The Puerto Rico Debt Crisis — Like Greece, Sort Of

"America" from West Side Story. According to YouTube, this appears to be from one of the more recent Broadway Broadway performances. (Full movie scene at the end of this piece.)

by Gaius Publius

Because of the coverage of Greece and its debt problems, I've been fielding a lot of questions about Puerto Rico and its debt problems as well. Puerto Rico's problems aren't the same as the Greeks' though; similar, but not matching. For one thing, Puerto Rico is a territory of the U.S. and subject to some unique-to-itself U.S. laws. Greece is under the thumb of northern Europeans.

Nevertheless, like Greece, Puerto Rico doesn't have its own currency and doesn't have "permission" to declare bankruptcy. There's a nice explainer at Vox — "Puerto Rico’s debt crisis, explained in 11 basic facts" — that's worth looking at. I'll provide the "11 basic facts" below with some explanation, and suggest that you click through to see any explanation you'd like to know more about.

Dara Lind, writing at Vox, begins with this:

Puerto Rico's debt crisis, explained in 11 basic facts

On June 28, the governor of Puerto Rico, Alejandro Garcia Padilla, announced that the island was not going to be able to pay the $72 billion it owes. The announcement is the culmination of several years of economic woes, but the island's debt has now become an urgent problem for the US territory — and therefore, for the US.

The problem is especially tricky because US bankruptcy laws don't allow government institutions in Puerto Rico to declare bankruptcy, as those in US states can. US policy did a lot to create the problem, and people on both sides of the debate — Puerto Ricans and the creditors who own their bonds — are Americans.

The worst news: The island's fate is in the hands of Congress.

Now the first of "11 basic facts":

1) Puerto Rico is sinking under $72 billion in debt

Puerto Rico has been dealing with a worsening debt crisis for several years. It's been suffering economically since 2006, but thanks to a federal tax loophole it's continued to be able to borrow money without people paying a whole lot of attention to its creditworthiness. As a result, both the main Puerto Rican government and its "public corporations" (like utilities) have racked up immense amounts of debt through bonds and tanked their credit ratings — even while trying to cut services and raise taxes. Now the Puerto Rican government is acknowledging that it's not going to be able to keep borrowing money just to pay off old debts.

So the question is whether Puerto Rico — either itself or its public corporations — will be able to declare bankruptcy and start working with a judge to restructure its debts. Congress is considering allowing some bankruptcy in Puerto Rico. But it's divided because many of the holders of Puerto Rican debt are American citizens and American investment funds.

2) Puerto Rico's economy has been struggling since 2006, when the federal government stopped offering business incentives

In the middle of the 20th century, the federal government wanted to encourage manufacturers that were tempted to move or expand to developing countries to move to Puerto Rico instead. But since Puerto Rico has the same labor standards as the US, that wasn't exactly appealing to businesses — especially when Congress decided in 1974 to bring Puerto Rico's minimum wage up to the rest of the US's, as well.
So instead, the government granted big tax breaks to businesses that had operations in Puerto Rico; starting in 1976, basically any profit a company could trace to Puerto Rico wouldn't be taxed. The tax breaks gave Puerto Rico a pharmaceutical industry.

This cost the US a lot of money in lost tax revenues, and in 1996 Congress decided to phase out the tax break. It officially ended in 2006, throwing Puerto Rico into a recession. (Many of the companies that benefited from the tax break moved to the Cayman Islands.)

That was swiftly followed by the Great Recession of the late 2000s, which basically kicked Puerto Rico while it was down. It's been struggling ever since. In 2013, 45.4 percent of Puerto Ricans were living in poverty.

3) People kept buying Puerto Rican bonds because of a quirk in the tax code

None of this sounds like a government you would want to invest in. And indeed, Puerto Rico's bond rating has been downgraded to junk level. But people continued buying Puerto Rican bonds even after it stopped being a good idea to do so.

The reason for this is, again, a federal tax break. Puerto Rican bonds are "triple-tax-exempt" — American companies and individuals who buy them don't have to pay federal, state, or local taxes on them. Typically, a municipal bond is only triple-tax-exempt if you buy it from the city where you live. But Puerto Rican's bonds are triple-tax-exempt for everyone. That made Puerto Rican bonds a particularly appealing investment opportunity — so appealing that people might not have looked too closely at the island's fiscal situation.

Right now, hedge funds hold about $15 billion in Puerto Rican debt, mutual bond funds hold another $11 billion or so, and individuals hold the rest. So the Puerto Rican debt crisis isn't just relevant to Americans because Puerto Rico is part of America — it's relevant because Americans are the ones owed the money.

And the rest:

4) Hundreds of thousands of Puerto Ricans moved to the mainland, worsening the economic crunch

5) Puerto Rico is caught in a "death spiral" of emigration, tax hikes, and benefits cuts

6) An obscure federal law from 1920 makes everything more expensive

7) It's not just the central government that owes money — it's also utilities and other public corporations

8) Puerto Rico can't declare bankruptcy. Neither can its cities or utilities.

US states can't declare bankruptcy. But "substate entities" within a state — like cities, judicial districts, or public corporations — can.

Puerto Rico also can't declare bankruptcy, but under US law neither can its "substate entities." If PREPA and other Puerto Rican public corporations were located in New York or California, they'd be able to declare bankruptcy — but because they're in Puerto Rico they can't. ...

9) Democrats are pushing to allow limited bankruptcy; Republicans say it isn't enough

10) Creditors argue that changing the bankruptcy laws is unfair

11) But if nothing changes, Puerto Rico is looking at a slow, rolling fiscal disaster

If Congress doesn't make any changes to bankruptcy laws, Puerto Rico is going to start falling behind on its minimum debt payments in mid-July. That opens up the possibility that individual creditors will start suing Puerto Rico to get their money back — and asking a judge to make the territory start paying any revenue it gets to its creditors, rather than paying its public employees or paying any benefits to its residents. ...

Two takeaways from me — One, we're living in a world where, according to those who run it, every creditor must be made whole, period, independent of the fact that risky bets (investments) come with risk premiums, which is by definition their compensation in case of default.

Because the investor class runs the (non-military, non–state security) aspect of the world, they can enforce a regime in which none of their friends can lose money, no matter how risky the bet (investment). Yet if Trump can declare bankruptcy (three times, or so I hear), the same should be allowed to Greece and Puerto Rico. In that sense, Puerto Rico very much resembles Greece.

The second is the "brown south" problem. In both cases, Puerto Rico and Greece, the debt is owed by "those people" to people who look rather white — most Americans, most Germans, most of the French and the Dutch.

I endured an interesting rant at dinner the other day. A perfectly nice (white) Frenchman started in on Greece and two phrases fell almost immediately from his lips: "I'm sick of having to continue to pay..." and "lazy." Mind you, not all French people think as my friend does. Thomas Piketty, who is French, is definitely not in that camp. Nor are all Germans and other northern Europeans.

But enough in the north are following the lead of German Finance Minister Wolfgang Schäuble, who seems to have taken the German reigns from Angela Merkel vis-à-vis Greece, that it sure looks like, down the road, the European project is in real trouble.

As is Puerto Rico. And as I said at the beginning, the fate of Puerto Rico is in the hands of Congress. Stay tuned.

GP

Here's the whole scene plus song from the movie, featuring Oscar winners Rita Morena and George Chakiris. The intro dialog is quite good regarding the "brown south" issue. (I can't find a high-def version of this scene. If you locate one, please post a link in the comments and I'll swap it for this one. Thanks.)

Piketty: "Germany Has Never Repaid Its Debts; It Has No Standing To Lecture Other Nations"

Thomas Piketty, author of Capital in the Twenty-First Century (source)

by Gaius Publius

This is yet another piece about Greece, much shorter, but long on irony served cold. Thomas Piketty is the author of the ground-breaking study of wealth inequality that came out last year, Capital in the Twenty-First Century. He's also French, and François Hollande, who ran as a critic of austerity, has been off and on in agreement with Merkel's hard stance against Greece, as the interview reveals. (For what it's worth, French banks are involved along with German ones as investors the EU elites have been trying to protect.)

