Tag: Economics

“Nothing differentiates people as much as their respective attitudes to the circumstances in which they live. Those who opt to make history and change the course of events themselves have an advantage over those who decide to wait passively for the results of the change.”

Over and over, I see commentary asserting we are stuck with our current cultural norms. The “rational” people of the world patiently explain to me how I am too idealistic. I am naïve and believe too deeply in the good nature of most people. Yet, the rational people only have their assertions to stand on. History is fraught with examples of people who fought for and won real change. People like the Basques in Mondragon. They created lasting change under deplorable conditions. Even a cursory review of history shows change occurs when and where people decide to change. You don’t live in a feudal monarchy rife with slaves and infanticide-all well ingrained institutions the Ancient Greeks considered necessary evils of civilization-because people decided to change.

In the first part of this series, I described how a Jesuit priest named Don Jose created a Basque cooperative–Mondragon. He could hardly have started from a more impossible position. Basque was severely oppressed, poor and under a harsh dictatorship. His Church considered him a pariah, and he was a poor speaker and sermon writer. Yet, he refused to dwell on his disadvantages, concentrating on finding Basque strengths, instead.

In part two, we examined Don Jose’s unique genius in organizing his local society. He felt it was never necessary for someone to win while someone else lost. That scenario showed a lack of ingenuity. He examined problems until he saw a solution allowing the common good for everyone.

Some argue Mondragon arose from Basque because a specific set of non-reproducible circumstances existed. To me, that sounds like rationalization to let ourselves off the hook for not seeking to better our world. While I agree Mondragon originated in Basque due to a specific set of circumstances, clearly those factors are not needed to reproduce cooperative society.

What may be necessary is a certain environment in order to affect positive change. This post will look at some of the factors influencing people’s willingness to change during the creation of Mondragon and how to use those factors to enable change in our own culture.

  Too often commentary on the European debt crisis has been like handicapping a horse race (“this country is leading the race to default, but this other nation is catching”).

  While interesting, it is useless in trying to figure out how this relates to the average person.

 The first thing you have to understand is who the players are and how they are connected.

   The next big shock to the world’s financial system could happen as soon as Monday morning.

  How do I know this? Because the world’s financial leaders are expecting something really bad, and have publicly announced their intentions of preventing the consequences of something that they have proven unable to fix.

 It started on Friday, when Germany gave up on Greece.

 Chancellor Angela Merkel’s government is preparing plans to shore up German banks in the event that Greece fails to meet the terms of its aid package and defaults, three coalition officials said…

  Greece is “on a knife’s edge,” German Finance Minister Wolfgang Schaeuble told lawmakers at a closed-door meeting in Berlin on Sept. 7, a report in parliament’s bulletin showed yesterday. If the government can’t meet the aid terms, “it’s up to Greece to figure out how to get financing without the euro zone’s help,” he later said in a speech to parliament.

 When it comes to unofficial leaks like this, I tend to fall back on the wisdom of Otto von Bismarck when he said, “Never believe anything in politics until it has been officially denied.”

 Then, right on cue, both Greece and Germany officially denied it. Thus making it true.

 What is really scary is the two developments that immediately followed this news.

 The G7 stepped up and promised their support in defending the financial status quo.

 Central Banks stand ready to provide liquidity to banks as required. We will take all necessary actions to ensure the resilience of banking systems and financial markets.…

  Excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability. We will consult closely in regard to actions in exchange markets and will cooperate as appropriate.

 Why would they bother to announce this unless they suspected that people questioned either their resolve, or their ability?

 To conclude all these official declarations that “there is nothing to worry about” and “everything is under control”, the IMF also promised to step in if necessary.

 The International Monetary Fund will likely re-activate a $580 billion resource pool in coming weeks to ensure it has funds to help cover Europe’s worsening sovereign-debt crisis, according to several people close to the matter….

  According to the IMF, the pool of supplementary resources are only to be activated when “needed to forestall or cope with a threat to the international monetary system.”

 The IMF has been beefing up this fund since shortly before the European debt crisis reached this new crisis level. It’s almost as if they knew something like this was inevitable.

  The problem is that politics often works more slowly than bankers.

