Nothing to see here. Move along.
by David Atkins ("thereisnospoon")
It's becoming old hat between Digby and myself to point this out by now, but the lack of irony here is worth repeating just one more time. The New York Times covers the continued economic troubles in the Asian markets this morning:
The turmoil in the world’s financial markets showed little sign of abating on Tuesday, with selling once again sending stock markets in Asia lower as investors dumped equities in favor of traditional havens like gold and U.S. Treasury securities...
In the short term, the focus was set to shift to the Federal Reserve’s meeting later on Tuesday, with the market looking for any guidance or signals about the possibility of the Fed’s injecting any further monetary stimulus to help stem the confidence crisis.
The fear is that the upheaval could ultimately weaken the wider economy by constraining the ability and willingness of banks to extend credit to businesses and making it harder for companies to raise money from the capital markets...
Friday’s decision by Standard & Poor’s to downgrade the United States’ credit rating — once deemed bulletproof — deepened the uncertainty but was not in itself the only cause of the current sell-off, many analysts and market strategists believe.
Rather, the downgrade, combined with the widening of the debt worries in Europe, highlighted the fact that governments in many parts of the developed world are having to rein in spending at a time when private-sector spending is still anemic.
These concerns have helped send equity markets around the world sharply lower in recent weeks, while pushing “safe haven” assets like gold, the yen and the Swiss franc to record levels.
So let's recap: an out-of-control and increasingly unregulated financial industry causes the greatest economic crash since the Great Depression through greed and irresponsible leverage, and then gets bailed out by taxpayers around the world. In the U.S., this is coupled with tax cuts disproportionately benefiting the same irresponsible "investors" that sent the economy into a tailspin.
The subsequent recession drives government deficits sky high due to lack of growth and lack of tax revenue, even as the financial industry that caused the mess rebounds to record profitability on the backs of ordinary citizens suffering in deep recessionary conditions.
The global financial industry then uses its ratings agency pawns to put the squeeze on sovereign nations worldwide to force "austerity," essentially destroying the capacity of entire nations to care for their people so that the wealthy bondholders who crashed the economy in the first place can be sure to get their money back. In addition, that is, to the money their entire industry was bailed out with in the first place.
The squeeze in question by the bondholders and ratings agencies is a threat to downgrade currency bonds, essentially making borrowing by sovereign nations much more expensive. Even the United States is not immune, and sees its credit downgraded for the first time in history--ostensibly making borrowing more expensive.
The global rush to austerity further hurts growth across the world, causing increased uncertainty, political hyper-partisan tensions and riots, deepening recessionary conditions across all sectors. This time, even the financial sector gets hurt. In the U.S., the Federal Reserve considers more stimulus, but only in the form of "quantitative easing," a polite phrase to describe stimulus that helps the financial sector reap even greater profits, but does precious little for anyone else.
The economic and political turmoil leads the world's investors to rush to...yes, you guessed it again: currency holdings, and Treasuries in particular. Why? Because they're just as safe as they've always been, and the smart money knows it. The protection racket threats were always just that: threats. "Nice dollar you have there. Would be a shame if anything happened to it. Now hand over your social security fund, and everything will be just fine."
The rush to purchase currency holdings strengthens those bonds, making the cost of borrowing by sovereign nations incredibly cheap. In other words, the protection racket threat against sovereign nations by the financial sector and their ratings agency goons has now led to the opposite effect: strengthening the very currencies they were threatening. Now would be the perfect time for these countries to borrow money for Keynesian jobs programs to pull the world out of recession, and yet the austerity bandwagon rolls merrily down the hill unabated.
And what of the media in all this? The New York Times reports on the recessionary conditions, international austerity measures, the S&P downgrade and the rush to currency holdings as if they were part of some loosely connected or even disconnected series of discrete unfortunate happenstance, rather than a deeply ironic direct chain of events destroying the capacity of sovereign nations to function, explicitly caused by a financial sector that would barely even exist but for the largesse of those same sovereigns.
And, of course, no one but the dirty hippies (and maybe honorary hippie David Frum) dare point out the obvious insanity of all this, or even attempt to slow down the self-reinforcing destructive austerity train aptly described by the Shrill One himself:
It’s not the whole story, but something like this threatens to develop:
1. US debt is downgraded, sparking demands for more ill-advised fiscal austerity
2. Fears that this austerity will depress the economy send stocks down
3. Politicians and pundits declare that worries about US solvency are the culprit, even though interest rates have actually plunged
4. This leads to calls for even more ill-advised austerity, which sends us back to #2
Behold the power of a stupid narrative, which seems impervious to evidence.
When historians write about this period, it will be in terms of amazement at the collective hysteria of elite intelligentsia, combined with shock at the ruthlessness of the titan financiers and the all-too-easy cowing of once proud nations.
If, that is, there are any historians left by the time the social consequences of all this destruction are finally played out.