Tuesday, July 10, 2012

524 Solutions for Greece

Solutions for Greece

(1) A Return to the Drachma?
(2) Solutions for Greece - Ellen Brown
(3) To avert Financial Collapse, US should cancel all derivative bets -
Paul Craig Roberts
(4) Bring Spirituality, compassion, ethics and morality back into
Economics - Kamran Mofid

(1) A Return to the Drachma?

From: Iskandar Masih <iskandar38@hotmail.com> Subject: RE: Syriza the
only hope for Greece. Sack the Economists who serve the 1%

I heard recently (from a respected independent economist) that Greece's
loan agreements stipulate that the loans must be repaid in Euros, even
if Greece were to exit the Eurozone - they would still have to pay back
those debts. So what would be the advantage to switch back to drachma?

Comment (Peter M.):

The Greeks can repudiate the debt.

The ECB should be mandated to "print money" for the whole Eurozone
during times of financial crisis and high unemployment.

When individual countries gave up their own central banks - which did
have this power - they entered a union whose central bank, the ECB, was
not set up this way. This defect in design was to preserve the illusion
of the sovereignty of the member states. Many "peripheral" countries of
the EU are now paying dearly for this design flaw; yet it was imposed on
them by the "centre". Repudiating the debt and returning to their own
currencies need not be the end of the Euro project. Rather, it could
precipitate a redesign of the system as a true federation, one where the
ECB serves the needs of all, not just the owners of wealth.

(2) Solutions for Greece - Ellen Brown

http://www.alternet.org/economy/155790/greece_and_the_euro%3A_fifty_ways_to_leave_your_lover?page=entire


Greece and the Euro: Fifty Ways to Leave Your Lover
Five creative alternatives to an ugly break-up

by Ellen Brown

June 7, 2012 |

The problem is all inside your head she said to me
The answer is easy if you take it logically
I'd like to help you in your struggle to be free
There must be fifty ways to leave your lover
-Lyrics by Paul Simon

The Euro appears to be a marriage of incompatible partners. A June 1st
article in the UK Telegraph titled "Why Europe's Love Affair with the
European Project Is Ending" reported that two-thirds of 9,000
respondents thought that having the euro as their single currency was a
mistake.

For Greece, it was a tragic mismatch from the beginning; and like many a
breakup, it is really about money. Greece is a vivacious young woman
chained to a tyrannical old man. She yearns to be free to dance on her
own; but breaking up is hard to do. Defaulting on her debts will force
her out of the Eurozone and back to issuing drachmas, and she could get
brutally beaten by speculators on foreign exchange markets for her
insolence.

Fortunately, there are alternatives to an ugly divorce. The treaties
binding the 17 member nations are just a set of rules, entered into by
mutual agreement; and rules can be bent or broken, especially in crises.
The ECB (European Central Bank) broke a litany of rules to save the
banks, and so did the Federal Reserve to save Wall Street in 2008. Rules
that can be bent for banks can be bent for people and nations—not just
Greece, but all the other Eurozone countries threatening to file for
divorce.

Paul Simon says there are 50 ways, but here are five creative alternatives.

1. The Open Marriage: Return to the Drachma Without Abandoning the Euro

James Skinner, former chairman of NEF (the New Economics Foundation in
the UK), suggests that the Greek government could start issuing drachmas
without abandoning the euro. Drachmas could be reserved for domestic
use—to pay the government's budget, hire workers, build infrastructure
and expand social services. He writes:

Greece is suffering from a lack of money because the only source, the
single currency, has dried up. But there is no law that states that
there has to be only one currency.

... By enabling the Government, monitored by the Central Bank, to spend
newly created money directly into the economy, bypassing the banking
sector, the burden of increasing national debt can be avoided. ...

This programme for creating a new Greek Drachma, bypassing the private
banking sector, could start tomorrow. Its immediate effect would be to
get the unemployed back to work. All existing Euro transactions can
continue as before, quite separately from the new currency. The two
currencies can perfectly well co-exist and run alongside each other. ...
Foreign banks will continue to deal in Euros and other currencies as usual.

This solution was successfully used in Argentina when its currency
collapsed in 2001. The government walked away from its debts and started
issuing its own Argentine pesos. Three years after a record debt default
on more than $100 billion, the country was well on the road to recovery.
Exports increased, the currency was stable, investors returned,
unemployment diminished and the economy grew by 8 percent for 2
consecutive years

2. Separate Bank Accounts: Fire Up the Printing Presses at the Greek
Central Bank

In a March 19 article on Seeking Alpha, George Kesarios observed that
the Greek central bank has the power to issue more than just drachmas.
The ECB is not an ordinary central bank:

Rather, it is a confederation of central banks. Each European national
central bank can theoretically do the same types of market operations as
the ECB and then some. The forefathers of the euro have left many
monetary windows open, which, if used correctly, can solve the European
debt crisis in a very short period without taxpayer funds.

