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Financial Crisis: Sustaining Unsustainability
There was not much substantive news from the G-20 meetings that ended on April 2 in London, but the least irrelevant news was that the attendees agreed to quadruple IMF funding to $1 trillion. Anything that bolsters IMF authority cannot be good news for countries forced to submit to its austerity plans designed to squeeze out more money to pay the world’s most predatory creditors. The world’s leading governments have responded to today’s financial crisis with “planned shrinkage” for debtors (10% cut in wage payments in hapless Latvia, Hungary put on rations, and permanent debt peonage for Iceland for starters) while America – whose foreign debt is even more unpayable – pursues Keynesian deficit spending. Debtor countries must borrow this $1 trillion from the IMF not to revive their own faltering economies, not to pursue counter-cyclical policies to restore market demand (that is only for creditor nations), but to pass on the poisonous IMF “aid” to the bad banks that have made the irresponsible loans. In Ukraine, a physical fight broke out in Parliament as the Party of Regions sought to block an agreement with the IMF calling for government budget cutbacks in the typically mistaken belief that imposing a deeper recession will reduce wage levels even further by enough to pay debts already at unsustainable levels (thanks largely to the kleptocracy’s tax “avoidance” and capital flight, to be sure). All this seems to be a dress rehearsal for what is to come over the next year or so.1
The main beneficiaries of IMF lending to Latvia, for example, have been the Swedish banks that have spent the last decade funding that country’s real estate bubble while doing nothing to help develop an industrial potential to enable Latvia to pay for its imports by exporting something besides its emigrant male labor and act as a vehicle for Russian capital flight.
This is not entirely the IMF’s fault, to be sure. It is the European Community deserves a great deal of blame. Instead of viewing the post-Soviet economies as wards to be brought up to speed with Western Europe, the last thing the EU wanted was to develop potential rivals. It wanted customers – not only for its exports, but most of all for its loans. Austrian banks carved out financial spheres of influence in Hungary (and lost their shirt on real estate loans, much as the Habsburgs had done over a century ago), while the Baltic States passed into the Scandinavian sphere. Iceland was neoliberalized, largely in ripoffs organized by Deutsche Bank and plugged mainly into the British financial sphere. In fact, Iceland (from where I’m writing this note right now) looks like a controlled experiment – a very cruel one – as to how deeply an economy can be “financialized” and how long its population will submit voluntarily to predatory financial behavior which, if it were military, would spur a more alert response.
The G-20’s announcement continues the U.S. Treasury and Federal Reserve bank bailout over the past half- year. In a nutshell, the solution to a debt crisis is to be yet more debt. If debtors can’t pay out of what they are able to earn, lend them enough to keep current on their carrying charges. Collateralize this with their property, their public domain, their political autonomy – their democracy itself. The aim is to keep the debt overhead in place. This means in practice, keeping the volume of debt growing exponentially as they accrue interest and arrears. That is the essence of the “magic of compound interest.” And Iceland’s interest rate is now 18%, causing the highest unemployment rate since the Great Depression.
This is “equilibrium” neoliberal style. In addition to paying exorbitant interest, homeowners must pay another 18% indexation of their debts to the inflation rate (the consumer price index) so that creditors will not lose the purchasing power over consumer goods. (The wealthy oligarchy here consists of billionaires who have chosen to join their Russian counterparts by living in London). Labor’s wages are not indexed
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The main beneficiaries of IMF lending to Latvia, for example, have been the Swedish banks that have spent the last decade funding that country’s real estate bubble while doing nothing to help develop an industrial potential to enable Latvia to pay for its imports by exporting something besides its emigrant male labor and act as a vehicle for Russian capital flight.
This is not entirely the IMF’s fault, to be sure. It is the European Community deserves a great deal of blame. Instead of viewing the post-Soviet economies as wards to be brought up to speed with Western Europe, the last thing the EU wanted was to develop potential rivals. It wanted customers – not only for its exports, but most of all for its loans. Austrian banks carved out financial spheres of influence in Hungary (and lost their shirt on real estate loans, much as the Habsburgs had done over a century ago), while the Baltic States passed into the Scandinavian sphere. Iceland was neoliberalized, largely in ripoffs organized by Deutsche Bank and plugged mainly into the British financial sphere. In fact, Iceland (from where I’m writing this note right now) looks like a controlled experiment – a very cruel one – as to how deeply an economy can be “financialized” and how long its population will submit voluntarily to predatory financial behavior which, if it were military, would spur a more alert response.
The G-20’s announcement continues the U.S. Treasury and Federal Reserve bank bailout over the past half- year. In a nutshell, the solution to a debt crisis is to be yet more debt. If debtors can’t pay out of what they are able to earn, lend them enough to keep current on their carrying charges. Collateralize this with their property, their public domain, their political autonomy – their democracy itself. The aim is to keep the debt overhead in place. This means in practice, keeping the volume of debt growing exponentially as they accrue interest and arrears. That is the essence of the “magic of compound interest.” And Iceland’s interest rate is now 18%, causing the highest unemployment rate since the Great Depression.
This is “equilibrium” neoliberal style. In addition to paying exorbitant interest, homeowners must pay another 18% indexation of their debts to the inflation rate (the consumer price index) so that creditors will not lose the purchasing power over consumer goods. (The wealthy oligarchy here consists of billionaires who have chosen to join their Russian counterparts by living in London). Labor’s wages are not indexed
.
.
.
.
.
.
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