europe
& Why Banks rule

Why the EU must dare to debate ‘degrowth’

By Nick Jacobs http://blogs.euobserver.com/jacobs/2012/11/15/why-the-eu-must-
dare-to-debate-degrowth/

The continuing expansion of the global economy is confusing, but is it also making us poorer?

What if, instead of saying that Europe must get back to growth, European Commission chief Jose Manuel Barroso decided to say the opposite?

For all of its bluster, the current EU budget battle is being waged over fairly narrow stakes: whether Europe will get back to growth more quickly by spending a little more or a little less at the EU level. The stakes are narrow, firstly because what is spent at EU level is only a fraction of public spending in the 27 member states, and secondly because all of the bickering is focused on how to get growth, andnot on whether it is actually necessary or desirable.

Do alternatives to growth really exist? The debate remains on the margins of the public political sphere, but in Europe and elsewhere serious academic theories and grassroots movements are building around the idea of a ‘steady state economy’ with zero growth, or even ‘sustainable degrowth’.

What is degrowth?

The degrowth movements believe that producing more year on year will not make us truly better off, and cannot go on infinitely due to ecological limits.

US ‘steady state economy’ advocate Herman Daly argues that we have already hit a threshold where growth no longer brings net gains even in purely economic terms, i.e. the costs of all the damage done by additional growth (e.g. paying for environmental clean-up and health afflictions linked to pollution) already outweighs the benefits.

Daly argues:

‘No one denies that growth used to make us richer. The question is, does growth any longer make us richer, or is it now making us poorer?’

Degrowth theorists also rubbish the idea that economic growth can realistically be decoupled from growth in resource use and carbon emissions.  According to UK economist Tim Jackson:

‘In a world of nine billion people all aspiring to western lifestyles, the carbon intensity of every dollar of output must be at least 130 times lower in 2050 than it is today’.

What’s more, this growing body of thinkers and activists does not believe that additional growth in advanced economies is socially desirable. Data used by degrowth theorists point to rising wellbeing up to modest per capita income levels of around $20,000, after which it depends much more on other factors such as love, family and friendships. So the extra things that extra growth produces, and our extra per capita income allows us to buy, do not lead to extra wellbeing.

Nudging into the mainstream?

How significant is this movement? Mainstream political parties have been reluctant to debate, let alone to defend, a concept that runs so deeply against the grain of current political discourse. The Greens, in several European countries, are a notable exception (see previous blog on green parties).

The closest that degrowth has come to the corridors of political power was the publication in 2009 of a report drawn up by Tim Jackson for the UK Sustainable Development Commission, an advisory body to the government that was subsequently abolished by David Cameron. Jackson’s ‘Prosperity Without Growth‘ report drew plaudits but has remained on the margins of the debate as politicians in the UK and elsewhere have gone firmly into recession-mode, asking only the old, familiar question: how can we get back to growth?

Meanwhile, grassroots movements have been growing in strength. Over the last two months alone the 3^rdInternational Conference on Degrowth, Ecological Sustainability and Social Equity has taken place in Venice, while the Global Women’s Forum in Deauville held debates centred on degrowth. Meanwhile the local initiatives that underpin the movement are flourishing. In Italy, where a strong Decrescita Felice (‘happy degrowth’)movement has sprung up, the ‘Cittaslow’ network has brought together dozens of towns and communes in the interests of slowing the pace of urban life and repurposing urban space away from commercial uses – a movement that has now spread to more than 20 countries.

Why should this be the EU’s battle?

But why should EU policy-makers pay attention to these alternative voices if they barely feature in the political debate at national levels?

Firstly, because they can. The EU executive is used to raising the uncomfortable questions and being blamed by national politicians who are themselves more constrained by the short-termism of electoral cycles. ‘Bonkers Brussels wants to ban growth’ and other such headlines would of course abound from the British tabloids if the EU were even to open a reflection on degrowth. But headlines like this are business as usual, and unfortunately are the price that must be paid for bringing a new and sensitive debate into the mainstream.

Secondly, the European Commission should embrace the degrowth debate because disillusionment with growth-based strategies is Europe-wide, and is growing. Across Southern Europe determined protest movements are building against the price of past growth (mountains of debt) and the prescribed remedy for returning to growth (austerity).