He cited article 14.4 of the Protocol on the Statute of the European
System of Central Banks, which provides:

14.4. National central banks may perform functions other than those
specified in this Statute unless the Governing Council finds, by a
majority of two thirds of the votes cast, that these interfere with the
objectives and tasks of the ESCB. Such functions shall be performed on
the responsibility and liability of national central banks and shall not
be regarded as being part of the functions of the ESCB.

That means the National Center Banks can do whatever the ECB can do—and
even things it can't. The Greek central bank could step in and start
issuing euros itself. Again, there is precedent for this. It was under
Article 14.4 that the Irish Central Bank was able to print 80 billion
euros as "emergency liquidity assistance," and the Greek central bank
has already printed 44 billion euros itself.

The Greek government could print euros, refinance its sovereign debt,
and pay the interest to itself, effectively eliminating the interest
burden. Among other precedents, there is Canada, which borrowed from its
own central bank from 1939 to 1974 to fund major infrastructure projects
and social programs. It pulled this off over a 25-year period without
hyperinflating the currency, driving up prices, or increasing the public
debt, which remained low and sustainable.

There is the concern that the euro might suffer by devaluation if other
Eurozone members followed suit. But Kesarios points to the Japanese
experience, "where one can print and print and then print some more,
without the value of the currency being marked down (due to positive
trade flows)." The euro might be equally resilient.

3. Divorce: Just Walk Away

According to the May 29th New York Times, the 130 billion euro bailout
that was supposed to buy time for Greece is now mainly just servicing
the interest on the debt. The "troika"—the ECB, IMF, and European
Commission—which holds three-fourths of the debt, is sequestering the
bailout funds to be paid right back to themselves in interest payments.
This is merely going to compound the debt to disastrous levels, without
a single cent going to the Greeks or their comatose economy.

Interest rates on Greek ten-year bonds have gone to nearly 30 percent
recently. Under the Rule of 72, at 30% compounded annually, debt doubles
in 2.4 years. If the Greeks can't even pay the interest on the debt
today except by borrowing, how are they going to repay double the
principal in a mere 2.4 years? At 30%, the Greeks could be paying over
100% of their GDP in interest charges. Legally, a contract that is
impossible to perform is void.

Alexis Tsipras, leader of the radical left-wing Greek party Syriza,
which is now in second place in the Greek parliament, calls it an
"odious debt," a legal term for a national debt incurred by a regime for
purposes that do not serve the best interests of the nation. An odious
debt under international law need not be repaid.

4. Spousal Support: The Public Bank Option

If divorce is too much to contemplate, Greece's crippling interest
burden can be relieved by taking advantage of the ECB's very generous 1%
rate for bankers. Article 123 of the Maastricht Treaty forbids member
governments from borrowing directly from the ECB, but it makes an
exception in paragraph 2 for "publicly-owned credit
institutions"—something Greece will have plenty of when it nationalizes
its banks. They can line up at the ECB's window for its bargain-basement
1% banking rate and use the borrowed funds to buy up the national debt.

Researcher Simon Thorpe wrote to the ECB and asked whether they would
object if a publicly-owned credit institution were to borrow from the
ECB and use the funds "to supply the money to a government such as the
Greek government in order for that government to pay off its debts to
financial markets." The ECB replied:

According to the Treaty—as you have just quoted—such publicly owned
credit institutions "shall be given the same treatment by national
central banks and the ECB as private credit institutions." It is up to
the banks to decide how to use the money they have borrowed from the
central bank system.

5. The Dowry: Impose a Financial Transaction Tax

Thorpe notes that the ECB has issued and lent nearly one trillion euros
to the banks at 1% since December 2011—three times the total Greek debt
of 355 billion euros. If Greek public banks borrowed from the ECB at 1%
and bought Greece's sovereign debt, the debt could be paid off in 10
years just from the returns on a very modest Financial Transaction Tax
(FTT) of 0.3%.

Imposing a tiny FTT on all financial trades would not only be a
lucrative source of revenue but would prevent the attacks of
speculators, both on the newly-issued drachma and on the sovereign debt
of Greece and other Eurozone countries. The FTT has already been
implemented in many countries. In 2011, there were 40 countries that had
FTT in operation, raising $38 billion (?29bn).