 The board of governors agreed in December to roughly double quotas from around $375 billion to around $750 billion. But out of the 187 member countries, only 17 have legally accepted the increase, including Japan, the U.K. and Korea. Most of the countries with the biggest quotas, such as the U.S., China and Germany, haven’t yet gone through the legal process, such as parliamentary or congressional approval, need to hand over their promised dues.

 While the American media focuses on opening week of football, handicapping the presidential race, celebrity gossip, reality TV, or talking about the latest electronic gadget, the financial markets are preparing for crisis in ways that we haven’t seen since early 2008.

  If the worst happens, the American public will be caught by surprise again because the news media failed us yet again.

  A couple days ago I read an interesting article on the aljazeera web site titled Double-dip recession is unlikely. What made the article interesting wasn’t the source, or the claim, it was the reasoning behind the claim.

 Most post-war recessions were kicked off when car sales and house sales and new construction plummeted.

  There seems to be little risk of a substantial decline in either car sales or house sales and construction, primarily because the levels are already so low….

  Both car sales and housing construction are already so low that they don’t have much room to fall.

 What the author is claiming is “things are already so bad, it’s hard to imagine them getting worse.”

 That’s a very interesting claim, but I doubt the author of the article learned it in an economics class. It sounds more like something he heard in a bar, and seemed to make a lot of sense after a few drinks.

 That’s not to say he doesn’t have a point of sorts. It’s just that his point is that we are in a Depression.

  The world of international finance, as it is practiced today, is a giant Ponzi scheme. The largest and most powerful Ponzi scheme in history. One of the first Ponzi schemes in history to actually be supported by the political leaders of the world.

 However, all Ponzi schemes must end poorly. They are designed to have a built-in failure. A Ponzi scheme only works when increases in value. You can’t have suckers investors selling.

Cross Posted from The Stars hollow Gazette

The robust economy of Germany is starting to feel the effects of the economic crisis of its partner nations in the Eurozone and is showing signs of drastic slowing

Growth in the German economy slowed sharply between April and June and was weaker at the start of the year than previously thought, figures show.

The (German) economy grew by just 0.1% in the quarter, according to figures from the national statistics office. Growth in the eurozone as a whole also slowed.

Germany had been driving the economic recovery in the eurozone.

The figures come as German Chancellor Angela Merkel and French President Nicolas Sarkozy begin crunch talks.

The two leaders are discussing ways to solve the eurozone debt crisis that has threatened to engulf Italy and Spain and has sparked turmoil on global stock markets.

Figures also released on Tuesday showed that eurozone economic growth slowed to 0.2% in the second quarter, down from 0.8% in the previous three months.

The slow down has had its effect on markets in Europe and early trading in the US:

The news led European indexes lower. Germany’s DAX fell 2.6 percent, the FTSE in Britain was 1.3 percent lower, and in France the CAC 40 was down 1.9 percent.

In early trading, the Dow Jones industrial average was down 80.68 points, or 0.70 percent, at 11,402.22. The Standard & Poor’s 500-stock index was down 11.02 points, or 0.91 percent, at 1,193.47, and the Nasdaq composite index was down 26.38 points, or 1.03 percent, at 2,528.82.

“German G.D.P. data is the catalyst this morning that got us off to a bad start,” said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vt.

The German chancellor, Angela Merkel, and President Nicolas Sarkozy of France were to meet later Tuesday to discuss measures to contain Europe’s fiscal crisis. A joint news conference was scheduled at noon E.D.T.

Another component of the down turn is the idea of issuing bonds backed by all Eurozone nations to ease the crisis has been poo-pooed by both German Chancellor Angela Merkel and French President Nicholas Sarkozy but they may have no other choice:

The euro bond concept is gaining traction among economists and other outside experts like George Soros, the billionaire investor, as a way of preventing borrowing costs for Italy and Spain from rising so much that the countries become insolvent, an event that could destroy the common currency.

Debt issued and backed by all 17 members of the euro zone, euro bond proponents say, would be regarded as ultrasafe by investors and could rival the market for United States Treasury securities. The weaker euro members would benefit from the good standing of countries like Germany or Finland and pay lower interest rates to borrow than if left to face investors on their own.