The whole bloc is facing hard questions about how to squeeze more growth out of its factories, farms and financial centres. The answers all point towards an unappetising race to the bottom: Europe must work more, work longer, and regulate and spend less for health, wellbeing and the environment.

For many, these are necessary compromises. After all, what are the alternatives? Without more growth, and withan expanding population, everyone’s piece of the pie gets smaller – meaning reduced employment and reduced income.

This, however, is not the whole story. Jackson’s ‘Prosperity Without Growth’ theory openly acknowledges the need to shift to labour-intensive, resource-light activities, where existing work is shared around and people have more time for leisure, volunteering, and tending to themselves and their relationships.

As a result we would earn less, but we would not necessarily be less wealthy – even in strictly monetary terms. Debating growth vs degrowth can help us to understand the cycles we are in: we need lots of money so we work hard; but we also need that money because we work hard.

Paying for crèches, stress and fatigue-related medical expenditure, commuting expenses, on-the-road snacking, comfort purchases, insurance payments for our comfort purchases, expensive getaways… it turns out that many of our financial ‘needs’ are contingent in some way on working (too) hard. Of course if we weren’t taxed so much we wouldn’t need to earn so much in the first place… and yet much of this tax is levied to fund the public services whose need arises from our individual over-working and over-consuming (e.g. healthcare) and our collective over-working of the environment (e.g. the clean-up of water courses from agricultural and industrial run-off).

Can these cycles be broken? Can there be another way? Could it be the European way? Surely this is too important a debate not to have?

Nick Jacobs grew up in the UK and moved to Brussels in 2008. He works on agri-food, trade and development issues within the team of the UN Special Rapporteur on the Right to Food, after having spent three years as journalist for Agra Europe.The opinions expressed in this blog are those of the author alone

Photo by Valentina Pavarotti

Why bankers rule the world
By Ellen Brown  Asia Times 14 Nov 2012
http://atimes.com/atimes/Global_Economy/NK14Dj01.html

In the 2012 edition of Occupy Money released this month, Professor Margrit Kennedy writes that a stunning 35% to 40% of everything we buy goes to interest. This interest goes to bankers, financiers, and bondholders, who take a 35% to 40% cut of our gross domestic product. 

That helps explain how wealth is systematically transferred from Main Street to Wall Street. The rich get progressively richer at the expense of the poor, not just because of "Wall Street greed" but because of the inexorable mathematics of our private banking system. 

This hidden tribute to the banks will come as a surprise to most people, who think that if they pay their credit card bills on time and don't take out loans, they aren't paying interest. This, says Kennedy, is not true. Tradesmen, suppliers, wholesalers and retailers all along the chain of production rely on credit to pay their bills. They must pay for labor and materials before they have a product to sell and before the end buyer pays for the product 90 days later. Each supplier in the chain adds interest to its production costs, which are passed on to the ultimate consumer. Kennedy cites interest charges ranging from 12% for garbage collection, to 38% for drinking water to, 77% for rent in public housing in her native Germany. 

Her figures are drawn from the research of economist Helmut Creutz, writing in German and interpreting Bundesbank publications. They apply to the expenditures of German households for everyday goods and services in 2006; but similar figures are seen in financial sector profits in the United States, where they composed a whopping 40% of US business profits in 2006. That was five times the 7% made by the banking sector in 1980. Bank assets, financial profits, interest, and debt have all been growing exponentially. 


Adapted from here . 

Exponential growth in financial sector profits has occurred at the expense of the non-financial sectors, where incomes have at best grown linearly. 


Source: lanekenworthy.net 

By 2010, 1% of the population owned 42% of financial wealth, while 80% of the population owned only 5% of financial wealth. Dr Kennedy observes that the bottom 80% pay the hidden interest charges that the top 10% collect, making interest a strongly regressive tax that the poor pay to the rich. 

Exponential growth is unsustainable. In nature, sustainable growth progresses in a logarithmic curve that grows increasingly more slowly until it levels off (the red line in the first chart above). Exponential growth does the reverse: it begins slowly and increases over time, until the curve shoots up vertically (the chart below). Exponential growth is seen in parasites, cancers... and compound interest. When the parasite runs out of its food source, the growth curve suddenly collapses.  

 

People generally assume that if they pay their bills on time, they aren't paying compound interest; but again, this isn't true. Compound interest is baked into the formula for most mortgages, which compose 80% of US loans. And if credit cards aren't paid within the one-month grace period, interest charges are compounded daily. 