Where There Is a Will, There Is a Way

The problem is finding the will, particularly among the Eurocrat leaders
holding the reins of power, who may not be looking for an amicable
workout. The marital problems of Greece and the Eurozone stem from an
arbitrary set of rules that were entered into and can be changed by
agreement. But as Mike Whitney maintained in a June 3 article titled
"Europe Moves Closer to Banktatorship":

These people are not interested in fixing the EZ economy. They are
engaged in a stealth campaign to ... solidify the power of big finance
over the individual states . ...

To avoid that dire scenario, the popular majority needs to grab the
reins of power. It is fitting that Greece, the birthplace of European
culture and democracy, is the focus of the struggle against bondage to
an elite banker class. Greece can dance again if she can set herself free.

Ellen Brown is an attorney, author, and president of the Public Banking
Institute. Her latest book is Web of Debt.

(3) To avert Financial Collapse, US should cancel all derivative bets -
Paul Craig Roberts


[shamireaders] Paul Craig Roberts: Financial Collapse At Hand: When is
"Sooner or Later"?

Ken Freeland <diogenesquest@gmail.com> 9 June 2012 06:08

Financial Collapse At Hand: When is "Sooner or Later"?

By Dr. Paul Craig Roberts
Global Research, June 5, 2012

http://www.globalresearch.ca/index.php?context=va&aid=31272

Ever since the beginning of the financial crisis and Quantitative
Easing, the question has been before us: How can the Federal Reserve
maintain zero interest rates for banks and negative real interest rates
for savers and bond holders when the US government is adding $1.5
trillion to the national debt every year via its budget deficits? Not
long ago the Fed announced that it was going to continue this policy for
another 2 or 3 years. Indeed, the Fed is locked into the policy. Without
the artificially low interest rates, the debt service on the national
debt would be so large that it would raise questions about the US
Treasury's credit rating and the viability of the dollar, and the
trillions of dollars in Interest Rate Swaps and other derivatives would
come unglued.

In other words, financial deregulation leading to Wall Street's gambles,
the US government's decision to bail out the banks and to keep them
afloat, and the Federal Reserve's zero interest rate policy have put the
economic future of the US and its currency in an untenable and dangerous
position. It will not be possible to continue to flood the bond markets
with $1.5 trillion in new issues each year when the interest rate on the
bonds is less than the rate of inflation. Everyone who purchases a
Treasury bond is purchasing a depreciating asset. Moreover, the capital
risk of investing in Treasuries is very high. The low interest rate
means that the price paid for the bond is very high. A rise in interest
rates, which must come sooner or later, will collapse the price of the
bonds and inflict capital losses on bond holders, both domestic and foreign.

The question is: when is sooner or later? The purpose of this article is
to examine that question.

Let us begin by answering the question: how has such an untenable policy
managed to last this long?

A number of factors are contributing to the stability of the dollar and
the bond market. A very important factor is the situation in Europe.
There are real problems there as well, and the financial press keeps our
focus on Greece, Europe, and the euro. Will Greece exit the European
Union or be kicked out? Will the sovereign debt problem spread to Spain,
Italy, and essentially everywhere except for Germany and the Netherlands?

Will it be the end of the EU and the euro? These are all very dramatic
questions that keep focus off the American situation, which is probably
even worse.

The Treasury bond market is also helped by the fear individual investors
have of the equity market, which has been turned into a gambling casino
by high-frequency trading.

High-frequency trading is electronic trading based on mathematical
models that make the decisions. Investment firms compete on the basis of
speed, capturing gains on a fraction of a penny, and perhaps holding
positions for only a few seconds. These are not long-term investors.
Content with their daily earnings, they close out all positions at the
end of each day.

High-frequency trades now account for 70-80% of all equity trades. The
result is major heartburn for traditional investors, who are leaving the
equity market. They end up in Treasuries, because they are unsure of the
solvency of banks who pay next to nothing for deposits, whereas 10-year
Treasuries will pay about 2% nominal, which means, using the official
Consumer Price Index, that they are losing 1% of their capital each
year. Using John Williams' (shadowstats.com) correct measure of
inflation, they are losing far more. Still, the loss is about 2
percentage points less than being in a bank, and unlike banks, the
Treasury can have the Federal Reserve print the money to pay off its
bonds. Therefore, bond investment at least returns the nominal amount of
the investment, even if its real value is much lower. ( For a
description of High-frequency trading, see:
http://en.wikipedia.org/wiki/High_frequency_trading )

The presstitute financial media tells us that flight from European
sovereign debt, from the doomed euro, and from the continuing real
estate disaster into US Treasuries provides funding for Washington's
$1.5 trillion annual deficits. Investors influenced by the financial
press might be responding in this way. Another explanation for the
stability of the Fed's untenable policy is collusion between Washington,
the Fed, and Wall Street. We will be looking at this as we progress.