Piketty was interviewed about Greece in a German magazine, Die Zeit, and I suspect the Zeit reporter didn't do his homework. It appears he thought, first, that he was talking with a mainstream economist, perhaps because the book was a number one best seller; and second, that because Piketty is French he'd side with Holland and with the Germans. Wrong on both counts. Piketty is deeply critical of wealth inequality (criticism of that is anathema to European elites), and he thinks Hollande is making a serious mistake. He also thinks Greece and Europe are being destroyed, though there are ways to pull back.

The interview is notable not just because of Piketty's analysis, but because of the (professional) conflict between himself and the interviewer. Note that this is for a German publication, and Piketty wants none of what the Germans are smugly doing to Greece.

Here's Tyler Durden at Zero Hedge with an introduction, followed by some of the interview. Durden (my emphasis throughout):

One year after Tomas [sic] Piketty sold a record number of economic textbook paperweights which virtually nobody read past page 26, once again showing the power of constant media hype, the French economist and wealth redistributor is out and about, this time pouring more gasoline on the fire started by the IMF last week when it released the Greek debt sustainability analysis showing Greece needs a 30% haircut, only to be met with stern resistance by, who else, Germany who know very well that should Greece get a debt haircut it will unleash the European dominoes which not even all the bluster and rhetoric of the ECB can halt.

As magazine interviews with economists go, this turns into a bit of a cage match, catching the Zeit reporter by surprise. The following is from an English translation of the interview. It doesn't even start well:

Since his successful book, Capital in the Twenty-First Century, the Frenchman Thomas Piketty has been considered one of the most influential economists in the world. His argument for the redistribution of income and wealth launched a worldwide discussion. In a[n] interview with Georg Blume of Die Zeit, he gives his clear opinions on the European debt debate.

DIE ZEIT: Should we Germans be happy that even the French government is aligned with the German dogma of austerity? [Note that the French are implicated here.]

Thomas Piketty: Absolutely not. This is neither a reason for France, nor Germany, and especially not for Europe, to be happy. I am much more afraid that the conservatives, especially in Germany, are about to destroy Europe and the European idea, all because of their shocking ignorance of history.

ZEIT: But we Germans have already reckoned with our own history. [I think he means they've confronted their Nazi past.]

Piketty: But not when it comes to repaying debts! Germany’s past, in this respect, should be of great significance to today’s Germans. Look at the history of national debt: Great Britain, Germany, and France were all once in the situation of today’s Greece, and in fact had been far more indebted. The first lesson that we can take from the history of government debt is that we are not facing a brand new problem. There have been many ways to repay debts, and not just one, which is what Berlin and Paris would have the Greeks believe.

ZEIT: But shouldn’t they repay their debts?

Piketty: My book recounts the history of income and wealth, including that of nations. What struck me while I was writing is that Germany is really the single best example of a country that, throughout its history, has never repaid its external debt. Neither after the First nor the Second World War. However, it has frequently made other nations pay up, such as after the Franco-Prussian War of 1870, when it demanded massive reparations from France and indeed received them. The French state suffered for decades under this debt. The history of public debt is full of irony. It rarely follows our ideas of order and justice.

ZEIT: But surely we can’t draw the conclusion that we can do no better today?

Piketty: When I hear the Germans say that they maintain a very moral stance about debt and strongly believe that debts must be repaid, then I think: what a huge joke! Germany is the country that has never repaid its debts. It has no standing to lecture other nations.

Then the reporter digs in, and gets even more of a history lesson:

ZEIT: Are you trying to depict states that don’t pay back their debts as winners?

Piketty: Germany is just such a state. But wait: history shows us two ways for an indebted state to leave delinquency. One was demonstrated by the British Empire in the 19th century after its expensive wars with Napoleon. It is the slow method that is now being recommended to Greece. The Empire repaid its debts through strict budgetary discipline. This worked, but it took an extremely long time. For over 100 years, the British gave up two to three percent of their economy to repay its debts, which was more than they spent on schools and education. That didn’t have to happen, and it shouldn’t happen today. The second method is much faster. Germany proved it in the 20th century. Essentially, it consists of three components: inflation, a special tax on private wealth, and debt relief.

ZEIT: So you’re telling us that the German Wirtschaftswunder [“economic miracle”] was based on the same kind of debt relief that we deny Greece today?

Piketty: Exactly. After the war ended in 1945, Germany’s debt amounted to over 200% of its GDP. Ten years later, little of that remained: public debt was less than 20% of GDP. Around the same time, France managed a similarly artful turnaround. We never would have managed this unbelievably fast reduction in debt through the fiscal discipline that we today recommend to Greece. Instead, both of our states employed the second method with the three components that I mentioned, including debt relief. Think about the London Debt Agreement of 1953, where 60% of German foreign debt was cancelled and its internal debts were restructured.

There's an interesting back-and-forth I won't quote (but which you can read). After that, the reporter puts on his reporter hat and asks two good questions to close:

ZEIT: What sort of national egoism do you see in Germany?

Piketty: I think that Germany was greatly shaped by its reunification. It was long feared that it would lead to economic stagnation. But then reunification turned out to be a great success thanks to a functioning social safety net and an intact industrial sector. Meanwhile, Germany has become so proud of its success that it dispenses lectures to all other countries. This is a little infantile. Of course, I understand how important the successful reunification was to the personal history of Chancellor Angela Merkel. But now Germany has to rethink things. Otherwise, its position on the debt crisis will be a grave danger to Europe.

ZEIT: What advice do you have for the Chancellor?

Piketty: Those who want to chase Greece out of the Eurozone today will end up on the trash heap of history. If the Chancellor wants to secure her place in the history books, just like [Helmut] Kohl did during reunification, then she must forge a solution to the Greek question, including a debt conference where we can start with a clean slate. But with renewed, much stronger fiscal discipline.

In the unquoted part, Piketty expands on the idea of a Europe-wide debt conference. He also expands on the idea of democracy, something Joseph Stiglitz also discussed. All in all, fascinating, and brutally honest on Piketty's part.

GP

Greece, Ukraine and U.S. — Advancing the Neo-Liberal Project

Bill Clinton and Paul Ryan agreeing that the privatizing Ryan budget is the way to go. Neo-liberalism in action, but you have to look behind the curtain to see it.

by Gaius Publius

I recently did a piece about Greece that implied a number of similarities to Ukraine's recent upheavals. There I said:

All of this loops the Greek story into the Ukraine story, which most people still don't realize isn't just about Putin, though that makes a convenient (and cartoonish) Us vs. The Villain cautionary tale. It's about continuing the ... yes, neo-liberal project ... deeper into eastern Europe.

I want to explain some of that here, via three concepts — the cover story, the actual story, and the Putin element in each case — with a side look at "the neo-liberal project," which both of these stories exemplify.

The Story in Greece

The CNN-ready cover story on Greece is is a story of punishing helpers or helping punishers — the audience can take the story either way, as it chooses. "Bad Greece" got itself in economic trouble and "good Europeans" — led by German and other elites — have offered a helping hand, but only if the Greek government makes painful adjustments, such as cutting pensions (their form of our Social Security) and privatizing much of their infrastructure, such as their airports and shipping facilities. Money, but with strings.

The Greeks deserve this treatment because bad (profligate, lazy) people deserve to suffer when they fall. Welfare, when given to "the wrong people," should come with thorns; bailout money, when given to "the wrong people," should come with some pain, with strings.

The actual story is that the forces of privatization on the "liberal left" in Europe have found a nation in a great deal of economic trouble, thanks in large part to looting from outside, and they're offering a "helping" hand in order to further loot the country via those privatizing strings. In the minds of the looters (we'll call them "neo-liberals" below) every government-owned operation (Athens airport, say) is a missed profit opportunity for someone rich enough to buy it, and the world would be better if everything were made private.

But airports and other revenue opportunities don't privatize themselves; they have to be pried loose from government. Corruption will pry them loose, or friends on the inside. That's how the Abu Dhabi sovereign wealth fund and others got their hands on 75 years' worth of revenue from the Chicago parking meters. They had a "friend," Mayor Richard M. Daley, on the inside willing to sell it to them on the cheap.