Even if you pay within the grace period, you are paying 2% to 3%for the use of the card, since merchants pass their merchant fees on to the consumer. Debit cards, which are the equivalent of writing checks, also involve fees. Visa-MasterCard and the banks at both ends of these interchange transactions charge an average fee of 44 cents per transaction - though the cost to them is about four cents. 

How to recapture the interest
The implications of all this are stunning. If we had a financial system that returned the interest collected from the public directly to the public, 35% could be lopped off the price of everything we buy. That means we could buy three items for the current price of two, and that our paychecks could go 50% farther than they go today. 

Direct reimbursement to the people is a hard system to work out, but there is a way we could collectively recover the interest paid to banks. We could do it by turning the banks into public utilities and their profits into public assets. Profits would return to the public, either reducing taxes or increasing the availability of public services and infrastructure. 

By borrowing from their own publicly owned banks, governments could eliminate their interest burden altogether. This has been demonstrated elsewhere with stellar results, including in Canada,Australia, and Argentina among other countries. 

In 2011, the US federal government paid US$454 billion in interest on the federal debt - nearly one-third the total $1,100 billion paid in personal income taxes that year. If the government had been borrowing directly from the Federal Reserve - which has the power to create credit on its books and now rebates its profits directly to the government - personal income taxes could have been cut by a third. 

Borrowing from its own central bank interest-free might even allow a government to eliminate its national debt altogether. InMoney and Sustainability: The Missing Link (at page 126), Bernard Lietaer and Christian Asperger, et al, cite the example of France. 

The Treasury borrowed interest-free from the nationalized Banque de France from 1946 to 1973. The law then changed to forbid this practice, requiring the Treasury to borrow instead from the private sector. The authors include a chart showing what would have happened if the French government had continued to borrow interest-free versus what did happen. Rather than dropping from 21% to 8.6% of GDP, the debt shot up from 21% to 78% of GDP. 

"No 'spendthrift government' can be blamed in this case," write the authors. "Compound interest explains it all!"  



More than just a Federal solution
It is not just federal governments that could eliminate their interest charges in this way. State and local governments could do it too. 

Consider California. At the end of 2010, it had general obligation and revenue bond debt of $158 billion. Of this, $70 billion, or 44%, was owed for interest. If the state had incurred that debt to its own bank - which then returned the profits to the state - California could be $70 billion richer today. Instead of slashing services, selling off public assets, and laying off employees, it could be adding services and repairing its decaying infrastructure.

The only US state to own its own depository bank today is North Dakota. North Dakota is also the only state to have escaped the 2008 banking crisis, sporting a sizable budget surplus every year since then. It has the lowest unemployment rate in the country, the lowest foreclosure rate, and the lowest default rate on credit card debt. 

Globally, 40% of banks are publicly owned, and they are concentrated in countries that also escaped the 2008 banking crisis. These are the BRIC countries - Brazil, Russia, India, and China - which are home to 40% of the global population. The BRICs grew economically by 92% in the last decade, while Western economies were floundering. 

Cities and counties could also set up their own banks; but in the US, this model has yet to be developed. In North Dakota, meanwhile, the Bank of North Dakota underwrites the bond issues of municipal governments, saving them from the vagaries of the "bond vigilantes" and speculators, as well as from the high fees of Wall Street underwriters and the risk of coming out on the wrong side of interest rate swaps required by the underwriters as "insurance." 

One of many cities crushed by this Wall Street "insurance" scheme is Philadelphia, which has lost $500 million on interest swaps alone. (How the swaps work and their link to the LIBOR scandal was explained in an earlier article here.) This month, the Philadelphia City Council held hearings on what to do about these lost revenues. In an October 30 article titled "Can Public Banks End Wall Street Hegemony?", Willie Osterweil discussed a solution presented at the hearings in a fiery speech by Mike Krauss, a director of the Public Banking Institute. 

Krauss' solution was to do as Iceland did: just walk away. He proposed "a strategic default until the bank negotiates at better terms". Osterweil called it "radical", since the city would lose its favorable credit rating and might have trouble borrowing. But Krauss had a solution to that problem: the city could form its own bank and use it to generate credit for the city from public revenues, just as Wall Street banks generate credit from those revenues now. 