Unlike Japan, whose national debt is the largest of all, Americans do
not own their own public debt. Much of US debt is owned abroad,
especially by China, Japan, and OPEC, the oil exporting countries. This
places the US economy in foreign hands. If China, for example, were to
find itself unduly provoked by Washington, China could dump up to $2
trillion in US dollar-dominated assets on world markets. All sorts of
prices would collapse, and the Fed would have to rapidly create the
money to buy up the Chinese dumping of dollar-denominated financial
instruments.

The dollars printed to purchase the dumped Chinese holdings of US dollar
assets would expand the supply of dollars in currency markets and drive
down the dollar exchange rate. The Fed, lacking foreign currencies with
which to buy up the dollars would have to appeal for currency swaps to
sovereign debt troubled Europe for euros, to Russia, surrounded by the
US missile system, for rubles, to Japan, a country over its head in
American commitment, for yen, in order to buy up the dollars with euros,
rubles, and yen.

These currency swaps would be on the books, unredeemable and making
additional use of such swaps problematical. In other words, even if the
US government can pressure its allies and puppets to swap their harder
currencies for a depreciating US currency, it would not be a repeatable
process. The components of the American Empire don't want to be in
dollars any more than do the BRICS.

However, for China, for example, to dump its dollar holdings all at once
would be costly as the value of the dollar-denominated assets would
decline as they dumped them. Unless China is faced with US military
attack and needs to defang the aggressor, China as a rational economic
actor would prefer to slowly exit the US dollar. Neither do Japan,
Europe, nor OPEC wish to destroy their own accumulated wealth from
America's trade deficits by dumping dollars, but the indications are
that they all wish to exit their dollar holdings.

Unlike the US financial press, the foreigners who hold dollar assets
look at the annual US budget and trade deficits, look at the sinking US
economy, look at Wall Street's uncovered gambling bets, look at the war
plans of the delusional hegemon and conclude: "I've got to carefully get
out of this."

US banks also have a strong interest in preserving the status quo. They
are holders of US Treasuries and potentially even larger holders. They
can borrow from the Federal Reserve at zero interest rates and purchase
10-year Treasuries at 2%, thus earning a nominal profit of 2% to offset
derivative losses. The banks can borrow dollars from the Fed for free
and leverage them in derivative transactions. As Nomi Prins puts it, the
US banks don't want to trade against themselves and their free source of
funding by selling their bond holdings. Moreover, in the event of
foreign flight from dollars, the Fed could boost the foreign demand for
dollars by requiring foreign banks that want to operate in the US to
increase their reserve amounts, which are dollar based.

I could go on, but I believe this is enough to show that even actors in
the process who could terminate it have themselves a big stake in not
rocking the boat and prefer to quietly and slowly sneak out of dollars
before the crisis hits. This is not possible indefinitely as the process
of gradual withdrawal from the dollar would result in continuous small
declines in dollar values that would end in a rush to exit, but
Americans are not the only delusional people.

The very process of slowly getting out can bring the American house
down. The BRICS--Brazil, the largest economy in South America, Russia,
the nuclear armed and energy independent economy on which Western Europe
( Washington's NATO puppets) are dependent for energy, India, nuclear
armed and one of Asia's two rising giants, China, nuclear armed,
Washington's largest creditor (except for the Fed), supplier of
America's manufactured and advanced technology products, and the new
bogyman for the military-security complex's next profitable cold war,
and South Africa, the largest economy in Africa--are in the process of
forming a new bank. The new bank will permit the five large economies to
conduct their trade without use of the US dollar.

In addition, Japan, an American puppet state since WW II, is on the
verge of entering into an agreement with China in which the Japanese yen
and the Chinese yuan will be directly exchanged. The trade between the
two Asian countries would be conducted in their own currencies without
the use of the US dollar. This reduces the cost of foreign trade between
the two countries, because it eliminates payments for foreign exchange
commissions to convert from yen and yuan into dollars and back into yen
and yuan.

Moreover, this official explanation for the new direct relationship
avoiding the US dollar is simply diplomacy speaking. The Japanese are
hoping, like the Chinese, to get out of the practice of accumulating
ever more dollars by having to park their trade surpluses in US
Treasuries. The Japanese US puppet government hopes that the Washington
hegemon does not require the Japanese government to nix the deal with China.