"Shock Doctrine"-type operations will do it also. As Naomi Klein documents in her book of the same name, the shock of Hurricane Katrina's devastation was the perfect opportunity to privatize (monetize) New Orleans' public schools.

The Putin element is that Greece, if driven from the Eurozone by the Eurozone's brutal (but "liberal") hand, might accept aid from Russia, aid with fewer strings. In anticipation, the U.S. has reportedly told the Greek president it will not allow this, with militarized regime change on offer if he considers it — as opposed to the ballot-box regime change that the Eurozone is trying to force.

The "Neo-Liberal Project"

I call the above-described form of privatization (monetization) of government-held property the "neo-liberal project." Notice that while neo-liberals share goals with big-money conservatives on the right, most of these privatizers are what we otherwise call "liberals" — like Mayor Richard Daley, for example; or the helpful people at the IMF and the European Central Bank; or Bill Clinton, who wanted to privatize Social Security in 1997, if it weren't for a certain blue dress and the woman inside it:

Had it not been for Monica's captivating smile and first inviting snap of that famous thong, President Bill Clinton would have consummated the politics of triangulation, heeding the counsel of a secret White House team and deputy treasury secretary Larry Summers. Late in 1998 or in the State of the Union message of 1999 a solemn Clinton would have told Congress and the nation that, just like welfare, Social Security was near-broke, had to be "reformed" and its immense pool of capital tendered in part to the mutual funds industry. The itinerary mapped out for Clinton by the Democratic Leadership Committee would have been complete.

We have this on the authority of high-ranking members of the Clinton Treasury who gathered in Harvard in the summer of 2001 to mull over the lessons of the 1990s. At that conclave it was revealed that on Clinton's orders a top secret White House working party had been established to study in detail the basis for a bipartisan policy on Social Security that would splice individual accounts into the program. Such was the delicacy of this exercise that meetings of the group were flagged under the innocent rubric "Special Issues" on the White House agenda. ...

The "Special Issues" secret team was set up by then-Deputy Treasury Secretary Larry Summers (later elevated to Treasury Secretary and now President of Harvard) and Gene Sperling, the head of the Council of Economic Advisers.

It's the same game, whether played from the left or the right, as the video above clearly shows. When the game is played from the right, they call it Milton Friedman conservatism. When it's played from the left, they call it neo-liberalism ("new" liberalism, like Tony Blair's "New" Labour in the U.K.; like what it was, only not).

The privatizing game is mainly played from the left, because that's where most of the players are. The Western world is mostly run by "liberals" like these. When Democrats vote for mainstream "liberals," this is what they put into office.

The Ukrainian Story

There's a parallel to Greece in the recent events in the Ukraine. The cover story is that Ukraine was ruled by "bad president Yanukovych" who was friendly to Russia; Ukraine had a revolution, an uprising; and it's now ruled by "good prime minister Yatseniuk" under acting president Turchynov. Yatseniuk wants to take Ukraine out of the Russian orbit.

In this story, the Putin element comes at the beginning. The "good Europeans" wanted to lend a helping hand to Yanukovych and his government via loans and other inducements because Ukraine was in financial trouble (sound familiar?). Putin also offered a helping hand, so two deals were on the table. The Russian-leaning ("bad") Yanukovych wanted to accept the Russian deal over the E.U. deal, but the uprising deposed him. When the new West-leaning government accepted the European offer instead, the cover story tells us that Putin got angry, invaded Crimea, and is provoking a crisis. At the moment, Ukraine is experiencing either an invasion or a civil war, depending on who you talk to.

The real story is detailed below. The bottom line is that the West's offer of help was the standard neo-liberal offer — the strings were handcuffs. Putin actually presented a better offer, but the West worked covertly to install their own people (Yatseniuk in particular) to make sure that the European deal was accepted and Putin was spurned, even though much of the country is ethnically Russian and pro-Putin. The cover story also ignores Putin's reaction to the advancing NATO encirclement of Russia, of which the Ukraine story is a part.

The ethnicity is complex. The economics are not.

Who was the provocateur in the Ukrainian uprising? The West had a huge hand in provoking (and financing) it. Here's Chris Floyd with the story. Watch for the names Pierre Omidyar, billionaire founder of eBay; the innocently named USAID, the United States Agency for International Development, the "government agency primarily responsible for administering civilian foreign aid"; and the likewise innocently named National Endowment for Democracy.

Floyd begins:

Ukraine, Omidyar and the Neo-Liberal Agenda

The Western intervention in Ukraine has now [spring, 2014] led the region to the brink of war. Political opposition to government of President Viktor Yanukovych — a corrupt and thuggish regime, but as with so many corrupt and thuggish regimes one sees these days, a democratically elected one — was funded in substantial part by organizations of or affiliated with the U.S. government, such as the National Endowment for Democracy (a longtime vehicle for Washington-friendly coups), and USAID. It also received substantial financial backing from Western oligarchs, such as billionaire Pierre Omidyar, founder of eBay and sole bankroller of the new venue for “adversarial” journalism, First Look, as Pandodaily reports.

Yanukovych sparked massive protests late last year when he turned down a financial deal from the European Union and chose a $15 billion aid package from Russia instead. The EU deal would have put cash-strapped Ukraine in a financial straitjacket, much like Greece, without actually promising any path for eventually joining the EU. There was one other stipulation in the EU’s proffered agreement that was almost never reported: it would have also forbidden Ukraine to “accept further assistance from the Russians,” as Patrick Smith notes in an important piece in Salon.com. It was a ruthless take-it-or-leave-it deal, and would have left Ukraine without any leverage, unable to parlay its unique position between East and West to its own advantage in the future, or conduct its foreign and economic policies as it saw fit. Yanukovych took the Russian deal, which would have given Ukraine cash in hand immediately and did not come with the same draconian restrictions.

It was a policy decision. It might have been the wrong policy decision; millions of Ukrainians thought so. Yanukovych, already unpopular before the deal, would have almost certainly been ousted from office by democratic means in national elections scheduled for 2015. But the outpouring of displeasure at this policy decision grew into a call for the removal of the government. Meanwhile, behind the scenes, Washington was maneuvering to put their preferred candidate, Arseniy Yatseniuk, in charge of the Ukrainian government, as a leaked tape of a conversation between Victoria Nuland, assistant secretary of state, and Geoffrey Pyatt, U.S. ambassador to Ukraine, clearly showed. It is worth noting that when Yanukovych was finally ousted from power — after the opposition reneged on an EU-brokered deal for an interim unity government and new elections in December — Arseniy Yatseniuk duly took charge of the Ukrainian government, as planned.

By all accounts, Viktor Yanukovych was an unsavoury character running an unsavoury government, backed by unsavoury oligarchs exploiting the country for their own benefit, and leaving it unnecessarily impoverished and chaotic. In this, he was not so different from his predecessors, or from many of those who have supplanted him, who also have oligarchic backing and dubious connections (see addendum below). But in any case, the idea of supporting an unconstitutional overthrow of a freely elected Ukrainian government in an uprising based squarely on the volatile linguistic and cultural fault-lines that divide the country seems an obvious recipe for chaos and strife. It was also certain to provoke a severe response from Russia. It was, in other words, a monumentally stupid line of policy[.]

The above-mentioned Victoria Nuland has a place in the Greece story as well; click and you'll see her with the Greek president, explaining how things work.

About that neo-liberal intrusion into Ukraine, Floyd quotes Patrick Smith from a piece at Salon:

“[U.S.] foreign policy cliques remain wholly committed to the spread of the neo-liberal order on a global scale, admitting of no exceptions. This is American policy in the 21st century. No one can entertain any illusion (as this columnist confesses to have done) that America’s conduct abroad stands any chance of changing of its own in response to an intelligent reading of the emerging post–Cold War order. Imposing “democracy,” the American kind, was the American story from the start, of course, and has been the mission since Wilson codified it even before he entered the White House. When the Cold War ended we began a decade of triumphalist bullying — economic warfare waged as “the Washington Consensus” — which came to the same thing.”

