Central Perk: 19 iun. 2014

joi, 19 iunie 2014

Mish's Global Economic Trend Analysis

Absurd Statement of the Week "The System Worked"

Posted: 19 Jun 2014 08:14 PM PDT

A friend on mine emailed a link to a Vox article on The Biggest Surprise of the Financial Crisis.

Let's take a look.

When you hear "2008 financial crisis," is your first thought "proof that the global economy works"? Mine neither, but in his new book, provocatively titled The System Worked, Dan Drezner makes a strong case that it should be.

Drezner, an international relations professor at the Fletcher School of Law and Diplomacy at Tufts University and popular world affairs writer, thinks the financial crisis should have been a whole lot worse. At the beginning, it actually looked like it was going to be worse than the Great Depression. But then something miraculous happened: the global economy didn't collapse. By working together to keep trade free and capital flowing, the world's major powers and economic institutions prevented us from re-running of 1929.

Drezner Supports Microeconomic Intervention

Drezner states "I'm a huge fan of the microeconomic set of policies that the Washington Consensus, neoliberalism — whatever you want to call it — has advocated. Has the world has benefitted from more globalization? I think undoubtedly so. Could you tweak it at the margins in terms of capital controls in a time of emergency? Absolutely, and in fact the IMF has gone in that direction."

Drezner Also Sides With Krugman

"This is Paul Krugman's argument — it was almost morally appealing: "we have committed sins in the past with excessive debt, and we will not do that again." Without realizing that the way you cure excessive leverage in the private sector is to leverage the public sector, which then allows the private sector to deleverage.

To say the system worked is like saying the Vietnam War worked.

Worked for whom? Yes, the system "worked" to protect the banks, the hedge funds, and the already wealthy at the expense of everyone else.

For the entire Greenspan-Bernanke era, each crisis had a bigger amplitude than the one that preceded it. A global currency crisis of some sort awaits Yellen, it just hasn't hit yet. It will.

The solution offered by Dan Drezner is more intervention and more of the same policies that caused the mess. Meanwhile, income inequality and economic distortions of all sorts grow.

Only politicians and those living in academic wonderland with no real world experience can possibly assert "the system worked".

That we needed to take such radical actions in the first place should be proof enough that the system failed.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Merkel Tosses Cameron Like Hot Potato; Cameron to Go Down in Flames Over Juncker

Posted: 19 Jun 2014 11:08 AM PDT

Politically Expedient Potato Toss

German Chancellor Angela Merkel would like to help British Prime Minister David Cameron in his quest to stop Jean-Claude Juncker from becoming European Commission president.

Neither she nor Cameron wants Juncker as EC president. But chameleons like Merkel can change their colors at a moments notice.

When public opinion in Germany unexpectedly sided with Juncker, Merkel did the politically expedient thing, tossing Cameron like a hot potato.

Cameron to Go Down in Flames

All that's left is the final humiliating defeat with Cameron to Go Down Fighting Over Juncker's EU Appointment.

David Cameron has vowed to go down fighting in his battle to stop Jean-Claude Juncker becoming European Commission president, challenging other EU leaders at a summit next week to vote him down in an unprecedented showdown.

The UK's prime minister is increasingly isolated and faces almost certain defeat, but he is determined to force a vote of leaders at the European Council, a body that has always previously made decisions on top Brussels jobs by consensus.

British officials say that if Mr Cameron "caved in" now it would send a signal to other EU members that he will be weak in subsequent negotiations on a new deal for Britain ahead of his planned 2017 in-out referendum.

His hard line will make for a highly uncomfortable summit; British officials believe Angela Merkel, German chancellor, will be among those worried about establishing a principle that big countries could be outvoted on such a big issue.

Opposition to Mr Juncker has weakened to such an extent that some EU officials believe it is now unnecessary to discuss his candidacy as part of a package of top EU jobs, a practice frequently used in the past as a way of horse-trading support from reluctant member states.

Senior EU officials involved in negotiations said Mr Juncker's appointment is now all but assured for Friday, day two of next week's summit, which will begin with a dinner in Ypres and move on to Brussels.

Mr Van Rompuy had considered postponing the "jobs" discussion to avoid an Anglo-German dispute at Ypres, the site of fierce fighting between the two countries in the first world war, but has now decided to press ahead.

Ms Merkel's decision to back a quick decision to avoid domestic political upheaval has largely killed any hope of delaying his nomination, officials said.

The Process

Members of European parliament do not get to choose the EC president. Rather, top politicians in each country do.

Cameron banked on the fact that objections of a key country (Germany, France, Italy, UK) are typically not overridden (actual votes be damned).

Cameron Loses Gamble

Cameron lost his gamble when members of Merkel's CDU/CSU coalition backed Juncker as did the German public who accused Merkel of giving in to Cameron's blackmail. Merkel quickly changed her tune, as she always does in such circumstances.

It's possible they toss Cameron a bone, but even if so, this will be a humiliating defeat for Cameron who pledged to UK voters that he would get numerous rule changes in the EU before holding an up-down vote on the UK remaining in the EU.

It was a fool's pledge. Cameron will not get his rule changes, nor will he stop Juncker. Actually, he would not have gotten the rule changes he wanted even if he was able to stop Juncker.

Nannycrat Juncker

Juncker is one of the worst or best possible choices for EC president, depending on your point of view and objectives.

Without a doubt, Juncker will attempt to steer the EU down the nannycrat path with more absurd rules and regulations. The nannycrats will of course love that. Cameron won't.

Ironically, even though UKIP leader Nigel Farage despises Juncker, Nigel Farage and UKIP will appreciate the Juncker appointment because it increases the chances the UK kisses the EU goodbye in the up-down vote Cameron promised in 2017.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com