Now we have arrived at the nitty and gritty. The small percentage of
Americans who are aware and informed are puzzled why the banksters have
escaped with their financial crimes without prosecution. The answer
might be that the banks "too big to fail" are adjuncts of Washington and
the Federal Reserve in maintaining the stability of the dollar and
Treasury bond markets in the face of an untenable Fed policy.

Let us first look at how the big banks can keep the interest rates on
Treasuries low, below the rate of inflation, despite the constant
increase in US debt as a percent of GDP--thus preserving the Treasury's
ability to service the debt.

The imperiled banks too big to fail have a huge stake in low interest
rates and the success of the Fed's policy. The big banks are positioned
to make the Fed's policy a success. JPMorganChase and other giant-sized
banks can drive down Treasury interest rates and, thereby, drive up the
prices of bonds, producing a rally, by selling Interest Rate Swaps
(IRSwaps).

A financial company that sells IRSwaps is selling an agreement to pay
floating interest rates for fixed interest rates. The buyer is
purchasing an agreement that requires him to pay a fixed rate of
interest in exchange for receiving a floating rate.

The reason for a seller to take the short side of the IRSwap, that is,
to pay a floating rate for a fixed rate, is his belief that rates are
going to fall. Short-selling can make the rates fall, and thus drive up
the prices of Treasuries. When this happens, as the charts at
http://www.marketoracle.co.uk/Article34819.html illustrate, there is a
rally in the Treasury bond market that the presstitute financial media
attributes to "flight to the safe haven of the US dollar and Treasury
bonds." In fact, the circumstantial evidence (see the charts in the link
above) is that the swaps are sold by Wall Street whenever the Federal
Reserve needs to prevent a rise in interest rates in order to protect
its otherwise untenable policy. The swap sales create the impression of
a flight to the dollar, but no actual flight occurs. As the IRSwaps
require no exchange of any principal or real asset, and are only a bet
on interest rate movements, there is no limit to the volume of IRSwaps.

This apparent collusion suggests to some observers that the reason the
Wall Street banksters have not been prosecuted for their crimes is that
they are an essential part of the Federal Reserve's policy to preserve
the US dollar as world currency. Possibly the collusion between the
Federal Reserve and the banks is organized, but it doesn't have to be.
The banks are beneficiaries of the Fed's zero interest rate policy. It
is in the banks' interest to support it. Organized collusion is not
required.

Let us now turn to gold and silver bullion. Based on sound analysis,
Gerald Celente and other gifted seers predicted that the price of gold
would be $2000 per ounce by the end of last year. Gold and silver
bullion continued during 2011 their ten-year rise, but in 2012 the price
of gold and silver have been knocked down, with gold being $350 per
ounce off its $1900 high.

In view of the analysis that I have presented, what is the explanation
for the reversal in bullion prices? The answer again is shorting. Some
knowledgeable people within the financial sector believe that the
Federal Reserve (and perhaps also the European Central Bank) places
short sales of bullion through the investment banks, guaranteeing any
losses by pushing a key on the computer keyboard, as central banks can
create money out of thin air.

Insiders inform me that as a tiny percent of those on the buy side of
short sells actually want to take delivery on the gold or silver
bullion, and are content with the financial money settlement, there is
no limit to short selling of gold and silver. Short selling can actually
exceed the known quantity of gold and silver.

Some who have been watching the process for years believe that
government-directed short-selling has been going on for a long time.
Even without government participation, banks can control the volume of
paper trading in gold and profit on the swings that they create.
Recently short selling is so aggressive that it not merely slows the
rise in bullion prices but drives the price down. Is this aggressiveness
a sign that the rigged system is on the verge of becoming unglued?

In other words, "our government," which allegedly represents us, rather
than the powerful private interests who elect "our government" with
their multi-million dollar campaign contributions, now legitimized by
the Republican Supreme Court, is doing its best to deprive us mere
citizens, slaves, indentured servants, and "domestic extremists" from
protecting ourselves and our remaining wealth from the currency
debauchery policy of the Federal Reserve. Naked short selling prevents
the rising demand for physical bullion from raising bullion's price.

Jeff Nielson explains another way that banks can sell bullion shorts
when they own no bullion.
http://www.gold-eagle.com/editorials_08/nielson102411.html Nielson says
that JP Morgan is the custodian for the largest long silver fund while
being the largest short-seller of silver. Whenever the silver fund adds
to its bullion holdings, JP Morgan shorts an equal amount. The short
selling offsets the rise in price that would result from the increase in
demand for physical silver. Nielson also reports that bullion prices can
be suppressed by raising margin requirements on those who purchase
bullion with leverage. The conclusion is that bullion markets can be
manipulated just as can the Treasury bond market and interest rates.