A solution whose time has come
Public banking may be a radical solution, but it is also an obvious one. This is not rocket science. By developing a public banking system, governments can keep the interest and reinvest it locally. According to Kennedy and Creutz, that means public savings of 35% to 40%. Costs can be reduced across the board; taxes can be cut or services can be increased; and market stability can be created for governments, borrowers and consumers. Banking and credit can become public utilities, feeding the economy rather than feeding off it. 

Ellen Brown is an attorney and president of the Public Banking Institute. In Web of Debt, her latest of eleven books, she shows how a private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her websites are http://WebofDebt.com, http://EllenBrown.com, and http://PublicBankingInstitute.org. 

(Copyright 2012 Asia Times Online (Holdings) Ltd. 

Debt and GDP
1. United States

Debt: $14.590 trillion (9 August 2011)
Per capita debt: $46,929
Debt as in percentage of GDP: 94%

The United States has the world's highest external debt at a whopping $14.590 trillion.

The US public debt burden has become unsustainable and its debt and deficit ratio will remain high for a long period unless the government cuts down spending effectively.

The economic crisis in US began with the subprime mortgage crisis. Following this, the US economy fell into a recession in 2008.  Flawed policies allowed lenders to offer loans to subprime borrowers without considering the risk of future default.

External debt (or foreign debt) is that part of the total debt in a country that is owed to creditors outside the country. The debtors can be the government, corporations or private households.

2. United Kingdom 

Debt: $8.981 trillion 
Per capita debt: $144,338
Debt as in percentage of GDP: 400

Britain's economy has also plunged into deep crisis. The budget deficit has risen to more than 156 billion pounds.

The manufacturing output fell by 0.4 per cent in June from the previous month as there is a drastic fall in domestic demand. The country GDP is expected to fall further3. Germany

Debt: $4.713 trillion
Per capita debt: $57,755 
Debt as in percentage of GDP: 142

Germany which bounced back from the 2008 recession has largely remained immune to the crisis.

However, the US downgrade and mounting debt on other Euro zone nations could hit its coffers as well.

Germany already bears the burden of the 120 billion euros of the euro bailout fund's 440 billion euros. Germany's budget deficit is 2.3 per cent of gross domestic product.

4. France

Debt: $4.698 trillion 
Per capita debt: $74,619 
Debt as in percentage of GDP: 182

A crisis is imminent in France as its budget deficit is 6 per cent of gross domestic product.

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Image: A homeless man lies in front of the Louvre Hotel in Paris. 6. Japan 

Debt: $2.441 trillion
Per capita debt: $19,148 
Debt as in percentage of GDP: 45

The devastating earthquake and tsunami has pushed the Japanese economy into a grave crisis.

Japan's high rate of growth has also been hit with massive bank loan defaults. 9. Italy

Debt: $2.223 trillion
Per capita debt: $36,841 
Debt as in percentage of GDP: 108

Italy's economy has seen one of the lowest growth rates in the world. A very high public debt highlights the fact the country cannot repay back its debt. The country lacks the resources to accelerate growth. 10. Spain

Debt: $2.166 trillion
Per capita debt: $47,069 
Debt as in percentage of GDP: 154

In Spain, long term loans, realty sector crash and bankruptcy of major companies, rise in unemployment at 13.9 per cent in February 2009 escalated the crisis.

6. Sweden

Debt: $853.30 billion
Per capita debt: $91,487
Debt as in percentage of GDP: 187

Sweden went through a bad spell between 1990 and 1993. Its GDP went down by 5 per cent and unemployment rose to record highs. The real estate boom also crashed adding to its economic woes.

19. Greece

Debt: $532.90 
Per capita debt: $47,636 
Debt as in percentage of GDP: 174

Greece is going through its worst years. Uncontrolled spending and cheap lending has seen its debt levels zoom to scary heights.

Also, the failure to implement financial reforms has resulted in losses of $413.6 billion, much larger than the country's economy.

Greece and Ireland have the highest poverty rate in the 15-member EU, while Sweden has the lowest at 9 per cent. 20. Portugal

Debt: $497.80 
Per capita debt: $46,795
Debt as in percentage of GDP: 217

Portugal's economy has posted an average annual growth of less than 1 percent over the past 10 years.

The country faces a huge foreign debt owning to reckless spending without generating any returns. Portugal is set to introduce austerity measures including tax hikes and pay cuts.