“It may well be in order to calm markets right now,” said Jakob von Weizsäcker, an economist for the German state of Thuringia who has proposed a way to structure euro bonds so that countries would be encouraged to reduce their debt.

On the “bright side”, there is Nouriel Roubini:

.Karl Marx was right that globalization, financial intermediation, and income redistribution could lead capitalism to self-destruct

Now a combination of high oil and commodity prices, turmoil in the Middle East, Japan’s earthquake and tsunami, eurozone debt crises, and America’s fiscal problems (and now its rating downgrade) have led to a massive increase in risk aversion. Economically, the United States, the eurozone, the United Kingdom, and Japan are all idling. Even fast-growing emerging markets (China, emerging Asia, and Latin America), and export-oriented economies that rely on these markets (Germany and resource-rich Australia), are experiencing sharp slowdowns.

Until last year, policymakers could always produce a new rabbit from their hat to reflate asset prices and trigger economic recovery. Fiscal stimulus, near-zero interest rates, two rounds of “quantitative easing,” ring-fencing of bad debt, and trillions of dollars in bailouts and liquidity provision for banks and financial institutions-officials tried them all. Now they have run out of rabbits.

Fiscal policy currently is a drag on economic growth in both the eurozone and the United Kingdom. Even in the United States, state and local governments, and now the federal government, are cutting expenditure and reducing transfer payments. Soon enough, they will be raising taxes.

It’s been a rather tough week for capitalists. With people waking up from the illusion of money and riots erupting in otherwise reserved England, I almost feel a little sorry for the advocates of Milton Friedman. Almost.

As you scrape together your last dollars to exchange for gold and throw another bucket of water on your burning London flat, have you considered abandoning this system? There is a choice, you know. We choose to have this system and all the pain that comes with it. Not offering opposition to a bad system is making a choice to continue with the dysfunction.

What’s that? You didn’t know you had choices? No one has explained to you the alternatives? Well, if you don’t feel obligated to ride this sinking ship to the bottom of the ocean, come along with us as we start talking solutions.

In Part I of this three part series, we discussed the history of a little known cooperative venture called Mondragon. This company went from a twelve-man paraffin stove manufacturing plant to a conglomerate that holds Wal-mart at bay in miniscule country of Basque, and employs 130,000 people. The cooperative has a remarkable 80% success rate in business ventures, far outstripping the typical success rate of 20% (less in this market). It has consistently helped the Basque people strengthen their communities with education, health care, housing and a robust social safety net.  It creates jobs where none existed before, stabilizing their economy while nearby Spain and Portugal flounder.

How could this one company achieve such miraculous results? Well, it may actually be a divine intervention–through a Jesuit priest named Don Jose. In this segment, I delve deeper into Don Jose’s unique genius in devising the Mondragon system.

We gotta grow some jobs, and that’s a fact, and we probably aren’t going to be able to do it with big ol’ jobs programs funded by the Federal Government, what with today’s politics and all, and that means if this Administration wants to stay in the jobs game they’re going to have to find some smaller and more creative ways to do it.

They are also going to have to come up with ideas that are pretty much “bulletproof”, meaning that they are so hard to object to that even Allen West and Louie Gohmert will not want to be on record saying “no no no!”; alternatively, solutions that work around the legislative process entirely could represent the other form of “bulletproof-ery”.

Well, I have one of those “maybe bulletproof” ideas for you today, and it has to do with how “Made in USA” the things are that our Government buys.

With veterans’ unemployment rising, President Barack Obama is scheduled on Friday in a visit Washington’s Navy Yard to announce initiatives to prepare vets for civilian jobs.

Those boomers born during WWII and in the few years directly after may or may not remember their childhood years, I do. What your parents, coming out of the military, no higher education needed to fight our wars, or moms coming out of the factories, quickly taught the jobs needed to work in by those who for many reasons couldn’t serve in the military. You grew up into that working world that had quickly grown a prosperous middle class, and with usually small but regular raises and improved benefits and safety you were prospering better then your parents. That all started changing some thirty to forty years ago to growth at the top and wall street investing while the worker stopped sharing in the labors instead given easy, but costly, credit to make them think they were doing better then the generations previous.