How long can the manipulations continue? When will the proverbial hit
the fan?

If we knew precisely the date, we would be the next mega-billionaires.

Here are some of the catalysts waiting to ignite the conflagration that
burns up the Treasury bond market and the US dollar:

A war, demanded by the Israeli government, with Iran, beginning with
Syria, that disrupts the oil flow and thereby the stability of the
Western economies or brings the US and its weak NATO puppets into armed
conflict with Russia and China. The oil spikes would degrade further the
US and EU economies, but Wall Street would make money on the trades.

An unfavorable economic statistic that wakes up investors as to the true
state of the US economy, a statistic that the presstitute media cannot
deflect.

An affront to China, whose government decides that knocking the US down
a few pegs into third world status is worth a trillion dollars.

More derivate mistakes, such as JPMorganChase's recent one, that send
the US financial system again reeling and reminds us that nothing has
changed.

The list is long. There is a limit to how many stupid mistakes and
corrupt financial policies the rest of the world is willing to accept
from the US. When that limit is reached, it is all over for "the world's
sole superpower" and for holders of dollar-denominated instruments.

Financial deregulation converted the financial system, which formerly
served businesses and consumers, into a gambling casino where bets are
not covered. These uncovered bets, together with the Fed's zero interest
rate policy, have exposed Americans' living standard and wealth to large
declines. Retired people living on their savings and investments, IRAs
and 401(k)s can earn nothing on their money and are forced to consume
their capital, thereby depriving heirs of inheritance. Accumulated
wealth is consumed.

As a result of jobs offshoring, the US has become an import-dependent
country, dependent on foreign made manufactured goods, clothing, and
shoes. When the dollar exchange rate falls, domestic US prices will
rise, and US real consumption will take a big hit. Americans will
consume less, and their standard of living will fall dramatically.

The serious consequences of the enormous mistakes made in Washington, on
Wall Street, and in corporate offices are being held at bay by an
untenable policy of low interest rates and a corrupt financial press,
while debt rapidly builds. The Fed has been through this experience once
before. During WW II the Federal Reserve kept interest rates low in
order to aid the Treasury's war finance by minimizing the interest
burden of the war debt. The Fed kept the interest rates low by buying
the debt issues. The postwar inflation that resulted led to the Federal
Reserve-Treasury Accord in 1951, in which agreement was reached that the
Federal Reserve would cease monetizing the debt and permit interest
rates to rise.

Fed chairman Bernanke has spoken of an "exit strategy" and said that
when inflation threatens, he can prevent the inflation by taking the
money back out of the banking system. However, he can do that only by
selling Treasury bonds, which means interest rates would rise. A rise in
interest rates would threaten the derivative structure, cause bond
losses, and raise the cost of both private and public debt service. In
other words, to prevent inflation from debt monetization would bring on
more immediate problems than inflation. Rather than collapse the system,
wouldn't the Fed be more likely to inflate away the massive debts?

Eventually, inflation would erode the dollar's purchasing power and use
as the reserve currency, and the US government's credit worthiness would
waste away. However, the Fed, the politicians, and the financial
gangsters would prefer a crisis later rather than sooner. Passing the
sinking ship on to the next watch is preferable to going down with the
ship oneself. As long as interest rate swaps can be used to boost
Treasury bond prices, and as long as naked shorts of bullion can be used
to keep silver and gold from rising in price, the false image of the US
as a safe haven for investors can be perpetuated.

However, the $230,000,000,000,000 in derivative bets by US banks might
bring its own surprises. JPMorganChase has had to admit that its
recently announced derivative loss of $2 billion is more than that. How
much more remains to be seen. According to the Comptroller of the
Currency the five largest banks hold 95.7% of all derivatives. The five
banks holding $226 trillion in derivative bets are highly leveraged
gamblers. For example, JPMorganChase has total assets of $1.8 trillion
but holds $70 trillion in derivative bets, a ratio of $39 in derivative
bets for every dollar of assets. Such a bank doesn't have to lose very
many bets before it is busted.

Assets, of course, are not risk-based capital. According to the
Comptroller of the Currency report, as of December 31, 2011,
JPMorganChase held $70.2 trillion in derivatives and only $136 billion
in risk-based capital. In other words, the bank's derivative bets are
516 times larger than the capital that covers the bets.