And:

“Instantly after Yanukovych was hounded from Kiev, seduction began its turn to betrayal. The Americans and Europeans started shuffling their feet as to what they would do for Ukrainians now that Russia has shut off the $15 billion tap. Nobody wants to pick up the bill, it turns out. Washington and the E.U. are now pushing the International Monetary Fund forward as the leader of a Western bailout. If the past is any guide, Ukrainians are now likely to get the “shock therapy” the economist Jeffrey Sachs urged in Russia, Poland and elsewhere after the Soviet Union’s collapse. Sachs subsequently (and dishonestly) denied he played any such role — understandable given the calamitous results, notably in Russia — but the prescription called for off-the-shelf neoliberalism, applied without reference to any local realities, and Ukrainians are about to get their dosage."

And regarding Pierre Omidyar:

Omidyar seems very much a part of the “neo-liberal order” which, as Patrick Smith noted above, the United States has been pushing “on a global scale, admitting of no exceptions.” So it is not surprising to see him playing a role in trying to spread this order to Ukraine, in tandem with the overt efforts and backroom machinations of the U.S. government. Omidyar is, openly, a firm adherent of the neo-liberal order — privitazing public assets for individual profit, converting charity and state aid to profitable enterprises for select investors, and working to elect or install governments that support these policies.

Billionaires helping governments help billionaires. One big happy family. Who needs left or right when everyone with real money works together?

Greece and Ukraine, the Bottom Line

So far, the U.S. has not had a direct hand in the upheaval in Greece, but it has had a hand in the upheaval in Ukraine, though unnoticed. In all other respects there are major parallels. In both cases an economically distressed country is targeted as prey (is there another word for this?) by Western elites bent on straitjacket economics ("off-the-shelf neoliberalism" is Chris Floyd's term) and a deal that comes with a price. In the case of Ukraine, there was a counteroffer (Russia's), so regime change by force was on the table early.

Will there be regime change by force in Greece? Many, like Joseph Stiglitz quoted here, think that's already being attempted via the destruction of the leftist Syriza party's credibility and policy options. If this piece at Naked Capitalism is correct, more direct intervention, with U.S. support, may be coming.

GP

The hard question about the merchants of austerity: Are they dopes or liars?

Edward Harrison

by Ken

I encountered Edward Harrison's cute little graph in Ian Welsh's June 25 post, "Greece and the Emperor's New Clothes," in which Ian noted that a commenter, markfromireland, had pointed out that "Oliver Blanchard, the chief IMF economist, had made the following assumptions about Greece in July of last year":

1. The Greek economy would grow by three percent both this year and every other year until 2020.
2. Inflation would average between one percent and two percent a year both this year and every other year until 2020.
3. The Greek government would run a primary budget surplus of four percent a year.

"As MFI points out," Ian wrote, "at best, these assumptions are delusional. Greece is in forced austerity; they aren’t going to make these targets." And Ian noted a point made by Edward Harrison, as reflected in the graph: that "the IMF revised down its estimate for Greece’s 2014 gross domestic product by some 22 percent in the space of 18 months."

On this basis Ian proceeded to the "old" question: "Evil, or stupid?"

We'll rejoing him in a moment, but first let's go back to our last post, in which Gaius Publius brought us up to date on the Greek financial mess, which you can't do in any kind of honesty without recognizing that the "bailout" deal on which Greece has been formally in default since July 1 was doomed from the moment it was signed, if not sooner.

In his post, GP quoted Jeroen Dijsselbloem, the Dutch finance minister and current president of Eurogroup, the collective of Eurozone finance ministers:

I take note of the outcome of the Greek referendum. This result is very regrettable for the future of Greece.

For recovery of the Greek economy, difficult measures and reforms are inevitable. We will now wait for the initiatives of the Greek authorities.

"Difficult measures and reforms," eh? For sure. But not the ones imposed on the Greeks, which have had their inevitable effect. As Ian wrote in that June 25 post:

Austerity is a reduction in demand. Reduction in demand leads to economic activity being lower than it would be otherwise. Governments who spend less money buy less stuff, this is indisputable. Then, everybody has less money and almost certainly buys less stuff as a result, thus reducing the size of the economy.

Meanwhile, money has been given to rich people and corporations who, mostly, have not spent it and when they have spent it, they’ve spent it on luxury goods.

The merchants of austerity love sounding like prophets of fiscal responsibility, demanding that economies decimated by a supposed history of devil-may-care fiscal irresponsibility take their medicine, and never mind that said medicine has the all but invariable result of choking the economy in question.

The point is that this isn't news. It's a point that has been repeated here countless times, often quoting Paul Krugman, who has been trying to inject this note of basic sanity into a predominantly insane international play-acting show. It shouldn't, for example, have been necessary for British Prime Minister David Cameron to prove the econonic deadening effect of "austerity" when he came to power in 2010, but he did so anyway, and still, as far as the merchants of austerity are concerned, the point is a mystery

Which brings us back to Ian's post. How is it possible for theeconomists of the economic elites still not to know that their notion of austerity doesn't rescue failed economies, it seals the failure in place?

Austerity, Ian notes, "is sold as a way to make economies better."

You cannot, as a government or quasi-governmental agency (like a central bank or the IMF), admit that austerity will make the economy worse and many of the people in an economy to which it is applied worse off.

The question, then, is the old one. “Evil, or stupid?” Is Blanchard, for example, such an ideologue that he believes the assumptions which allow him to forecast a better economy under austerity? Are the other economists who have made similar forecasts similarly stupid? I mean, assuming moderate stupidity (normal), they might have believed it in 2008 or even 2010, but we’ve seen the effects of austerity since the financial crisis, and that’s going on seven years.

WHAT YOU DO TO KEEP YOUR CUSHY JOB

"These people are either very stupid," Ian continues,

or are doing what they feel they must to keep their jobs and their membership in a very lucrative club. If they were to say, “No, these policies don’t work,” would they keep their jobs?

We know that austerity doesn’t work, Ian writes,

if by “work” you mean “improve the economy more than not being in austerity would,” we do. It’s only ever worked in theory by making very dubious assumptions, and it has never worked in practice.

So, at this point, if you believe austerity works, you’re either an extraordinarily blind ideologue, or you’re crooked, on the payroll, and know what you’re doing.

Of course there could be another question here: Is there some other way of defining "works" as it relates to austerity? Indeed there is:

Austerity is the policy that the IMF, most central authorities, and all neo-liberal parties (which means almost all parties in power in the EU) believe in. It is a policy which works: It puts public assets up for sale which would not be otherwise, so that rich, private investors can buy them up. Combined with “unconventional monetary policy” (the two are Siamese twins), it makes sure that the rich get richer, corporations are flush with cash they do not use to hire workers, and that everyone who isn’t rich, or part of the close retainer class, loses.

You really, really don’t want to fall out of that close retainer class. They are paid very well ([IMF Managing Director Christine] Lagarde receives a six hundred thousand per annum salary, entirely tax free), they are treated well, and their future job prospects are secure, as are those of their families. [Emphasis added.]

Once you realign your definition of "working," it's clear that austerity is. As Ian says, "it has performed exactly as expected."

Its advocates are its beneficiaries. The people who enforce it are benefiting as well and there is a sufficient constituency, both at the elite level and the common level, to keep it going (remember, Cameron was re-elected in the UK, and Labour got many votes when its essential promise was “slightly kinder austerity”). A few countries (Germany, for example) are winning under this policy regime.

So austerity will continue. It is a successful policy which does what it is supposed to do and which has a constituency sufficient for its continuation. It must be sold by lies, to be sure, and many of those who sell those lies probably believe them, because they personally benefit from pushing austerity and people prefer to believe that they are honest and working for good.

Others, I am certain, know it is being sold with lies.

Ah, so there are both dopes and liars!

Who falls into which camp? Who knows? The end effect is the same.

In conclusion, Ian notes: "Beatings will continue until morale improves."

#

Greece and the European Project: What's Next?

The State Department's Victoria Nuland explains to Greek President Tsipras that there are certain lines he won't be permitted to cross.

by Gaius Publius

When it comes to coverage of the Greek crisis, there's no better source than Naked Capitalism. I'm going to quote from three recent (post-election) pieces hosted there, along with my own comments.

