Jun 10, 2012

When bankers become thieves, the economy crumbles.

Swedish Prime Minister Fredrik Reinfeldt terms the Eurozone economic crisis 'serious' and has been quoted as saying: "In reality, we're talking about one of the greatest financial rescue operations the world has seen." He was responding to a question by Swedish Radio after it was known that Spain may be the 4th member of the 17-nation Eurozone to seek outside help. It is expected that Spain would be seeking $ 100 billion from IMF to rescue its banks reeling under toxic real estate loans. To understand more, I looked into the work of Paul Krugman, who thinks no  lessons have been learnt (The EurpTARP Cometh --

I found an interesting letter among the comments to Paul Krugman's blog. Someone wrote, and I tend to agree, "Spain now gets $ 100 billion for pumping into banks that won't lend, won't create jobs, not even invest any amount into any part of the Spanish economy." Well, this being true, I don't understand why is the Spanish government or for that matter IMF bosses unable to stop the intended bailout of Spain banks. As another blogger wrote: "An unemployment rate of nearly 25% combined with negative GDP growth should be treated as an economic emergency. All of the focus should be on addressing unemployment and boosting economic growth, not on bailing out banks." (http://www.disequilibria.com/blog/?p=216)

Bailing out defaulting banks has become the standard solution to the economic crisis. It happened in 2008, when close to $ 20 trillion, were pumped into the global economy. Much of it went to service the bank debts, and we have all read disturbing reports of how millions of dollars were given as bonuses to the erring bankers -- people who should have been in jail were awarded with handsome financial packages. This did not prop up the American economy either, which is once again in the throes of an unforeseen crisis. The American economy is on an artificial ventilator -- using 'quantitative easing' to survive before it can muscle developing countries to open up for US goods and services, and also arm twist countries like India to allow FDI in retail and insurance.

What will happen if we allow the Spanish banks to collapse. Will Spain turn into a beggar? Or will the Spanish people flee to other countries? I don't think any such thing will happen. Instead, the bailout package should be used to create more jobs. And that in turn will boost the economy. The same prescription holds true for other major economies. India, for instance, should focus more on creating jobs and feed the 320 million people who go to bed hungry. China, which is also in the midst of a recession, now becoming more obvious, should shift focus to creating more domestic demand and create more employment opportunities by turning agriculture profitable. The lure of population from the rural to the urban areas, and the thrust on rapid (and often environmentally destructive) industrialisation has already ruined the national landscape and has turned the country into a large export factory. This is unsustainable in the long run, and once the bubble bursts it will all be doom and gloom.

I had always thought that copying is the prerogative of only those who infringe on proprietary rights. But now I realise that governments all over the world have been merrily copying the economic model of growth from the US/EU. No wonder, every nation is in soup. Perhaps, the world would have been safe economically if the US had used its muscle power by bringing in provisions like Super 301 to stop other governments from copying its terribly flawed economic model, which has now brought the world to a brink. It isn't too late. But as many others agree, the world hasn't drawn any lessons. They continue to allow the banks to rob the national exchequer. As another commentator said: "Bankers have become the biggest thieves in the history of the world...the global economy will never recover while it is being bled to death to rescue the fantasy balance sheets of the institutions and individuals who pyramid paper, buy governments and equate theft with economic production."     

4 comments:

Anonymous said...

Raj Patel says in his book on World Food crisis that in the 1980s a new breed of economists trained at University of Chicago were let loose on the world. Votaries of free trade including agriculture they soon wormed their way into govt policy bodies in most companies either as members or advisors deputed by IMF/World Bank. We now what happened in India post liberalisation once the World Bank trained Montek became the advisor. The number of farmer suicides jumped and the gap between the rich and poor widened drastically. We need to identify these silent destroyers of the poor and kick them out our think tanks!

Shelley Kasli said...

The flow of dollars into US economy resulted in terrific real-estate boom which peaked in 1980. In order to show the myth of perpetual American economic the unholy alliance between mortgage brokers, private bankers and wall street big firms started subprime lending (lending below 0% interest rate without bothering inflation rate) and securitization of debt (selling housing mortgages as bank backed tradable stocks) first in Wall Street’s then everywhere in the world. This process is called Derivative Markets. As against worlds total GDP of $50 trillions a whopping $150 trillions derivative market came into life, sowing the seeds for the beginning of the current financial doom which is now known as US MeltDown in 2008 EuroZone Crisis of 2012, and if not prudent will be called Indian Crisis of 2020.

Traditionally there are two solutions injecting more money into the economies which will increase inflation and worsen the situation further leading to total economic collapse of Euro Zone and US. Issue long-term bonds and finance the curre...nt crisis but there are none to buy those bonds in melting down economies.

Additionally there are two more solutions first to borrow from (plunder/steal if we were living in colonial era at least 60 years back) some country/group of countries those have surplus with them. Second develop new export markets for European, US goods which could in the long term save the economies of both Euro Zone and US.

As the first two traditional options can never be availed, both US and Euro policy makers are looking at the later additional options. They are negotiating $1.5 trillion US loan/bond issued with China with an option of increasing the same upto $10 trillion. This is a short term solution. As this loan/bond issue will open the euro zone markets for Chinese goods. This may further reduce job prospects in Euro Zone and US. So the second solution is being worked out by forcing India (as part of deal worked out in US couple of month before between US authorities, European authorities and Indian representatives headed by UPA chair person in New York hospital) to open FDA(Foreign Development Assistence) in India in single brand retail sector (Italian single brand fashion outlets) to save Euro Zone and in multi brand retail sector (like wall-mart multi brand outlets of US zone).

Even if the FDA is allowed in the cities with more than 10 Lakhs population and if there are 100 such cities in India the combined population of all these cities will be 10 crores equivalent of combined population of Canada, Australia , New Zealand and South Africa or close to 1/3 of US population.

Every $ billion that is sucked out of India will stabilize 20000 jobs either in Euro Zone or US Zone with job/wage guarantee multiplier effects sets in US and Euro Zone economies. The extent of $ 1 billion non-availability in Indian economy will contract the economic activity in India by $60 billion (the velocity of rupee in India is 1 to 60, if anyone understands). With India becoming consumer market of US and Euro Zones, the inflationary pressures of these countries are transferred into India leading into hike in inflation affecting overall price index of India. This with contracting economic activity will only shift the Euro and US Zone crisis with all its ill effects into Indian crisis by 2020. This is what our leaders promise of super power statuses. A super power in economic crisis and nowhere to go by 2020.

For a more detailed analysis on the subject please read over here...

https://www.facebook.com/notes/india-for-sale/bailout-of-eurozone-crisis-through-indian-crisis-of-2020/394064743945195

- Shelley Kasli
shelley.kasli@gmail.com

Shelley Kasli said...

More comprehensive research on the subject and how it will effect India covering the context of FDI please go through this article...

A bizarre Saga of bankrupt western economies and their multinational business houses incredulous laughable economic plan to Develop Indian Retail jobs at the expense of their economics with non-existing FDI from their phony FIIs (Foreign Institutional Investors)

INDIA DIGGING ITS OWN PIT - FDI(Foreign countries Dictating India)

https://www.facebook.com/notes/shelley-kasli/india-digging-its-own-pit-fdiforeign-countries-dictating-india/447991348559110

Anonymous said...

whatkind of developmnt is taking place where poor are becoming poor and richer are becoming richer,by gambling it is shame,whole public is being fooled by media foreigned trained thinktank it is shame whole white color socalled intellectual have sold their mind to help uncle shame to snatch whole our freedom,land,money manipulating our political economics system,,