It is difficult to imagine a more reckless and unstable position for a
bank to place itself in, but Goldman Sachs takes the cake. That bank's
$44 trillion in derivative bets is covered by only $19 billion in
risk-based capital, resulting in bets 2,295 times larger than the
capital that covers them.

Bets on interest rates comprise 81% of all derivatives. These are the
derivatives that support high US Treasury bond prices despite massive
increases in US debt and its monetization.

US banks' derivative bets of $230 trillion, concentrated in five banks,
are 15.3 times larger than the US GDP. A failed political system that
allows unregulated banks to place uncovered bets 15 times larger than
the US economy is a system that is headed for catastrophic failure. As
the word spreads of the fantastic lack of judgment in the American
political and financial systems, the catastrophe in waiting will become
a reality.

Everyone wants a solution, so I will provide one. The US government
should simply cancel the $230 trillion in derivative bets, declaring
them null and void. As no real assets are involved, merely gambling on
notional values, the only major effect of closing out or netting all the
swaps (mostly over-the-counter contracts between counter-parties) would
be to take $230 trillion of leveraged risk out of the financial system.
The financial gangsters who want to continue enjoying betting gains
while the public underwrites their losses would scream and yell about
the sanctity of contracts. However, a government that can murder its own
citizens or throw them into dungeons without due process can abolish all
the contracts it wants in the name of national security. And most
certainly, unlike the war on terror, purging the financial system of the
gambling derivatives would vastly improve national security.

Dr. Roberts was Assistant Secretary of the US Treasury, Associate Editor
of the Wall Street Journal, columnist for Business Week, and professor
of economics. His book, Economies In Collapse, is being published in
Germany this month.

(4) Bring Spirituality, compassion, ethics and morality back into
Economics - Kamran Mofid

From: "Sandhya Jain " <sandhya206@bol.net.in> Date: Sun, 10 Jun 2012
07:04:25 +0530

http://gcgi.info/kamrans-blog/186-three-cheers-for-moral-philosophy-and-down-with-economics-as-a-science

Three Cheers for Moral Philosophy and Down with Economics as a Science
Written by Kamran Mofid, Ph.D.

Tuesday, 05 June 2012 08:05

A Reflection on Michael Sandel's new book, "What Money Can't Buy: The
Moral Limits of Markets"

On my journey from a "Dismal" scientist to Spiritual Economist, I
discovered many gems and realised fully the wrongs of my past beliefs.
It was at times a very difficult journey. A journey, that now I fully
understand, was very worthwhile and precious.

One of the most important discoveries I made was when I came to
understand that I needed to bring spirituality, compassion, ethics and
morality back into economics itself, to make this dismal science once
again relevant to and concerned with the common good.

Let me, recall a couple of those gems I found, which are very relevant
and complimentary to Sandel's book.

• Living happily is "the desire of us all, but our minds is blinded to a
clear vision of just what it is that makes life happy". The root of
happiness is ethical behaviour, and thus the ancient idea of moral
education and cultivation, is essential to ideal of joyfulness.

• Economics, from the time of Plato right through to Adam Smith and John
Stuart Mill, was as deeply concerned with issues of social justice,
ethics and morality as it was with economic analysis. Most economics
students today learn that Adam Smith was the 'father of modern
economics' but not that he was also a moral philosopher. In 1759,
sixteen years before his famous Wealth of Nations, he published The
Theory of Moral Sentiments, which explored the self-interested nature of
man and his ability nevertheless to make moral decisions based on
factors other than selfishness. In The Wealth of Nations, Smith laid the
early groundwork for economic analysis, but he embedded it in a broader
discussion of social justice and the role of government. Students today
know only of his analogy of the 'invisible hand' and refer to him as
defending free markets. They ignore his insight that the pursuit of
wealth should not take precedence over social and moral obligations, and
his belief that a 'divine Being' gives us 'the greatest quantity of
happiness'. They are taught that the free market as a 'way of life'
appealed to Adam Smith but not that he distrusted the morality of the
market as a morality for society at large. He neither envisioned nor
prescribed a capitalist society, but rather a 'capitalist economy within
society, a society held together by communities of non-capitalist and
non-market morality'. As it has been noted, morality for Smith included
neighbourly love, an obligation to practice justice, a norm of financial
support for the government 'in proportion to [one's] revenue', and a
tendency in human nature to derive pleasure from the good fortune and
happiness of other people.

• The focus of economics should be on the benefit and the bounty that
the economy produces, on how to let this bounty increase, and how to
share the benefits justly among the people for the common good, removing
the evils that hinder this process. Moreover, economic investigation
should be accompanied by research into subjects such as anthropology,
philosophy, politics and most importantly, theology, to give insight
into our own mystery, as no economic theory or no economist can say who
we are, where have we come from or where we are going to. Humankind must
be respected as the centre of creation and not relegated by more short
term economic interests.