First, for the overview, something written by Joseph Stiglitz summarizes the situation going into the election perfectly. As quoted here, Stiglitz writes this about Greece (my emphasis everywhere):

Europe’s Attack on Greek Democracy

The rising crescendo of bickering and acrimony within Europe might seem to outsiders to be the inevitable result of the bitter endgame playing out between Greece and its creditors. In fact, European leaders are finally beginning to reveal the true nature of the ongoing debt dispute, and the answer is not pleasant: it is about power and democracy much more than money and economics.

Of course, the economics behind the program that the “troika” (the European Commission, the European Central Bank, and the International Monetary Fund) foisted on Greece five years ago has been abysmal, resulting in a 25% decline in the country’s GDP. I can think of no depression, ever, that has been so deliberate and had such catastrophic consequences: Greece’s rate of youth unemployment, for example, now exceeds 60%.

It is startling that the troika has refused to accept responsibility for any of this or admit how bad its forecasts and models have been. But what is even more surprising is that Europe’s leaders have not even learned. The troika is still demanding that Greece achieve a primary budget surplus (excluding interest payments) of 3.5% of GDP by 2018.

Economists around the world have condemned that target as punitive, because aiming for it will inevitably result in a deeper downturn. Indeed, even if Greece’s debt is restructured beyond anything imaginable, the country will remain in depression if voters there commit to the troika’s target in the snap referendum to be held this weekend.

In terms of transforming a large primary deficit into a surplus, few countries have accomplished anything like what the Greeks have achieved in the last five years. And, though the cost in terms of human suffering has been extremely high, the Greek government’s recent proposals went a long way toward meeting its creditors’ demands.

Fast recap: After the crash of 2008, the government of Greece found itself increasingly unable to pay the interest on its debt. A crisis occurred in 2010 and again in 2012. A great deal of that debt was held outside the country and in private hands (think German and French banks, hedge funds, and the like).

The reasons for this inability to repay are many, only a few of which were the fault of the Greeks themselves. The worst of the Greek internal problems is the corruption of the Greek elite class, who have made tax evasion an art form. After the recession, the country went increasingly into recession and then depression, the economy shrank, and government revenues became insufficient to meet all demands on it. Various Greek governments have sought loans from the European "troika" as defined above, and those loans were granted, but with many cruel strings.

In a triangular arrangement, the troika would insure that the Greeks had enough money not to default on bankers and hedge funds (etc.), but in exchange the Greeks had to agree to "run a primary surplus" (have more revenue than expenses), cut spending drastically, including on social services and pensions, and sell off private property, like their airports.

Doing this allowed the troika — an assembly of European public elites very much allied with private elites like the aforementioned bankers — to accomplish two goals:

• Bail out all at-risk bankers and other investors with public money, so no big investor loses on a loan.
  
  Stiglitz: "We should be clear: almost none of the huge amount of money loaned to Greece has actually gone there. It has gone to pay out private-sector creditors – including German and French banks. Greece has gotten but a pittance, but it has paid a high price to preserve these countries’ banking systems. The IMF and the other “official” creditors do not need the money that is being demanded. Under a business-as-usual scenario, the money received would most likely just be lent out again to Greece."
   
• Advance the privatizing "neo-liberal project" in which everything owned by any country should be converted into a source of private profit (think Shock Doctrine in New Orleans and the privatization of the public school system).
  
  Stiglitz: "Many European leaders want to see the end of Prime Minister Alexis Tsipras’s leftist government. After all, it is extremely inconvenient to have in Greece a government that is so opposed to the types of policies that have done so much to increase inequality in so many advanced countries, and that is so committed to curbing the unbridled power of wealth. They seem to believe that they can eventually bring down the Greek government by bullying it into accepting an agreement that contravenes its mandate."

For Western neo-liberal elites, that's a win-win. The only way this plan would fail is if Greece failed to knuckle under. Greece tried to knuckle under, but it hurt so much that they elected a "leftist," anti-austerity government, and the elites took offense (thus Stiglitz's analysis of the troika response as an attack on Greek democracy). The new leftist government also tried to knuckle under, but the demands became too great (and the government too wishy-washy).

So a referendum on the latest austerity offer was called, the Greek people rejected it 61%–39%, and here we are. The remaining choices are to default on the debt or to borrow on terms less punitive. In case of a default on some or all of it — in the business world, that's called a "restructuring via bankruptcy," but morality-neutral language applies only to corporate behavior — the Greek depression will continue, Greece may leave the E.U., and it seems increasingly likely that the drachma will return, perhaps first in an intermediate form, such as government IOUs.

Again, here we are. It's post-referendum, Greek banks are still closed as of last report, and ATMs are running out of money to dispense. For a look at the state of the Greece economy just prior to the referendum, Naked Capitalism offers this report. It's painful reading.

What comes next? Hard-hearted Germans and regime-changing Americans? Could well be.

Eurozone Leaders May Further Harden Their Hard Hearts

Yves Smith at Naked Capitalism on the way European (and German) elites are handling this rejection:

[D]espite the responses of media outlets and many pundits that the Eurocrats will have to beeat a retreat and offer Greece concessions, it’s not clear that this event strengthens the Greek government’s hand with its counterparties. Remember, Tsipras enjoyed popularity ratings of as high as 80% and has always retained majority support in polls. And it’s all too easy to forget that “the creditors” are not Merkel, Hollande, Lagarde and Draghi. The biggest group of “creditors” are taxpayers of the 18 other countries of the Eurozone. The ugly design of the Eurozone means that the sort of relief that Greece wants most, a reduction in the face amount of its debt (as opposed to the sort of reduction they’ve gotten, which is in economic value, via reductions in interest rates and extensions of maturities) puts the interest of those voters directly at odds with those in Greece. Our understanding is that a reduction in principal amount, under the perverse budgetary and accounting rules of the Eurozone, would result in those losses showing up as losses for budget purposes, now. They would need to be funded by increased taxes. Thus a reduction in austerity for Greece, via a debt writeoff, simply transfers austerity from Greece to other countries. It’s not hard to see why they won’t go for that. And Eurozone rules require unanimous decisions.

Even though the ruling coalition had said it wanted to restart negotiations immediately upon getting a “no” vote, the lenders have asked Greece to send a new proposal, apparently deeming the one it submitted on June 30 to be out of date. It’s doubtful anything will happen before the Eurogroup meeting tomorrow [July 7].

The remarks from European leaders have been mixed.

Among those mixed responses, Smith notes these. First, from Eurogroup chief Jeroen Dijsselbloem:

I take note of the outcome of the Greek referendum. This result is very regrettable for the future of Greece.

For recovery of the Greek economy, difficult measures and reforms are inevitable. We will now wait for the initiatives of the Greek authorities.

And via the Financial Times, this from a high German government official:

Sigmar Gabriel, deputy German chancellor, said Mr Tsipras had “torn down the last bridges on which Greece and Europe could have moved towards a compromise”.

“With the rejection of the rules of the eurozone … negotiations about a programme worth billions are barely conceivable,” he told Tagesspiegel newspaper.

Shorter Eurozone: "The beatings will continue..." Good luck with that. The meetings will also continue, in what looks like a month of failed incremental half steps that nevertheless march to the sea.

And the American Reaction? Failed State or Vladimir Putin

Obama's U.S. government has been noticeably quiet as this plays out, but with Putin on their minds, you have to know they have thoughts. Smith on what some of those thoughts might be:

Nuland’s Nemesis: Will Greece Be Destroyed to Save Her From Russia, Like Ukraine?

Obama and Treasury Secretary Jack Lew have been far more quiet than you’d expect given their attentiveness to the needs of the investing classes and the threat that protracted wrangling with Greece might pose to that. Of course, they might believe that Draghi’s bazooka is more effective than Hank Paulson’s proved to be in the runup to the final phase of the financial crisis. But John Helmer indicates below that the Greek referendum has intensified the Administration’s interest in regime change in Greece. He confirms what we’d noticed, that Putin has been quite pointedly avoided being seen as meddling in Greece now; he can always pick up any pieces later. Also note that the anti-Greek government interests have connections to Hillary Clinton.

