The New World Ordoliberalism, Part 8: A New MIC Becomes the EU’s New Austerity Loophole. Maybe.

Life on earth real­ly can’t afford anoth­er major mil­i­tary indus­tri­al com­plex (MIC). But that’s what’s com­ing. Or at least the financ­ing is get­ting worked out as Europe deals reels from the dam­age already inflict­ed on the Transat­lantic alliance in the open months of the sec­ond Trump admin­is­tra­tion. It’s urgent. A new era of secu­ri­ty inde­pen­dence has begun for the Euro­pean com­mu­ni­ty and there’s no time to spare in get­ting start­ed on build­ing it. Plans are already tak­ing shape. Plans to dra­mat­i­cal­ly increase EU-wide defense spend­ing by effec­tive­ly forc­ing each EU mem­ber to achieve at least 3% of GDP on defense spend­ing, well about the 2% NATO min­i­mum. Rough­ly 650 bil­lion euros in extra defense spend­ing over the next four years. But what about the EU’s strict debt and aus­ter­i­ty rules? There’s a plan for that too: extra defense spend­ing will not count towards the EU’s debt and deficit rules. At least for the next four years. And per­haps longer. And yet, all signs indi­cate that this extra debt will have be repaid even­tu­al­ly. So are we look­ing at the begin­ning of a new MIC? Or the largest aus­ter­i­ty trap in EU his­to­ry? Time will tell.

Oth­er plans include 150 bil­lion euros in direct loans from the EU to mem­ber states for approved mil­i­tary hard­ware pur­chas­es. Loans that, again, will have to be repaid. But the loans will also be pro­vid­ed at low­er-than-mar­ket inter­est rates from funds raised direct­ly by the EU Com­mis­sion. In oth­er words, joint­ly-backed bonds, some­thing pre­vi­ous­ly anath­e­ma to Ger­many and the rest of the EU’s wealth­i­er mem­bers. Remark­ably, Ger­many isn’t just strong­ly behind the loan plan but wants it expand­ed to poten­tial­ly include loans to non-EU mem­bers like Nor­way, Switzer­land, or Turkey. These big spend­ing plans keep get­ting big­ger, with Ger­man back­ing. It’s an his­toric shift. Beyond that, Ger­many is already plan­ning an 800 bil­lion euro defense spend­ing splurge of its own over the next decade and call­ing for the EU’s plan to be extend­ed well beyond the four year pro­pos­al. Yes, Ger­many is back­ing much high­er EU-wide debt lev­els for the indef­i­nite future. As long as that debt is spent on the mil­i­tary, of course. That’s the incred­i­ble sto­ry cur­rent unfold­ing. The kind of sto­ry that points towards a big new EU MIC, much high­er EU debt lev­els, and, per­haps, the biggest aus­ter­i­ty trap in EU his­to­ry. The dev­il in the details. Details yet t be ham­mered out, and pos­si­bly not ever ham­mered out until long after the EU has com­mit­ted itself to this path and the trap has already been set.

Krugmenistan vs the Permahawks

Lift Off! That was the announce­ment by the Fed­er­al Reserve this week when the world’s biggest and most influ­en­tial cen­tral bank start­ed the long await­ed rais­ing of its bench­mark short-term rate a quar­ter point from near-zero lev­els, mark­ing the first time the Fed has raised rates since 2006. It was big news, except this rate hike was telegraphed for quite a while now and vir­tu­al­ly every­one was expect­ing the Fed to do exact­ly what it did, so it’s not as big as it could have been. If the Fed had decid­ed not to raise rates, despite all the telegraph­ing, that prob­a­bly would have been a big­ger sto­ry. But would it have been a bad sto­ry if the Fed decid­ed to keep rates at their cur­rent near-zero lev­els? There’s a big debate in the eco­nom­ic com­mu­ni­ty over that. And it’s a debate that pits pru­dent econ­o­mists with excel­lent track-records like Paul Krug­man, some­one who opposed the Fed’s Decem­ber “lift off” deci­sion, against the broad array of “per­ma­hawks”. But it’s not just the ques­tion with respect to Fed. The Euro­pean Cen­tral Bank made a pol­i­cy announce­ment this month too regard­ing its stim­u­lus mea­sure and it was indeed rather sur­pris­ing. And as we’re also going to see in this post, it was sur­pris­ing in the way that just might have done seri­ous dam­age to not just the cred­i­bil­i­ty of ECB Pres­i­dent Mario Draghi but the ECB itself. Or at least cred­i­bil­i­ty in the ECB’s com­mit­ment to its sin­gle man­date of keep­ing infla­tion hov­er­ing around 2 per­cent.

