Saturday, December 8, 2012

Sovereign Debt Crisis: Our Suffering is Their Abundance

Even before Rupert Murdoch’s News Corp swallowed the Wall Street Journal, that newspaper was renowned for its free marketer editorials and opinion pieces. Not only has this policy remained intact under Murdoch, but also the coverage of news and features is now fully in line with the right-wing editorial policy.

So I was quite surprised a week ago to find, tucked away on page A-11 of the November 30 edition, a piece by the WSJ’s Stephen Fidler that actually hinted at the identity of the real beneficiaries of the bailouts and debt crises:

“Despite the complications, this week's deal on Greece's debt points to an (almost) iron rule of sovereign-debt crises: Significant losses fall on taxpayers in creditor countries because debt originally extended by private creditors, one way or another, ends up on the balance sheet of the public sector.”

This sounds eerily like the searing indictment of the bailout in a recent book by York University professor David McNally:

“In short, the bad bank debt that triggered the crisis in 2008 never went away – it was simply shifted on to governments. Private debt became public debt. And as the dimensions of that metamorphosis became apparent in early 2010, the bank crisis morphed into a sovereign debt crisis. Put differently, the economic crisis of 2008-9 did not really end. It simply changed form. It mutated.

“With that mutation, the focus of ruling classes shifted toward a war against public services. Concerned to rein in government debts, they announced an age of austerity—of huge cuts to pensions, education budgets, social welfare programs, public sector wages, and jobs. In so doing, they effectively declared that working class people and the poor will pay the cost of the global bank bailout.” (Global Slump, p.4)

There has been much talk of these austerity cuts falling on corporations and workers, on rich and poor alike. The catch phrase is “shared sacrifice”. But as McNally explains:

“The ultimate purpose of all this is to preserve capitalism and the wealth and power of its elites. And so far the bailouts and their aftermath have decidedly served that end.  As a columnist with the Times of London observes, ‘The rich have come through the recession with flying colours … The rest of the country is going to have to face spending cuts, but it has little effect on the rich because they don’t consume public services.’  The candidness of this statement is to be appreciated. But there is one error in this passage. These cuts do in fact have an effect on the rich: they help them. After all, they are essential to the massive transfer of wealth from the poor to the rich that funded the rescue of the world banking system, the bailout of corporations, and the salvage of the investment portfolios of the wealthy.” (Global Slump, p.5)

How big was this bailout, this “massive transfer of wealth from the poor to the rich”?  Including loans, loan guarantees and outright handouts, McNally puts it at between $20 and $30 trillion – pretty much in line with other estimates, including last year’s audit of the U.S. Federal Reserve System.

But wealth knows no shame: the corporations and the super-rich not only profited grossly from the huge transfer of wealth, they now blame the resulting swollen public debt on the victims. For example, they blame the $2 trillion in cumulative U.S. state and municipal debt on public workers’ wages and pensions and on the cost of providing essential services to the poor, the disabled, and the elderly.  Politicians of both the Democratic and Republican parties agree on the need for cuts to all of these – they only disagree about the size and the pace of those cuts.  Meanwhile, in Europe, the Greek, Spanish, Portuguese, Irish, and Italian working classes are told that they are to blame for the sovereign debt crises in their respective countries. But as the Wall Street Journal’s Fidler observed in his previously referenced, and surprisingly candid, article:

“Lenders as well as borrowers created the crisis. For a decade after the euro's creation, investors and banks in Northern Europe financed directly or indirectly the deficits of governments like Greece, or the mortgages and construction loans of Spanish homeowners and builders, at very low interest rates. Their subsequent calculation that those investments were too risky to go on created the crisis.”

Fidler goes on to comment on the most recent terms for “settling” the Greek sovereign debt crisis, and notes that while it won’t alleviate the intense suffering imposed on the Greek people, it will indeed share the suffering – with the Northern European workers (Fidler calls them “taxpayers”, but there’s no doubt which taxpayers will bear the brunt of the burden):

But now, particularly after the proposed buyback of some of the remaining private-sector debt, a vast majority of Greece's debt will be held by the public sector—the euro-zone governments and their bailout fund—the European Financial Stability Facility—as well as the European Central Bank and the IMF.

They will thus have the onus to make sure it is manageable. Costs will fall on the shoulders of taxpayers in Northern Europe, in spite the past best efforts of their governments to avoid it. Getting to this point has been a tortuous journey, not to speak of a very painful one for the people of Greece. And it isn't yet over..”

Shakespeare observed in the opening scene of Coriolanus, “Our misery is their abundance; our suffering is a gain to them.” So it was. So it is. And so it will remain. Until we throw off their yoke.

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