The rest of Smith's piece is an essay by John Helmer, "the longest continuously serving foreign correspondent in Russia, and the only western journalist to direct his own bureau independent of single national or commercial ties" (full credits at the link). He starts:

A putsch in Athens to save allied Greece from enemy Russia is in preparation by the US and Germany, with backing from the non-taxpayers of Greece – the Greek oligarchs, Anglo-Greek shipowners, and the Greek Church.

You really want to read that twice. He's not speculating, but asserting. Then he continues:

At the highest and lowest level of Greek government, and from Thessaloniki to Milvorni, all Greeks understand what is happening. Yesterday they voted overwhelmingly to resist. According to a high political figure in Athens, a 40-year veteran, “what is actually happening is a slow process of regime change.”

Until Sunday afternoon it was a close-run thing. The Yes and No votes were equally balanced, and the margin between them razor thin. At the start of the morning, Rupert Murdoch’s London Times claimed “Greek security forces have drawn up a secret plan to deploy the army alongside special riot police to contain possible civil unrest after today’s referendum on the country’s future in Europe. Codenamed Nemesis, it makes provision for troops to patrol large cities if there is widespread and prolonged public disorder. Details of the plan emerged as polls showed the ‘yes’ and ‘no’ camps neck and neck.” Greek officers don’t speak to the Murdoch press; British and US government agents do.

“It was neck to neck until 3 pm,” reports the political veteran in Athens, “then the young started voting.”

Can the outcome — the 61% to 39% referendum vote, with a 22% margin for Οχι (No) which the New York Times calls “shocking” and a “victory [that] settled little” – defeat Operation Nemesis? Will the new Axis – the Americans and the Germans – attack again, as the Germans did after the first Greek Οχι of October 28, 1940, defeated the Italian invasion?

The U.S., via the State Department's Victoria Nuland, has been deeply involved, according to Helmer, both with Operation Nemesis and with warning off Tsipras. Helmer again:

What Nuland [photo at top] was doing with her hands is in the small print of the release. She told Greek Prime Minister Alexis Tsipras (right) not to break ranks with the NATO allies against Russia. “Because of the increasing rounds of aggression in eastern Ukraine” she reportedly said the US is “very gratified that we’ve had solidarity between the EU and the U.S., and that Greece has played its role in helping to build consensus.”

Nuland also warned Tsipras not to default on its debts to Germany, the European Central Bank, and the International Monetary Fund (IMF). Tsipras was told “to make a good deal with the institutions”. The referendum Tsipras called on June 27 was a surprise for Nuland. The nemesis in Operation Nemesis is the retribution planned for that display of Greek hubris.

All of this loops the Greek story into the Ukraine story, which most people still don't realize isn't just about Putin, though that makes a convenient (and cartoonish) Us vs. The Villain cautionary tale. It's about continuing the ... yes, neo-liberal project ... deeper into eastern Europe.

There's much more at the Naked Capitalism link, and it makes fascinating reading. Also, there's more about Victoria Nuland and her apparent revelations about U.S. meddling in Ukraine as well. Here's one relatively staid write-up; the google has many more.

The Hillary Clinton Connection

Yves Smith noted in her introduction to this piece that there was a Hillary Clinton connection. Near the bottom, after working through the myriad of corporate- and billionaire-funded think tanks (funding which comes from much of the real wealth of Greece, its predatory shipping billionaires), he notes this:

[Robert] Kaplan’s think-tank in Washington [Center for New American Security] reports that its funding comes from well-known military equipment suppliers, US oil companies, the governments of Japan, Taiwan, and Singapore; NATO; the US Army, Navy, Marine Corps and Air Force; plus George Soros’s Open Society Foundations. Chief executive of CNAS is Michele Flournoy, a founder of the think-tank which is serving as her platform to run for the next Secretary of Defense, if Hillary Clinton wins the presidential election next year. Flournoy is one of the drafters of a recent plan for the US to escalate arms and troop reinforcements in Ukraine and along the Russian frontier with the Baltic states. Here’s her plan for “What the United States and NATO Must Do” . For more on Flournoy, read this.

I personally have no trouble assigning Hillary Clinton, whatever else her virtues, to an inner circle of the "privatizing neo-liberal project," as previously noted here and here and here. Victoria Nuland is a State Department warrior when it comes to advancing that project, and CNAS is as well. For CNAS, the ties to the military-industrial complex are clear, implying military means — "boots on the ground," though preferably boots filled with other nations' soldiers.

Watch the name of that think tank — CNAS. It's come up before and will do again, especially if Clinton is elected president. Also, watch for the name Michele Flournoy. If she does become Secretary of Defense, she'll be sold as the "first woman Secretary of Defense" so you can cheer her on through confirmation.

Bottom Line — Remaking the World

There are two ways to look at the bottom line noted above. First, from the point of view of the Western ruling classes, the high-level servants of the neo-liberal project, the "war" in Greece is a war they feel they can win (by forcing regime change in the face of crushing economic chaos), or at least drive to a stalemate. I suspect they feel good, on the march, that they continue to remake the world. That's certainly the tone coming from the European elites quoted above, like Jeroen Dijsselbloem and Sigmar Gabriel.

But from the point of view of the Greeks and the resistance to Shock Docrine-style neo-liberal takeover, it's possible that the "standstill" in Greece will widen cracks in the glued-together European Union that will break apart Europe itself. That will remake the world.

As David Dayen, generally not given to editorials, put it in a piece called "The end of Europe as we know it":

[In the Euro or Drachma decision] I put myself firmly on Team Drachma ...

Eurozone nations don’t want to really stick together. The northern countries (read Germany) don’t want to pay for whom they regard as lazy, profligate southern countries; conversely, the southern countries don’t want to take dictation on their national policies. So the wars never really ended, they just transferred to the economic sphere, substituting bombs with bonds.

A No vote, therefore, reveals to European citizens an escape hatch, a way out of a terribly misbegotten currency union. The euro would no longer be irreversible.

I recently wrote that TPP was the biggest hot story in the country, and Greece was the biggest cold story. The cold story in Greece has just warmed up.

GP

Let Them Eat Air Conditioners

The jet stream pattern over Europe on July 1, 2015 (click to enlarge; source).

by Gaius Publius

This seems to have been a week of partial news. There's Greek news, but not much of it until the weekend. (Then look out.) There's Clinton news, but not much of it. There's Other Clinton news, but nothing you didn't expect. And there's horrible weather news, which climate delayer Judith Curry wants to turn into a "more carbon please" investment opportunity — in air conditioning, in Pakistan. Shorter Judith Curry — "Let them eat air conditioners."

And there's Bernie Sanders news, but you read that here already. Again, nothing you didn't expect. Thus begins the holiday weekend.

A brief wrap-up:

■ The Sanders news and the Clinton news, coupled with the Other Clinton news, means basically that Sanders can win the primary, even if neither candidate has a Macaca moment. From the Sanders piece:

Last night Bernie spoke to a capacity crowd at the Veterans Memorial Coliseum (which the corporatists call the Alliant Energy Center) in Madison. People had warned him that, with school out, he would be lucky to fill a quarter of the 10,000 capacity venue. But he filled it. ...

Hillary is counting on the $45 million she's collected, primarily from Wall Street and individual fat cats, to help her overcome Bernie's policy-oriented appeal. According to CNN, he's collected $9 million so far[.]

Even that $9 million Sanders figure is out of date now. One day later than the CNN report, The Hill and others report a higher number. Make that $15 million that Sanders has raised:

Sen. Bernie Sanders has raised $15 million in his first two months on the campaign trail as he looks to bankroll his bid against frontrunner Hillary Clinton’s massive war chest.

“It’s a tremendous start, we are on our way to building a massive campaign fundraising organization built on small donors all around the country,” Tad Devine, a Sanders aide, told The Hill, after the campaign released a snapshot of its fundraising totals on its website.

Consider the ifs. Were Sanders quickly out of the race, Clinton clearly gets the nomination, then tries to unburn her bridges to actual progressive Democrats in the general election, all the while publicly washed in the money that's floated both Clinton careers, spouting progressive mottos and fending off 10 years of stored Republican oppo research. Will she win? It depends on this.