• 'Economic rationality' in the shape of neo-liberal globalisation is
socially and politically suicidal. Justice and democracy are sacrificed
on the altar of a mythical market as forces outside society rather than
creations of it. However, free markets do not exist in a vacuum. They
require a set of impartiality in government, honesty, justice, and
public spiritedness in business. The best safeguard against fraud,
theft, and injustice in markets are the cardinal virtues of justice,
temperance, fortitude, and prudence, and the theological virtues of
faith, hope, and charity. (See more: http://gcgi.info/how-it-began )

Now I am delighted that Michael Sandel, Professor of political
philosophy at Harvard is so eloquently addressing similar issues and
concerns. He notes that, "We need to reason about how to value our
bodies, human dignity, teaching and learning". Moreover, he sheds light
on why economics needs to be seen not as a science but a moral
philosophy. This is music to my ears.

"We live at a time when almost everything can be bought and sold,"
Sandel writes. "We have drifted from having a market economy, to being a
market society," in which the solution to all manner of social and civic
challenges is not a moral debate but the law of the market, on the
assumption that cash incentives are always the appropriate mechanism by
which good choices are made. Every application of human activity is
priced and commodified, and all value judgments are replaced by the
simple question: "How much?"

I very much like Sandel's praise of civic duty:

"He certainly provides some fascinating examples of the market failing
to do a better job than social norms or civic values, when it comes to
making us do the right thing. For example, economists carried out a
survey of villagers in Switzerland to see if they would accept a nuclear
waste site in their community. While the site was obviously unwelcome,
the villagers recognised its importance to their country, and voted 51%
in favour. The economists then asked how they would vote if the
government compensated them for accepting the site with an annual
payment. Support promptly dropped to 25%... Likewise, a study comparing
the British practice of blood donation with the American system whereby
the poor can sell their blood found the voluntary approach worked far
more effectively. Once again, civic duty turned out to be more powerful
than money."

One of the most fascinating questions Sandel addresses is why the
financial crisis appears to have scarcely put a dent in public faith in
market solutions.

"One would have thought that this would be an occasion for critical
reflection on the role of markets in our lives. I think the persistent
hold of markets and market values – even in the face of the financial
crisis – suggests that the source of that faith runs very deep; deeper
than the conviction that markets deliver the goods. I don't think that's
the most powerful allure of markets. One of the appeals of markets, as a
public philosophy, is they seem to spare us the need to engage in public
arguments about the meaning of goods. So markets seem to enable us to be
non-judgmental about values. But I think that's a mistake."

Putting a price on a flat-screen TV or a toaster is, he says, quite
sensible. "But how to value pregnancy, procreation, our bodies, human
dignity, the value and meaning of teaching and learning – we do need to
reason about the value of goods. The markets give us no framework for
having that conversation. And we're tempted to avoid that conversation,
because we know we will disagree about how to value bodies, or
pregnancy, or sex, or education, or military service; we know we will
disagree. So letting markets decide seems to be a non-judgmental,
neutral way. And that's the deepest part of the allure; that it seems to
provide a value-neutral, non-judgmental way of determining the value of
all goods. But the folly of that promise is – though it may be true
enough for toasters and flat-screen televisions – it's not true for
kidneys."

Sandel makes the illuminating observation that what he calls the "market
triumphalism" in western politics over the past 30 years has coincided
with a "moral vacancy" at the heart of public discourse, which has been
reduced in the media to meaningless shouting matches on cable TV – what
might be called the Foxification of debate – and among elected
politicians to disagreements so technocratic and timid that citizens
despair of politics ever addressing the questions that matter most.

"There is an internal connection between the two, and the internal
connection has to do with this flight from judgment in public discourse,
or the aspiration to value neutrality in public discourse. And it's
connected to the way economics has cast itself as a value-neutral
science when, in fact, it should probably be seen – as it once was – as
a branch of moral and political philosophy", which takes us back to
where I started above, the very beginning of this reflection:

"Economics, from the time of Plato right through to Adam Smith and John
Stuart Mill, was as deeply concerned with issues of social justice,
ethics and morality as it was with economic analysis…"

See more:

Michael Sandel: 'We need to reason about how to value our bodies, human
dignity, teaching and learning'
http://www.guardian.co.uk/books/2012/may/27/michael-sandel-reason-values-bodies/print


How it Began: My Story and Journey
http://gcgi.info/how-it-began

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