. 1. United States

Gold reserves: 8133.5 tonnes

The United States owns the world's largest gold reserves.

Gold constitutes 74.7 per cent of the nation's foreign exchange reserves.

2Germany

Gold reserves: 3,401.0 tonnes

3IMF 

Gold reserves2,814.0 tonnes

11. India

Gold reserves:557.7 tonnes

India’s current credit rating by S&P is BBB- (BBB minus), which, according to S&P definitions is considered lowest investment grade by market participants. 8811

India Debt Rdff10811

Although India's gross public debt to GDP ratio fell from 75.8 per cent to 66.2 per cent between 2007 and 2011, it still is among the highest in the region.

India's 66.2 per cent level compares with Malaysia's 55.1, Pakistan's 54.1, the Philippines' 47, Thailand's 43.7, Indonesia's 25.4 and China's 16.5, according to an analysis by Cornell economist Easwar Prasad in the Financial Times.

Outstanding liabilities of the Central Government

Internal liabilities

2004-5: Rs. 19,33,544 crore (Rs. 19,335.44 billion)

2009-10: Rs. 33,57,772 crore (Rs. 33,577.72 billion)

a) Internal debt

2004-5: Rs. 12,75,971 crore (Rs. 12,759.71 billion)

2009-10: Rs. 23,56,940 crore (Rs. 23,569.4 billion)

) Market borrowings

2004-5: Rs. 7,58,995 crore (Rs. 7,589.95 billion)

2009-10: Rs. 7,66,897 crore (Rs. 7,668.97 billion)

ii) Others

2004-5: Rs. 5,16,976 crore (Rs. 5169.76 billion)

2009-10: Rs. 5,90,043 crore (Rs. 5,900.43 billion)

b) Other internal liabilities

2004-5: Rs. 6,57,573 crore (Rs. 6,575.73 billion)

2009-10: Rs. 10,00,832 crore (Rs. 10,008.32 billion)

External debt (outstanding)

2004-5: Rs 586,305 crore (Rs 5,863.05 billion)

2010-10 (Sept end): Rs 1,332,195 crore (Rs 13,321.95 billion)

The components of India's external debt and the percentage they form of the total external debt are given hereunder:

Multilateral: 15.8 per cent of total external debt

Bilateral: 8.3  per cent of total external debt

IMF: 2.1 per cent of total external debt

Export credit: 6.2 per cent of total external debt

Commerical borrowings: 27.8  per cent of total external debt

NRI deposits: 16.9 per cent of total external debt

Rupee debt: 0.6 per cent of total external debt

Long-term debt: 77.7 per cent of total external debt

Short-term debt: 22.3  per cent of total external debt

External debt figures represent borrowings by Central Government from external sources and are based upon historical rates of exchange.

Total outstanding liabilities

2004-5: Rs. 19,94,422 crore (Rs. 19,944.22 billion)

2009-10: Rs. 34,95,452 core (Rs. 34,954.52 billion)

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Amount due from Pakistan on account of share of pre-partition debt

2004-5: Rs. 300 crore (Rs. 3 billion)

2009-10: Rs. 300 crore (Rs. 3 billion)

Internal liabilities (as per cent of GDP)

2004-5: Rs. 59.7 crore (Rs. 597 million)

2009-10: Rs. 54.5 crore (Rs. 545 million)

a) Internal debt

2004-5: Rs. 39.4 crore (Rs. 394 million)

2009-10: Rs. 38.2 crore (Rs. 382 million)

Total outstanding liabilities

2004-5: Rs. 19,94,422 crore (Rs. 19,944.22 billion)

2009-10: Rs. 34,95,452 crore (Rs. 34,954.52 billion)

i) Market borrowings

2004-5: Rs. 23.4 crore (Rs. 234 million)

2009-10: Rs. 28.7 crore (Rs. 287 million)

ii) Others

2004-5: Rs. 16 crore (Rs. 160 million)

2009-10: Rs. 9.6 crore (96 million)

(b) Other internal liabilities

2004-5: Rs. 20.3 crore (Rs. 203 million)

2009-10: Rs. 16.2 crore (Rs. 162 million)

External debt (outstanding) (as per cent of GDP)

2004-5: Rs. 1.9 crore (Rs. 19 million)

2009-10: Rs. 2.2 crore (Rs. 22 million)

External debt figures represent borrowings by Central Government from external sources and are based upon historical rates of exchange