With Sanders in the race for the long haul, she could be in real trouble. Speaking with friends recently I rough-guessed that she had about $50 million by now, to his $5 million. I was right about her money, and off by one-third about his. That, plus his ability to pull crowds, plus his ability to be tack-sharp in speeches and interviews makes him what Stephen Colbert used to call "a formidable opponent." This plane has barely taken off.

Thom Hartmann: "Bernie Sanders could be the next FDR."

If you click the video, note at about 0:45: "If Elizabeth Warren wants be a senator and wants to have power and authority in the Senate, the Clintons have long memories and they punish their enemies and help their friends ... So if Elizabeth Warren endorses anybody before the primary who is other than but Hillary Clinton, a lot of opportunities for her, if Hillary Clinton becomes president, may close ... a lot of doors may close."

Which supports my suggestion that they will tag-team on message through the primary without any visible signs of coordination. I was told over the weekend by someone who had observed each of them, that both Sanders and Warren were "very savvy." The view from my outsider's chair tells me that's true.

■ In Greek news, there's a referendum this weekend on the latest EU proposal, which may morph into a referendum on Grexit (Greek exit from the EU) and a return to the drachma, after a gut-wrenching and painful transition. Tsipras may have overplayed his hand ... or not. He may have caved to the EU after calling the referendum and recommending a No vote ... or not. The clever folks running the world of money in Europe may succeed at "extend and pretend" ... or not. Or they may not even try. Do they even think they need Greece? Who knows?

So one waits. After our day of Freedom, will the Greeks return to their chains? One waits.

■ And the weather news is horrible. I'm in Europe, wilting in 100°F weather. My friends on the West Coast have just had their bout in the 100s. The Pakistanis are dying in 110°F weather. As are the Indians. Signs of global warming (sorry, climate change)? You decide.

But don't be the last. Some have already made up their minds:

Heat waves are happening at least four times more often than they did before greenhouse gas emissions started boosting the planet’s temperatures, researchers at the Institute for Atmospheric & Climate Science in Zurich found in a recent study. Global average temperatures are now about 1.4 degrees Fahrenheit (0.85 degrees Celsius) higher than before industrialization, when countries began burning coal, oil and natural gas in buildings, factories and cars.

“Three-fourths of the hot days today are the result of man-made global warming,” said Reto Knutti, a professor at the Zurich institute and one of the study’s authors. While it’s too early to know if global warming contributed to the Pakistan heat wave, he said that in general, “There is a very clear influence of human-induced warming on the magnitude and the frequency of heat waves.”

For Europeans, this decision is not theoretical:

The European heat wave has spread to Belgium and the Netherlands, as well as Germany, where Dusseldorf's temperature of 36.1 degrees Celsius, or 97 degrees Fahrenheit, as of 8:30 a.m. ET was almost 22 degrees Celsius (40 degrees Fahrenheit) above average for this time of year.

Meanwhile, the heat is temporarily abating on Friday in parts of Spain, France and the UK, but the hot weather will come roaring back over the weekend, with high temperatures once again in the upper 30s to near 40 degrees Celsius in Paris on Friday, and only slightly cooler on Saturday. ...

Government officials in several countries, including France, have been warning citizens of the dangers of prolonged heat exposure. Europe has a history of deadly heat events, with a tragic 2003 heat wave resulting in between 40,000 and 70,000 fatalities, depending on the definition of a heat-related death. ...

On July 1, London's Heathrow International Airport recorded its hottest July day on record, when the temperature reached 36.7 degrees Celsius, or 98.06 Fahrenheit.

Nor for the Indians:

From mid-April till the end of May, nearly 2,200 people were killed by the heat − 1,636 of them in Andhra Pradesh, the worst-affected state. The normal May figure for the whole of India is about 1,000 heat-related deaths.

Dr Harsh Vardhan, India’s Minister of Science and Technology and Earth Sciences, has blamed the heat deaths squarely on climate change.

Nor for the Pakistanis:

The death toll from a weeklong heat wave in Karachi, Pakistan, has risen to 1,233, officials told the Associated Press Saturday. Some 65,000 people flooded the city’s hospitals to be treated for heat stroke, and about 1,900 patients were still receiving medical care as the country began to cool off. …

The heat wave started in earnest June 20, with temperatures climbing to 113 degrees Fahrenheit -- the hottest it’s been since 2000, CNN reported. The extreme weather came at the same time as Ramadan, a holy month most Muslims observe by fasting. Karachi’s power grid also collapsed, leaving thousands without air conditioning in a city already facing power cuts and water shortages.

In case your eyes glazed over with the numbers:

• Week-long temperatures at or near 100°F in most of Europe.
• Hottest July day on record at Heathrow Airport.
• In 2003 between 40,000 and 70,000 were killed in a similar European heat wave.
• In India over 2,000 are dead from heat.
• In Pakistan more than 1,200 are dead from the heat.

How many more dead before we curb emissions "with all deliberate speed"? Maybe we need some of those suffering faces to be ... no, I won't go there.

Let Them Eat Air Conditioners

In the climate world, Judith Curry is a famous media-hyped denier, which means she's switched to "delay" as the current tactic of choice — as in, "We know something is happening, but we don't know what it is...". Ms. Curry on the heat wave:

Bottom line is that the intuitively reasonable attribution of more heat waves to a higher average temperature doesn’t work in most land regions.

Looks like they need more air conditioning in Spain and France and also South Asia.

Does it make more sense to provide air conditioning or to limit CO2 emissions.  I vote for more air conditioning in these susceptible regions.

There a good takedown of this at GetEnergySmartNow.com (thanks to climate friend Adam Siegel for the tip). Judith Curry may not know what's happening, but you do, don't you?

There's a theme that runs through these three bulleted observations. It's the song of the world of the wealthy — "Let them eat air conditioners. It's not our job to feed them; it's theirs to feed us." (That's all three bulleted points, friends.)

GP

Bob Dylan and the Grateful Dead in Eugene Oregon, 1987. Yes, that's Jerry you hear, alive in memory. (Original version here.)

A gentle reminder to Greece, the Ex-Im Bank, et al.: If your deadline was June 30, you're now past your deadline

But alas, it's not enough for the merchants of austerity.

by Ken

June 30, marking as it does the end of the first half of the calendar year, is a popular demarcation point for all sorts of things -- the end of many organizations' fiscal year and the end point for all sorts of other agreements. And since we've grown accustomed lately to kicking off the DWT day with news of the mess in Greece, let's start by remembering that yesterday was the deadline for its big, big, big IMF loan payment, and since there was no relevant agreement, and no whisper of another bailout, we can say that Greece is now officially in default.

However, does that tell us what's happening, or what's going to happen? Well, no, though it seems fair to say that there aren't a lot of organizations or countries with official standing that seem inclined to stick up for Greece. Meanwhile, everyone can stake out whatever position they like in answer to these questions, since we're in territory now where we've never been before. In Greece attention is focused on the referendum still scheduled for Sunday, where Greeks get to vote yes or no on, well, something -- presumably accepting or rejecting terms for remaining in the Eurozone, though nobody quite knows what, short of making that scheduled payment, could actually keep Greece in the Eurozone.

Or, for that matter, what exactly would be the straw that breaks the back of whatever needs to get broken to once and for all bring about Greek exit from the Eurozone, which some economists continue to say would, despite the massive short-term hardships likely to result, offer at least some hope of allowing Greece to escape the chokehold of the predator-creditor class.

Never mind that Illinois and Puerto Rico are eerily close to being in the same situation. Here's some of what the NYT is reporting this morning about Greece, where the banks remain closed [UPDATE: no! this is what everyone has been reporting, but it turns out that the government ordered 1000 bank branches around the country to reopen today, to massive lines -- "to help desperate pensioners without ATM cards cash up to 120 euros ($134) from their retirement checks," according to the AP], though that shouldn't stop rich Greeks from sucking out any funds they haven't already sucked out of the country. (Okay, we're actually going to take a look at the situations in Illinois and Puerto Rico later today.)

Tsipras Signals Greece May Accept Bailout Terms

By Suzanne Daley and Niki Kitsantonis
July 1, 2015


nytimes.com caption: "Prime Minister Alexis Tsipras of Greece gave an interview on Monday night in Athens."

