Europe after the Minotaur: Greece and the Future of the Global Economy by Yanis Varoufakis

Author:Yanis Varoufakis [Varoufakis, Yanis]
Language: eng
Format: azw3
Published: 2015-01-28T05:00:00+00:00

Figure 9.5 US Treasury bond purchases (net) by non-US residents (US$ tn)

Source: US Bureau of Economic Analysis.

America after the Minotaur

Once Wall Street lost its ability to harness America’s twin deficits for the purposes of recycling the rest of the world’s surplus goods and profits, the American economy had to settle at a much reduced level of economic activity. This would not be a bad thing per se if it were not for the fact that the accumulated debts (e.g. unpaid mortgages and many bad loans that one bank had made to another) remain as if nothing had happened.

A lower level of economic activity would have, indeed, been fine as long as employment had picked up quickly and the lower wages were able, in conjunction with lower prices, to preserve a level of consumption consistent with calm but steady recovery. Alas, the success of the banking sector in ensuring that monetary policy was tuned towards their interests, just like in the good old (pre-2008) times, guaranteed that endogenous growth was out of the reach of American society. When taken together with (a) Europe’s suicidal dallying with Herbert Hoover-like austerity4 (at a time when half of the continent is in the clasps of its own Great Depression), and (b) China’s structural failure to stimulate domestic demand, it is no great wonder that the Crisis remains with us.

Chapters 7 and 8 described vividly the rise of bankruptocracy, the way in which bank failures armed the failed bankers with remarkable extractive, predatory political power, a power to extract a larger part of a shrinking national income at rates proportional to their banks’ black holes. We have already seen (see Chapter 7) the manner in which the American public was betrayed and misled by the Geithner–Summers Plan; how the Fed’s strategy was no more than an overt campaign unconditionally to refloat Wall Street;5 the half-hearted stimulus package introduced by the Treasury which, when the rapid contraction of state spending is taken into account, amounted to no more than a trickle of funding entirely inadequate to arrest the fall in aggregate demand for goods and services within America.

Very quickly, the Obama administration lost political momentum. The obscene sight of those who had played a major role in setting the scene for the Crash (men like Larry Summers, Tim Geithner, Ben Bernanke) effectively returning to the scene of the crime as ‘saviours’, wielding trillions of freshly minted or borrowed dollars to lavish upon their banker ‘mates’, was enough to turn off even the hardiest of Mr Obama’s supporters. The result was predictable: as often happens during a deflationary period (think of the 1930s, for example), those who gain politically do not come from the revolutionary Left; they come from the loony Right. In the United States it was the Tea Party that grew on the back of a disdain for bankers,6 a denunciation of the Fed, a clarion call for ‘honest’, metal-backed money,7 and a revulsion towards all government.

Ironically, the rise of the Tea Party increased the interventions of the Fed that the movement denounced.

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