Killing Credibility
by David Atkins (“thereisnospoon”)
The IMF has moved to downgrade growth prospects in the U.S. and Europe. The Times has the details:
The International Monetary Fund sharply downgraded its outlook for the United States economy through 2012 because of weak growth and concern that Europe won’t be able to solve its debt crisis, the organization said in its economic outlook Tuesday.
The fund said it expected the American economy to grow just 1.5 percent this year and 1.8 percent in 2012. That’s down from its June forecast of 2.5 percent in 2011 and 2.7 percent next year.
The International Monetary Fund also lowered its outlook for the 17 European Union countries that use the euro. It predicted 1.6 percent growth this year and 1.1 percent next year, down from its June projections of 2 percent and 1.7 percent, respectively.
The gloomier forecast for Europe was based on worries that Greece would default on its debt and destabilize the region.
“Fear of the unknown is high,” said Olivier Blanchard, the organization’s chief economist. “Strong policies are urgently needed to improve the outlook and reduce the risks.”
Not a surprise. The move to austerity has been an utter disaster since the economic collapse, with most governments attempting to bail out their banks at the expense of their citizens, leading to a growth-killing decrease in demand. So logically the IMF has seen the error its ways and is pushing pro-growth policies. Or maybe not:
American and European policy makers need to act more decisively to cut budget deficits, the report said, and European officials need to ensure that the region’s banks have enough capital to withstand the debt crisis…
Budget cuts “cannot be too fast or it will kill growth,” Mr. Blanchard said in a statement. “It cannot be too slow or it will kill credibility.”
Kill credibility with whom, exactly? With the bankers and finance wizards who caused the crisis? With hedge fund managers? The Chinese, whose sharp undervaluation of their own currency is the the least credibility-inducing policy on the world economic stage? Just who are these masters of the universe before whose nervous moods entire nations must tremble, discarding their sick, elderly and poor to the whims of fate? Are they willing to go on the record? Do they have a street address? Who are these parole officers of world finance who determine if the world’s economy gets to leave jail pending adequate repentance for nonexistent sins? Who are these gods to whom the middle classes of the world must be sacrificed at the altar?
Whoever they are, conservatives here in the U.S. have found a new way to placate them: bashing Dodd-Frank, that wholly inadequate piece of legislation, most of which has not gone into effect or even been written, but which is designed to put even the smallest of curbs of the sorts of excesses that caused the crisis. In the conservative world, Dodd-Frank is the cause of the continued crisis:
Republicans say Dodd-Frank is the root of some of today’s economic problems. It has stopped banks from lending to “job creators,” they contend, and is a direct cause of high unemployment. “It created such uncertainty that the bankers, instead of making loans, pulled back,” said Mitt Romney, the former Massachusetts governor, speaking at a South Carolina rally over Labor Day weekend where he again called for the law’s repeal.
“I think part of that flows from the fact that the people who were putting that together, Dodd and Frank,” he continued, referring to Democratic lawmakers former Senator Christopher J. Dodd of Connecticut and Representative Barney Frank of Massachusetts, “as much as anyone I know in this country were responsible for the meltdown that we had…”
Rick Perry, the governor of Texas, has also called for the repeal of Dodd-Frank. “We have to end it right now,” he said, on the same weekend in the same state as Mr. Romney. Newt Gingrich said it is “a devastatingly bad bill” that is “killing small banks, killing small business, killing the housing industry.” Representative Michele Bachmann regularly reminds voters that she introduced the first Dodd-Frank repeal bill this year.
Former Gov. Jon Huntsman of Utah agrees, but he wouldn’t stop there. He would also eliminate the Sarbanes-Oxley law passed in 2002, which set standards for corporate accountability in the wake of the Enron scandal.
But of course, the problem–as always–is lack of demand, not lending restrictions on bloated banks:
Community bankers worry about Dodd-Frank rules setting limits on how much banks can charge for debit-card transactions. Those rules have yet to go into effect. In the meantime, the bankers say, they have plenty of money to lend, but small-business owners are not asking for loans.
“There are a lot of qualified borrowers who don’t want to borrow, because they are not sure what is going to happen with the economy,” said R. Todd Price, president of the First State Bank of Mesquite, Tex. “I don’t know if that can be directly associated with Dodd-Frank,” he added. While the law “will put a whole lot more regulations especially on community bankers,” he said, “I think they’re yet to come.”
It’s easy to see why so many in this country on the left and the right tend toward conspiracy theories. In the absence of any sort of political and economic reporting that actually makes sense, voters are left to trust pre-defined political narratives. Political leadership from the Democratic Party has been far too reluctant to finger Wall St. as the villain it is, but the biggest problem with the narratives on both sides is that economics is treated as a religion in which hidden priests serving as economic doctors must be placated by appropriate policies to “gain confidence” and “heal” the economy. There is a massive air of mystery and clandestine actors at whose mercy sovereign nations tremble.
Reality is far simpler: the economy is like a engine. Demand fuels it. A strong middle class is the best way to ensure that the fuel level stays high. Credit via lending is a lubricant, sort of like motor oil. In exchange for providing that lubricant, financiers are allowed to skim off the top and make out like bandits even in times of relative equality. Lately, however, the financiers have been playing radical games to suck economy-killing amounts out of the tank, while the economy sputters to a stop due to lack of demand. In this situation, it would seem that government would be best suited to shunt the vampire financiers off to the side, provide a fuel injection of demand and oil up the engine itself on behalf of the people. The only problem is that the vampire financiers have too tight a control on government policy through corruption, and aren’t about to be pushed aside. It really isn’t much more complicated than that.
One might think that even the global captains of finance would realize that killing the middle classes in America and Europe would be bad for them long-term. But the golden key to all of this is contained in one little sentence in the IMF article:
Over all, the International Monetary Fund predicted global growth of 4 percent for both years. Stronger growth in China, India, Brazil and other developing countries should offset weaker output in the United States and Europe, it said.
Ultimately, global financiers would love nothing better than to destroy the middle classes in Europe and America while using labor arbitrage to maximize corporate profits through hiring and selling to the developing world. The BRIC countries are the future of investment, and to them, lazy middle class fatcats with nice unemployment, maternity leave and other social welfare benefits are just dragging down worldwide economic progress. All the money that’s tied up in Social Security and European pensions could be much better invested in companies maximizing shareholder profits by destroying Brazilian rainforests at $2/hour.
This is the reality of the class war today. Since attempting to pursue economic credibility with these villains is a fool’s errand, the only way the Left will achieve credibility with the voters is to expose the reality of what’s going on and run on a desperately needed populist message.
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