ATHENS — The Greek government has indicated to its creditors that it is willing to accept many of the terms of a bailout package that it had earlier rejected, if they are part of a broader deal to address the country’s funding needs for the next two years, officials said on Wednesday.

The development raised the prospect of progress in resolving a financial crisis that has sent shudders through global markets and deeply strained European unity.

In a letter sent on Tuesday to the creditors — the European Central Bank, the International Monetary Fund and other eurozone countries — Prime Minister Alexis Tsipras said Greece was “prepared to accept” a deal set out publicly over the weekend by the creditors, with small modifications to some of the central points of contention on issues like pension cuts and tax increases. Mr. Tsipras linked Greece’s acceptance of the terms to a new package of bailout aid that would need to be negotiated.

Jean-Claude Juncker, the president of the European Commission, declined to answer questions about Greece at a news briefing on Wednesday.

But finance ministers from the countries using the euro were scheduled to confer later on Wednesday to continue discussions on Greece. They had turned aside a last-minute plea for help Tuesday night from Greece. However, they had suggested that there were grounds for optimism about progress in getting negotiations back on track before a referendum scheduled for Sunday in Greece on whether to accept the terms being sought by the creditors. . . .

MEANWHILE, WHAT ABOUT THE EX-IM BANK?

June 30 is, of course, a popular deadline, so today is the day after for a whole bunch of things, including the Export-Import Bank, which you'll recall is a major Right-Wing Hate. As of today, its charter is officially kaput, and in right-wing circles that counts as a win of sorts. Here's how Carl Hulse explains it in this morning's NYT "First Draft":

Republicans Notch a Win, if Temporary, Over Export-Import Bank


nytimes.com caption: "Representative Jeb Hensarling has prevented the House banking committee from producing legislation on the Ex-Im Bank."

Conservatives declared victory on Tuesday after preventing the charter of the Export-Import Bank from being renewed before a June 30 deadline. But it was a peculiar sort of Washington win.

None of the bank’s 420 employees were expected to be furloughed for now. The reason? It needs to keep track of the $112 billion in outstanding loans and guarantees intended to lift exports.

What it won’t be doing is accepting loan applications or moving ahead on any of those that had not been approved before the deadline.

Backers of the bank expect to win the charter’s renewal in the fall. Still, those who portrayed the bank as a case study in “crony capitalism” can savor success — however short-lived — because they successfully blocked an extension of the charter for the first time in 80 years.

Federal agencies are hard to shut down, and they often narrowly escape such brinkmanship. Aware of the coming push for renewal, conservatives called on the bank to begin liquidating its assets and for Republican leaders to do what they can to preserve the win.

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Grexit-- Not A Game Of Liar’s Poker, Either We All Win Or All Lose

Yesterday we asked if the bell is tolling for Greece or for the E.U. We should have waited and had all our questions answered. One of the big Wall Street firms sent out an investor advisory to their clients. The Dow was down 350 points Monday, nearly 2% so... some investors may be nervous, although Puerto Rico's debt problems are probably adding fuel to the Greek fire. And now you can read that advisory... without even being an investor.

As we indicated on Friday, the collapse of the weekend’s negotiations has resulted in the introduction of capital controls in Greece effective today. We did not predict that Greece’s government would call a referendum on 5 July as technically such a referendum does not make sense given that the current bailout programme expires on 30 June. Yet, the referendum will give the Greek government (Syriza-led or technical or any other), a powerful mandate to act and resolve Greece’s issues.

Greece will hold a referendum on 5 July to decide whether the government should accept the proposal made by “the Institutions” on 25 June, including VAT changes, pensions cuts etc. The actual question asked in the referendum is still subject to change, but we assume that the referendum will be a choice between saying YES or NO to tough reforms demanded by Greece’s creditors and there will be no explicit reference that voting in favour of reforms means staying in the euro zone, whereas saying NO to the reform package results in the introduction of the drachma. We would like to present our scenarios for that event:

1. Resuming the negotiations before 30 June and signing the sweeter deal for Greece

Some European leaders proposed the idea of resuming the negotiations immediately, but we consider that scenario the least likely given the lack of trust between the Syriza-led government and its EU partners. It would be extremely positive news for stock markets.

2. Referendum outcome: YES to the reforms

We believe it is likely that a “YES to the reforms” vote will gain an overwhelming majority, which may result in Greece staying in the euro zone, but it could also lead to uncontrolled Grexit. (Un)surprisingly, Greece’s government is officially against accepting the reform package. Initially, stock markets would react in relief, rally, but then other factors would have to be taken into account.

In our view the sequence of the events would be as follows:

• ECB keeps the ELA support for Greek banks unchanged (€89bn for now) and effectively keeps Greece in the euro zone.
• The Syriza-led government resigns (they were supporting the NO vote) and Greece faces a snap election; a technical government is also an option.
• Resumption of negotiations with the new government.
• Third bailout for Greece-- a compromise based on conditions similar to the previous one, with some debt relief options.

The risks of this scenario lie in the calendar. A new election in Greece, negotiation of a third bailout programme and then its approval by national parliaments-- this would all take time, whereas Greece does not have it. On 20 July Greece will have to repay its debt to the ECB and defaulting on those obligations could be dangerous as it would be extremely difficult for the ECB to justify the ELA lifeline for Greek banks in that case. As we indicated on Friday-- the music really stops for Greece when the ECB pulls the plug on the ELA. Then Grexit is the only option.

In case of YES to the reforms, it would be very volatile days ahead for stock markets as each milestone (e.g. snap election or each vote in national parliament) bears the risk that the whole process will collapse.

3. Referendum outcome: NO to reforms

We consider that such an outcome would lead to severe sell-off on stock markets, resembling the times of the Lehman Brothers collapse. In this case we would expect the following sequence of events:

• The ECB stops supporting Greek banks via the ELA facility and Greece has to introduce a bank holiday (no withdrawals from ATMs).
• Syriza stays in power, unpredictable geopolitical consequences (financial help from Russia?).
• Grexit begins.
• Greece defaults on its external obligations (IMF, ECB, ESM etc.).
• Greece enters severe recession, while the European economic recovery slows (but no recession).
• Introduction of IOUs for domestic obligations such as pensions or public sector salaries.
• Dual-currency regime: euro cash is in circulation, IOUs are also in circulation, but are “traded” at a significant discount in everyday life (e.g. morning coffee for €1 or 4 IOUs) and then “bad money drives out good money”.
• IOUs are converted into new drachma.

We believe that European banking and financial systems are not as exposed to the Grexit as in 2012. Foreign institutions have been reducing their exposure to Greece (and preparing Grexit contingency plans) since then. We think that the improving economies of Italy and Spain reduce the risk of bank runs in those countries. Moreover, European businesses (companies) are not very exposed to Greece (or they have been reducing their exposure for a long time) and Greece is a small economy if we take all of Europe into account; hence Grexit would not be something that could derail European recovery if the ECB ensures that this is an isolated case.

The ECB’s (and broader-- the public institutions’) exposure to Greece is a completely different story. The ECB would have to deal with a massive loss on Greece due to its €38bn Greek bonds holding, its €89bn ELA facility and unclear liabilities related to Greece in the Target2 system (Bank of Greece carried €107 liabilities in January 2015, now the amount is unknown).

How could the ECB handle the loss related to Greece given that the Eurosystem has combined reserves of just €86bn?The ECB can simply monetise it (=inflation) or ask for more capital from the governments (=new taxes).

If the ECB decides to monetise Greece's debts, this would result in higher CPI in Euroland (desirable to some extent), and pave the way for broad intervention on the financial market by the ECB in order to stabilise it. Now the ECB can buy bonds under the QE programme, but it can do more if necessary (remember Draghi's "whatever it takes"?). In our view, contagion risk in the euro zone is manageable and the common currency could remain, with just one less member in that case (Greece would use euro in a similar way to Kosovo or Montenegro).

About €195bn of Greek public debt is in ESM hands or tied up in bilateral loans with EU governments-- this money is lost in case of Grexit.

As Mr Juncker said: “This is not a game of liar’s poker, either we all win or all lose.”