To pla­cate per­ma­hawks (to main­tain cred­i­bil­i­ty) or not pla­cate the per­ma­hawks (to main­tain cred­i­bil­i­ty)? That is the ques­tion. Or at least one of the ques­tions cen­tral banks face. Unfor­tu­nate­ly.

FTR #792 Caution: Banksters at Work (More Collateralized “Death” Obligations)

In FTR #772, we looked at a num­ber of sus­pi­cious deaths in and around the finan­cial indus­try, this as a num­ber of legal inves­ti­ga­tions into the mis­deeds of the “banksters” were pro­ceed­ing. This pro­gram updates that extra­or­di­nary mor­tal­i­ty rate. One of the sur­re­al, almost hal­lu­ci­na­to­ry finan­cial instru­ments that were at the cen­ter of the 2008 finan­cial col­lapse were CDO’s–collateralized debt oblig­a­tions. We won­der if the high mor­tal­i­ty rate, the ongo­ing cap­i­tal trou­bles and legal inves­ti­ga­tions plagu­ing the firms may be relat­ed to these deaths. Are we look­ing at col­lat­er­al­ized “death” oblig­a­tions? We note that JP Mor­gan Chase has expe­ri­enced a par­tic­u­lar­ly high mor­tal­i­ty rate.

The New World Ordoliberalism Part 4: Meet the New Plan. Same as the Old Plan. Deregulated.

There have been quite a few devel­op­ments in the euro­zone recent­ly with major pos­si­ble pol­i­cy changes announced in recent weeks. Things like buy­ing bonds to shore up mar­kets and stim­u­late the econ­o­my (“quan­ti­ta­tive eas­ing”) are now on the table. Quan­ti­ta­tive eas­ing is nor­mal cen­tral bank stuff that has been effec­tive­ly shoved off the table of ECB pol­i­cy options by the Bun­des­bank’s unortho­dox eco­nom­ic the­o­ries until now. Unfor­tu­nate­ly, it’s look­ing like the quan­ti­ta­tive eas­ing is going to be unortho­dox too. No ‘eas­ing’ for the gov­ern­ments. Much ‘eas­ing’ for the banks. And the aus­ter­i­ty con­tin­ues.

Occupy Wall Street–With “Islamanomics”?!

In past posts, we have not­ed the ide­o­log­i­cal under­pin­nings of Adbusters mag­a­zine, which appers to be the gen­e­sis point of the Occu­py Wall Street move­ment. Edi­tor Kalle Las­n’s sug­ges­tion that the world’s poor and dis­en­fran­chised turn to Islam­ic eco­nom­ic and social the­o­ry and prac­tice is price­less, and frankly typ­i­cal of the poor qual­i­ty of the think­ing he man­i­fests. The World Bank–which Lasn criticizes–is overt­ly sym­pa­thet­ic to the cor­po­ratist mod­els upon which the Mus­lim Broth­er­hood’s eco­nom­ic the­o­ries are pred­i­cat­ed.

The New World Ordoliberalism Part 3: About That Raise You Wanted...

Along with last week’s news of Ger­many’s record trade sur­plus, the open­ing of an EU inves­ti­ga­tion into Ger­many’s grow­ing sur­plus­es, and Europe’s oth­er recent remark­able socioeco­nom­ic achieve­ments, Angela Merkel urged the CDU to com­pro­mise on an across-the-board 8.50 euro Ger­man min­i­mum wage. It’s great news because wage defla­tion is still part of the EU’s long-term agen­da.

The New World Ordoliberalism Part 2: A ‘Third Way’ to Fascism

Ordolib­er­al­ism has long been the eco­nom­ic phi­los­o­phy guid­ing Ger­man pol­i­cy-mak­ers. But with the cre­ation of the euro­zone, ordolib­er­al­ism has qui­et­ly become the default pol­i­cy-stance for the entire zone. This has been hap­pen­ing with lit­tle recog­ni­tion that ordolib­er­al ideas have been play­ing such a pro­found role. And there’s been even less atten­tion paid to the ordolib­er­al phi­los­o­phy itself. Sur­prise! It’s kind of fas­cist. Updat­ed 7/26/2013

Currency Wars: The New World Ordoliberalism

There’s been quite a bit of chat­ter late­ly about the threat of “Cur­ren­cy Wars” amongst glob­al pol­i­cy­mak­ers. It’s part of a larg­er debate over just what kind of eco­nom­ic poli­cies and modes of cen­tral bank­ing should even be philo­soph­i­cal­ly allow­able. The Bun­des­bank has some strong ideas about what gov­ern­ments should and should not be allowed to do with their mon­e­tary and fis­cal poli­cies. Not sur­pris­ing­ly, they’re also bad ideas.