and structural reforms. If, on the other hand, Germany believes Mr. Varoufakis to be ideologically motivated to reject further austerity, it might well cave to Greek demands for leniency.

    That may be part of Mr. Varoufakis’s strategy - his colorful demeanor and public statements have been so provocative that in April Greece lessened his role in the negotiations, a move that seems only to have enhanced his considerable popularity back home. He continues to be a leading player in the talks and remains a key adviser to the Greek prime minister, Alexis Tsipras.

    In our conversations this week, Mr. Varoufakis came across much more the sober economist than a wild-eyed radical or motorcycle-riding daredevil. He displayed a sophisticated grasp of both game theory principles and the complicated dynamics of the current negotiations between Greece and its creditors.

    Those on the other side of the negotiations are “portraying me as an irrational fool, which is doing my work for me,” Mr. Varoufakis said. “I’ve been stoic. I haven’t let myself get agitated.” Speaking like a true game theorist, he added, “I know who I am and I know they know who I am.”

    Greece is much closer to Nash’s complicated scenarios, said Barry Nalebuff of the Yale School of Management, a game theory expert. “Both sides agree it’s better not to push Greece over the cliff. But how far can you push? Each side knows the other side should be willing to make concessions because it’s in their interest. Neither side does because they believe the other side will. So there’s a standoff. It’s very hard when it’s in both side’s interests and there are multiple solutions or equilibria, which is the situation with Greece.”

    Mr. Varoufakis agreed that in the Greece example, “the game has multiple equilibriums and, therefore, a failure to agree may trigger a chain of outcomes that no one can either predict or control.

    No one I spoke to this week thinks the situation is hopeless. Mr. Nalebuff said that one of Dr. Nash’s most important contributions is the notion of allocentrism, which requires parties to assess the others’ interests in order to understand their bargaining position. (It’s the opposite of egocentrism.) In order to know how far they can push Greece, its creditors need to “understand the interests and objectives of the Greek government. And Greece needs to come up with a solution that works for Germany,” Mr. Nalebuff said. “This could be very constructive,” although it’s no guarantee that an optimal solution will be reached.

    The Greek government submitted a new set of proposals this week, and while details remained under wraps, Mr. Varoufakis told me: “Of course we tried to understand what they want. We’ve been in negotiations for over three months, so we know what they want. We’ve tried to bend over backwards and we’ve accepted conditions that were very difficult for us to swallow.” He said the latest Greek proposal accepts the need for structural reform, including the hot-button issues of pension and tax reform, in return for “a few debt swaps and less austerity.”
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  9. I could give up what had become my vocation (in my case, being a writer) and take a job that I didn’t want in order to repay the huge debt I had accumulated in college and graduate school. Or I could take what I had been led to believe was both the morally and legally reprehensible step of defaulting on my student loans, which was the only way I could survive without wasting my life in a job that had nothing to do with my particular usefulness to society.

    I chose life. That is to say, I defaulted on my student loans.

    As difficult as it has been, I’ve never looked back. The millions of young people today, who collectively owe over $1 trillion in loans, may want to consider my example.

    It struck me as absurd that one could amass crippling debt as a result, not of drug addiction or reckless borrowing and spending, but of going to college. Having opened a new life to me beyond my modest origins, the education system was now going to call in its chits and prevent me from pursuing that new life, simply because I had the misfortune of coming from modest origins.

    Some people will maintain that a bankrupt father, an impecunious background and impractical dreams are just the luck of the draw. Someone with character would have paid off those loans and let the chips fall where they may. But I have found, after some decades on this earth, that the road to character is often paved with family money and family connections, not to mention 14 percent effective tax rates on seven-figure incomes.

    If people groaning under the weight of student loans simply said, “Enough,” then all the pieties about debt that have become absorbed into all the pieties about higher education might be brought into alignment with reality. Instead of guaranteeing loans, the government would have to guarantee a college education. There are a lot of people who could learn to live with that, too.
    Tags: , , by M. Fioretti (2015-06-13)
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  10. the “sharing economy” allows Millennials to cope with downward mobility, and also makes them poorer.

    Millennials are loosely defined as the generation that came of age in the decades around the turn of the century. Demographers put the earliest birth years at either 1980 or 1982, with an end point of 2000 or 2002, which means that Millennials’ working lives will always be shaped by the Great Recession and its aftermath. Even for the oldest among us, the time before video games and computers is lost in the hazy memories of early childhood. We’re a generation in which children were empowered by promises that they could grow up to be anything they wanted to be. Born in October 1979, I’m technically part of Generation X, but socially I fit best with the Millennials. I graduated from high school with 1980s babies, and the phone number on my first resume in college was a cell phone rather than a landline. My friends, classmates, colleagues, and I are all used to mobility, Google searches, and texting. The cynicism and slactivism that characterized, or stereotyped, Gen X is something we’ve observed only when we watch clips of Jon Stewart’s Daily Show on YouTube or Hulu, or shared on Facebook.

    The oldest of us are now reaching our mid-thirties. A couple of years ago, it seemed as if I woke up one day and suddenly felt like an adult. Nothing had changed materially about my life, but my experiences and responsibilities totaled up in a way that equaled grownup. And yet, I still lived in a tiny apartment with an Ikea dining table, a bookshelf I scored from my curb, and a couch I carted home when it was discarded from my office. I never expected to be rich, but I did expect to someday have real furniture and maybe even a house. Achieving those things was always in the future, at some relatively well-moneyed point that I was expecting would roll around— until I realized the future had dawned and the financial stability hadn’t appeared.
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